What is max pain in options?

At expiry, every option is either worthless or worth its intrinsic value: how far it is in the money. Max pain asks one question of an option chain: if the underlying settled exactly at this strike, what would all the open calls and puts of this expiration be worth together? Repeat it for every strike, and the strike with the smallest total is max pain.

The name comes from the holders’ side: at that price, option buyers as a group would collect the least. The popular story says option writers, often assumed to be market makers, therefore want price there. But market makers usually hedge, so a small payout is not simply their profit; the more plausible link to price is hedging flows, covered below. The only input is open interest by strike.

Max pain
The strike at which the open options of one expiration would have the lowest total intrinsic value if the underlying settled there.
Open interest (OI)
The number of option contracts still open at a strike and expiration, published once a day after the previous session.
Intrinsic value
What an option is worth if exercised now: price minus strike for a call, strike minus price for a put, and zero if out of the money.
Pinning
The underlying closing at or very near a strike on expiration day, often linked to option hedging around strikes with large open interest.

How to calculate max pain, step by step

Data sites do this for you, but doing it once by hand shows what the number is, and what it is not.

  1. Pick one expiration. Max pain is calculated per expiration: this Friday’s and next month’s are different numbers.
  2. Write down the call and put open interest at each strike.
  3. Choose a candidate settlement price, usually each strike in turn.
  4. Calls: for every strike below the candidate, multiply call open interest × (candidate − strike) × 100 shares per contract, and add them up.
  5. Puts: for every strike above the candidate, multiply put open interest × (strike − candidate) × 100, and add them up.
  6. Add calls and puts. The candidate with the lowest total is max pain.
  7. Note the date of the data: open interest is updated once a day, so the result reflects positions as of the previous session.

Worked example: a five-strike max pain table (hypothetical)

A hypothetical stock, XYZ, has a Friday expiration with five strikes and the open interest shown in the table below. On Friday morning XYZ trades at $103.20.

Take the $100 row. Calls below $100 would be in the money: 200 contracts at the $90 strike × $10 × 100 = $200,000, plus 500 at $95 × $5 × 100 = $250,000, so $450,000. Puts above $100: 400 at $105 × $5 × 100 = $200,000, plus 100 at $110 × $10 × 100 = $100,000, so $300,000. Total: $750,000.

The other rows come to $3.10 million at $90, $1.35 million at $95, $1.60 million at $105 and $3.65 million at $110. The lowest total is at $100, so max pain is $100, $3.20 below the price that morning. The chart at the top of the page draws the same five totals.

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A table for hypothetical XYZ with five strikes from 90 to 110. Columns: strike, call open interest (200, 500, 1,500, 2,000, 1,200), put open interest (1,000, 1,800, 1,400, 400, 100), then what the calls and the puts would be worth if XYZ settled at that strike, and the total: 3.10M, 1.35M, 0.75M, 1.60M and 3.65M. The 100 row is highlighted as max pain: calls 0.45M + puts 0.30M = 0.75M.

The pinning argument: dealer hedging into expiration

Pinning means the underlying closing at or very near a strike on expiration day. The argument for it runs through hedging, not through anyone wanting holders to lose. Options dealers hedge their direction risk by trading the underlying, as explained in gamma exposure, and near expiration the gamma of options at the strike closest to the price becomes very large.

If dealers are net long options at a heavily traded strike, their hedging sells as price rises above it and buys as it falls below, which can hold price near that strike. If they are net short there, the same hedging pushes price away. Open interest does not show which side dealers hold, and max pain is a payout minimum, not the strike with the most gamma. The two often sit near the same big round strikes, but not always.

What the evidence says about pinning and max pain

There is research on pinning. Ni, Pearson and Poteshman (Journal of Financial Economics, 2005) found that on expiration dates the closing prices of US stocks with listed options cluster at strike prices, and attributed it partly to market makers’ hedge rebalancing and partly to price manipulation by proprietary traders. Avellaneda and Lipkin (Quantitative Finance, 2003) built a model in which hedging of large open interest can pin a stock to a strike.

That evidence is about clustering at strikes, which is not the same as price moving to the max pain strike. Public, peer-reviewed evidence that max pain itself works as a target is limited and mixed, and the practitioner tests published online use different methods and are not peer-reviewed. If the mechanism operates, it should matter most where open interest at a strike is large relative to normal trading and no news overwhelms it. The S&P 500 has huge flows from other sources; a single stock on a quiet Friday is a different case.

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Two hypothetical expiration days for XYZ, with max pain at 100 marked by a dashed line in both. Left, a quiet day: price drifts from 103.20 down to close near 100.30, with the note a quiet day: a drift toward a heavy strike. Right, a news day: price climbs from 103.20 to close near 106.50, with the note a news day: other flows overwhelm hedging. Below: one scenario, not a target.

How traders use max pain on expiration days, including daily SPX

Used carefully, max pain is one line of context on the last day of an expiration, next to the levels you already watch:

  • Mark it with its neighbours: max pain, the strikes with the largest open interest and, if you follow it, the gamma picture. A heavy strike near price matters more than one far away.
  • Treat a drift toward it as one scenario. On a quiet expiration afternoon, price drifting toward a heavy strike is a possibility to plan around, with a level that proves it wrong, not a trade by itself.
  • Mind the date of the data. Open interest is published once a day, so for the daily SPX and SPY expirations the contracts opened and closed during the day, most 0DTE volume, never appear in it. The morning max pain for a same-day expiration describes yesterday’s positions.
  • Expect it to move. Max pain shifts as positions open, close and roll, and it differs between expirations of the same underlying.
  • Know the settlement. SPX settles in cash; SPY and QQQ options settle in shares, so a close near a strike brings exercise questions and pin risk; see what happens when options expire and SPX vs SPY options.
  • Read it with other data. The put/call ratio and the day’s expected move describe the same chain from other angles.

Common max pain mistakes

Most of the trouble comes from asking max pain to do more than it can:

  • Treating it as a price target, or as a magnet price must reach by the close.
  • Using a number built from stale or partial open interest, or from a different expiration than the one you trade.
  • Fading a strong trend because max pain sits on the other side. News and real orders overwhelm hedging flows.
  • Confusing max pain with the gamma flip or a call wall. They are different calculations.
  • Assuming open interest shows who is long. It shows how many contracts are open, not which side dealers hold.
  • Buying cheap expiring options because price is sure to pin. A pin that does not come costs the whole premium.