In some ways, the market is rigged. These methods can be legal, illegal and at times, borderline legal and illegal. As for the legal stuff, it’s only what you know what happening on the surface like ask/bid has spread. Regarding the borderline stuff though, this is when there’s high frequency of traders who jump in your order and stealing profits of the long-term investors, but not all.
The Maximum Pain Theory
The nasty stuff is only seen when you perform close observation of what happens when there are loads of money put on the line.
On macro scale, there’s something referred to as the “Maximum Pain Theory”.
This theory states that with a high probability, the stock price would likely end at a place causing maximum pain to the option holders that will expire soon. Options are well worth the difference between strike price and expiration of option price. Every Friday, the cost of stock normally ends up like figure for most of the sought-after option contracts become worthless prior its expiration.
A Deeper Look
If you wish more accurate information, then you’d have to make a function that will look at the price of all contracts and where it was bought. At the same time, the stock will get pressure to reach the point that’ll capture the amount of value throughout outstanding options.