Thursday, June 5, 2008

Options / Max Pain - June LDK - Just a thought.

10175 Contracts at $45 = 1.0175 Million Shares.
10725 Contracts at $50 = 1.0725 Million Shares.
4308 Contracts at $55 = .4308 Million Shares.
3307 Contracts at $60 = .3307 Million Shares.
2379 Contracts at $65 = .2379 Million Shares.

June is an interesting month as far as options are concerned. It's the last month loaded all the way up to a strike price of $200, because the calls were written a very long time ago.

So far, Max Pain has been a powerful magnet for LDK's stock price. Maybe it will be again.

On the other hand, IF LDK is able to break upwards prior to expiration, and call writers fail to force it down, then the opposite of Max Pain could happen, which is that instead of getting sold down to the point of least pain for the call writers, shares are instead bought up by call writers in order to fulfill their obligation to deliver the shares to the call buyer*.

Example: If the price ends above $45, then a Million shares go from the Call Writers, to the Call buyers*. If the writers don't have them, then they have to be bought*. If the price gets above $50, then that's another Million shares.

As I've said before, this thing is as tight as a Texas Morman Girl-Bride, and an extra Million or more shares of Demand could be significant.

Just a thought.

* This is purely theoretical, and assumes that call writers actually do have to deliver shares, and can't just counterfeit them. Theory, Sheesh!

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