What is the core assumption behind the Option Pain theory?

Option writers consistently outperform option buyers. Option prices are highly predictable. Option buyers have an advantage on expiry days. Option markets are completely random.

How does the Option Pain theory suggest option writers influence the market?

By controlling the volume of options traded. By manipulating option prices on the day of expiry. By spreading misinformation about market trends. By coordinating their trading activities with institutional investors.

What is the primary use of the Option Pain theory for traders?

Predicting long-term market trends. Identifying optimal strikes for option writing. Timing market entry and exit points. Calculating the intrinsic value of options.

How is the Put Call Ratio (PCR) calculated?

Total open interest of Calls divided by total open interest of Puts. Total traded value of Puts divided by total traded value of Calls. Total volume of Calls divided by total volume of Puts. Total open interest of Puts divided by total open interest of Calls.

How is the PCR typically interpreted in trading?

A high PCR indicates bullish market sentiment. A low PCR indicates bearish market sentiment. The PCR is a direct indicator of future market direction. The PCR is generally used as a contrarian indicator.

What does a PCR value above 1.3 generally suggest about market sentiment?

Extreme bullishness, indicating a potential market downturn. Extreme bearishness, indicating a potential market upswing. Neutral sentiment, suggesting a period of consolidation. High volatility, implying increased risk for option writers.

What does a PCR value below 0.5 generally suggest about market sentiment?

Extreme bullishness, indicating a potential market downturn. Extreme bearishness, indicating a potential market upswing. Neutral sentiment, suggesting a period of consolidation. High volatility, implying increased risk for option writers.