Investopedia

Continue to Site »

Max Pain

Filed Under » ,
Dictionary Says

Definition of 'Max Pain '

The point at which options expire worthless. The term, max pain, stems from the Maximum Pain theory, which states that most traders who buy and hold options contracts until expiration will lose money. According to the theory, this is due to the tendency for the price of a underlying stock to gravitate towards its "maximum pain strike price" - the price where the greatest number of options (in dollar value) will expire worthless.
Investopedia Says

Investopedia explains 'Max Pain '

About 60% of options are traded out, 30% of options expire worthless and 10% of options are exercised. Max pain is the point where option owners feel "maximum pain," or will stand to lose the most money. Options sellers, on the other hand, may stand to reap the most reward. The Maximum Pain theory is controversial, and there is disagreement regarding if the tendency for the underlying stock's price to gravitate to the maximum pain strike price is by chance, or by some sort of market manipulation.

Articles Of Interest

  1.

    Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar with stock or equity options, however options are available to the ...

  2. Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  3. Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.

  4. Using "The Greeks" To Understand Options

    These risk-exposure measurements help traders detect how sensitive a specific trade is to price, volatility and time decay.

  5. Reducing Risk With Options

    If you want to use leverage to your advantage, you must know how many contracts to buy.

  6. Straddle Strategy A Simple Approach To Market Neutral

    Being both short and long has advantages. Find out how to straddle a position to your advantage.

  7. My brokerage firm won't allow naked option positions. What does this mean?

    A naked position refers to a situation in which a trader sells an option contract without holding a position in the underlying security as protection from an adverse shift in price. Naked positions ...

  8. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  9. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  10. Build A Baby Berkshire

    Get a piece of Warren Buffett's profit by using Form 13F to coattail his picks.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  2. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  3. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  4. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  5. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  6. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
Trading Center
Array ( )
taggroups(for debug only):
Array ( [0] => Options And Futures [1] => Markets [2] => SEG (Active Traders) [3] => SEG (Active Traders:Instrument-Options&Futures) [4] => SEG (Investors) ) time:8ms