Max Pain

Max pain is the strike at which the total value of outstanding options would be lowest at expiration - the point of maximum aggregate loss for option buyers. The popular theory holds that price gravitates there into expiry; where such a pull exists, it is better explained by dealer hedging around large open interest than by any deliberate targeting.

The computation is mechanical: for each candidate expiration price, sum the payout of every outstanding call and put; the strike minimizing that total is max pain. Because payouts to buyers are costs to sellers, max pain is also where net sellers of options fare best.

The theory's kernel of truth overlaps with pinning: strikes with large open interest generate concentrated hedging flow that can compress price toward them as expiration approaches. Since max pain usually sits at or near the largest OI cluster, the two effects often point at the same level - no coordination required, just hedging arithmetic.

Its predictive value is weak on its own: max pain moves as positioning changes, catalysts routinely overwhelm it, and studies of its accuracy are mixed. It is best treated as one more read on where OI concentrates, not a magnet with force of its own.