Max pain: what it is and how it is calculated
Max pain is the underlying price at which the total value paid out on expiring options is smallest. It is the point that hurts option buyers the most and option sellers the least, hence the name.
How it is calculated
For one expiry, take every strike with open interest. For each candidate price S:
- every call with strike
K < Spays(S − K)per contract, times its open interest, - every put with strike
K > Spays(K − S)per contract, times its open interest.
Sum those payouts over the chain. The candidate price with the smallest total is max pain. It needs only strikes and open interest, no model, and it is usually reported for the nearest expiry, since that is the one whose contracts are about to settle.
Why people watch it
The theory is that option sellers, mostly market makers, have an incentive to see the underlying settle where their payout is least, and that their hedging near expiry drifts price toward it: “pinning”. The evidence is mixed. Pinning to round strikes is documented in the academic literature, but the drift toward the max-pain strike specifically is small and unreliable once you condition on where the stock already is. Treat max pain as a description of where the payout landscape is flattest, not as a target the stock is pulled to.
Max pain versus gamma max
They are different questions. Max pain is about expiry payout: it uses only open interest and strikes for one expiry. Gamma max is about hedging pressure: it uses every expiry, weights each contract by its gamma (which depends on implied volatility and time), and finds the price where the summed gamma of the whole chain peaks. Max pain says where options expire cheapest; gamma max says where dealers’ hedge adjustments are largest. They can coincide, and often do not.
On this site
Max pain per ticker and per expiry is on the roadmap; the pipeline already carries the per-strike open interest it needs. Today each ticker page shows total open interest, the delta neutral and gamma max levels, and their history.