Glossary

Max pain

Max pain is the option strike price at which the total payout to all option holders at expiry would be the lowest.

Max pain is a price level that comes from the open interest of an options expiry. For every possible expiry price, the calculation adds up what all call and put holders would receive. The strike with the lowest total payout is the max pain price.

The theory says that option sellers gain most at this price, so the market may drift toward it before expiry. The theory is debated. It assumes that sellers can steer the price, and it ignores hedging, which is often more important. Data does not show that price must settle at max pain.

The level changes each time open interest changes, and each expiry has its own value. A near expiry is more relevant than a far one. Use max pain as a reference point on the chart. Do not use it as a price target.