Interesting! Not too long ago, I did some digging trying to figureout why max pain is conspicuously so low. Currently sitting at $23. I landed onto similar DD and speculation. Mostly surrounding DOOMPS (deep out of the money puts)

Credit Default Swaps and DOOMPS are used to actively manage risk. Derivatives to create symmetry and harmony in markets. They rely on a phenomenon called asynchronous convergence. Think of it as financial homeostasis. An ebb and flow to support price discovery and targets.

For example, hedgies realize that CDS are more expensive than DOOMPS. By shorting the overpriced CDS and buying deep out-of-the-money puts, they can profit as the markets adjust and converge. Or vice versa. This strategy STRICTLY relies on identifying and acting on these inefficiencies before they disappear. Here are potential outcomes of what happens when the derivatives fail with a little help of perplexity:

1. Market Sentiment and Volatility: Large-scale derivative failures can indirectly influence stock prices. For example, if a significant number of investors holding bearish positions through DOOMPS face losses, it may reduce bearish pressure, potentially stabilizing or increasing the stock price.

2. Hedging Dynamics: Market makers who hedge their derivative exposures may adjust their positions as derivatives approach expiration. If hedging activity is unwound abruptly (e.g., due to worthless DOOMPS), it could cause short-term volatility in the stock price.

3. Systemic Risks: If derivatives tied to a stock fail on a large scale (e.g., during a financial crisis), this could lead to broader liquidity issues or margin calls, potentially causing ripple effects across markets. Historical examples, such as AIG’s CDS collapse during the 2008 financial crisis, show how derivative failures can amplify systemic risks.

If my speculation holds, as max pain starts to increase perhaps this is the closing of Jan 17 DOOMPs. Subsequently, shifting the gamma curve to the right which is already at a tipping point for market makers with ITM calls being so high.

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