Max pain explained: how it is calculated and whether it actually pulls price
Max pain is the strike price at which the most options expire worthless, or, put the other way, the settlement price that pays the least money to option holders. It is one of the most quoted and least understood numbers in retail options trading. Here is exactly how it is computed, what the mechanism behind "pinning" is supposed to be, and what the evidence says.
The calculation
For a given expiry, take every strike with open interest. For each candidate settlement price K, add up what every option holder would collect if the stock closed exactly there:
Calls pay out when the settlement is above their strike; puts pay out when it is below. Max pain is the K with the smallest total. It is a pure open-interest calculation: no prices, no volatility, no Greeks.
A worked example with three strikes:
| Strike | Call OI | Put OI |
|---|---|---|
| 95 | 500 | 2,000 |
| 100 | 3,000 | 3,000 |
| 105 | 2,500 | 400 |
Settle at 95: calls pay nothing, the 100 puts collect 5 × 3,000 = 15,000 and the 105 puts collect 10 × 400 = 4,000, total 19,000. Settle at 100: the 95 calls collect 5 × 500 = 2,500, the 105 puts collect 5 × 400 = 2,000, total 4,500. Settle at 105: the 95 calls collect 10 × 500 = 5,000 and the 100 calls 5 × 3,000 = 15,000, total 20,000. Max pain is 100.
A bug worth knowing about
Calculators that pull chains from public sources identify calls and puts from the option symbol, which looks like COIN260905P00250000: ticker, date, a C or P, then the strike. A surprisingly common shortcut tests whether the letter C appears anywhere in the symbol. For any ticker containing a C (COIN, CSCO, INTC, CAT, COST, CRM and dozens more) every put is then counted as a call, and the "max pain" comes out at a nonsense strike far below the market. If a max pain figure looks absurd relative to the price, that is the first thing to suspect. OptionsMovement parses the type character after the date, so this does not happen here.
The theory of pinning
The argument for max pain mattering goes like this. Market makers are net short the options that retail traders are net long. As expiry approaches, the gamma of at-the-money options rises sharply, and hedging a short-gamma book means buying when the stock falls and selling when it rises. Around a strike with heavy open interest, that hedging flow leans against the price on both sides and holds it near the strike. Since the strike with the most open interest and the strike that minimises payout are usually the same or adjacent, the price "pins" near max pain into the close.
That mechanism is real. Pinning near heavily traded strikes on expiry Friday is documented in the academic literature, most notably for individual equities with active option markets. The effect is measured in fractions of a percent and concentrates in the last hours of trading.
What the evidence does not support
- Max pain as a weekly target. The pull, where it exists, operates over hours, not days. Five days out, the stock has plenty of time to move max pain rather than the other way around; open interest shifts as traders roll.
- Max pain as a conspiracy. The hedging story does not require anyone to push price anywhere. It is the mechanical byproduct of thousands of participants managing risk.
- Max pain on index products. SPX and SPY open interest is dominated by institutional hedges and spreads, and the theory that retail is net long simply does not hold. Treat index max pain as a curiosity.
How to use it
Read max pain next to the expected move. If max pain sits inside the expected range, it is one more argument that the range holds. If the stock is far from max pain with a day to go, the gap is a plausible drift, but a small one relative to the daily range. If max pain is far outside the expected range, the open interest is stale or the stock has moved decisively and the number can be ignored.
A more useful cousin is the pair of strikes carrying the heaviest call and put open interest, which the calculator reports as resistance and support. When both land on the same strike, that strike is the likeliest pin, and the calculator labels it as one.
Reliability checks a calculator should apply
Contracts with only a handful of open interest are noise and should be excluded. An expiry with fewer than a few strikes or less than a hundred contracts total does not have a meaningful max pain. And a max pain more than half the stock price away from the market is almost always a data error rather than a level. OptionsMovement applies all three checks before showing a value.