The Path of Max-Pain

• Posted by Robert Sinn
• on June 14th, 2012

Tomorrow is shaping up to be an interesting day – not only is it a Friday before another euro crisis weekend but it is also quadruple witching options expiration and the $SPY goes ex-dividend for ~.72 per share. After an unscientific eyeballing of the June $SPY options I was able to determine that 134 is the max pain strike (the price at which the largest dollar amount of options will expire worthless):

 

This was confirmed by the excellent site www.optionpain.com:

 

134 has been a really important level for the SPY for well over a year now, however, the situation is made much more interesting by the fact that tomorrow’s .72 ex-dividend will cause the SPY to “gap lower” by .72 – this means that 134 on the SPY tomorrow will roughly equate to 1342 on the cash S&P 500 index. 1338-1344 has been a major support/resistance zone for a very long time, which is made slightly more important by the fact that it is just above the neckline of a potential inverted head & shoulders formation:

 

There is no point in obsessing over exact S&P 500 levels – the point is that max-pain for the next 28 hours may very well be a push up to $SPX ~1340 before markets close for the weekend. In a market environment in which the vast majority are bearish, cautious, or cautiously bearish it would make sense to see a push higher that stopped right at a major resistance level heading into a weekend – whatever happens after that is anyone’s guess.

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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