What is Max Pain?
Max pain is the strike price at which the total value of all outstanding call and put options would be lowest at expiry, which is the price where option buyers as a group would lose the most. It is also called the option pain point.
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How is max pain calculated?
For each strike taken as a possible expiry price, add up the intrinsic value every open option would have at that price: for calls, (expiry price − strike) × call OI where positive; for puts, (strike − expiry price) × put OI where positive. The strike with the smallest total is the max pain strike.
How do traders use max pain?
The theory is that option writers, who hold most open interest in Indian index options, benefit when the index settles near max pain, so prices may drift toward it close to expiry.
Max pain moves as open interest changes during the day and is most relevant on or just before expiry. It is a reference level, not a price target.
