Definition
Max Pain
Max pain is the strike price at which the largest number of option buyers would lose money on expiry.
The max pain theory says that, as expiry nears, the underlying tends to gravitate toward the strike where the total value of in-the-money options is lowest — the point of maximum loss for option buyers and maximum gain for sellers. It is calculated from the open interest across all strikes on the NSE option chain.
Many Nifty and Bank Nifty traders watch max pain on weekly expiry day as a magnet level, expecting the index to pin near it. It is a tendency, not a law — strong trends, news, or large institutional moves regularly override max pain.
Related terms
- Open InterestOpen interest is the total number of outstanding futures or options contracts that have not yet been closed.
- Option ChainAn option chain is the full table of all available call and put strikes for a contract, with their prices and data.
- Pin RiskPin risk is the danger that the underlying closes right at an option's strike on expiry, leaving the outcome of the position uncertain.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.