With September's option expiration only a few days away, it's time to reprise "max pain" theory, and perhaps figure out how we're going to end this week.

As a reminder, the max pain theory is the assumption that most of the call or put options associated with an index or equity will expire worthless. Of course, to do that, the underlying instrument has to end the week somewhere above most of the open put trades, yet below most of the open call trades.

The instrument we'll be using? As usual, the QQQQ's (the NASDAQ-100 Trust). They're probably the most liquid and highly traded of all the index-type of securities, and the same can be said about its options. As of the end of trading on Monday, the QQQQ's closed at $48.81. So, the analysis is simply trying to determine where we're likely to be headed over the next four days.

As the open interest totals indicate below, most of the open puts are held at the $47.00 strike, while most of the open calls have a strike of $49.00. The open interest for each is pretty much the same. In a perfect world, this means the QQQQ's will find their way somewhere between there by 4:00 P.M. EST on Friday. That means - according to the theory - we should expect the QQQQ's to end the week somewhere right around $48.00.

Now, in all fairness, the theory hasn't worked our great in all cases lately. Plus, the open interest will surely change at least a little this week, though it won't be able to change by an enormous degree. All the same, we expect the pressure to be evident. Remember, if it's not, then most likely it will be way off. That means a close not fairly close to $48 is probably going to be well under $47 or well above $49.

Also, remember that the QQQQ's (and other instruments) now offer quarterly options that expire at the end of the quarter. The last trading day for Q3 is Friday, the 28th. Though still a couple of weeks away, the major open interest there is currently at the $48 strike on the call side, and $44 strike on the put side. I don't think the gravity effect is as big here as it is for the traditional third Friday options we looked at above. Why? The open interest for the quarterlies is still quite small. But, there's some influence. That picture should become more clear as we approach the quarterly expiration.

It's All Relative

A lot of you have been asking us to update the sector and style percentage change charts since we first used them a couple of weeks ago. So, here you go. No commentary on either today -- a picture is worth a thousand words. We may add some comments later this week though.

Market Cap/Style Performance


Sector Performance


Price Headley is the founder and chief analyst of BigTrends.com.