what is max pain 
max pain or the max pain price is the strike price with the most open options contracts i e puts and calls and it is the price at which the stock would cause financial losses for the largest number of option holders at expiration the term max pain stems from the maximum pain theory which states that most traders who buy and hold options contracts until expiration will lose money understanding max painaccording to the maximum pain theory the price of an underlying stock tends to gravitate towards its maximum pain strike price the price where the greatest number of options in dollar value will expire worthless maximum pain theory says that the option writers will hedge the contracts they have written in the case of the market maker the hedging is done to remain neutral in the stock consider the market maker s position if they must write an option contract without wanting a position in the stock as the option expiration approaches option writers will try to buy or sell shares of stock to drive the price toward a closing price that is profitable for them or at least to hedge their payouts to option holders for instance call writers will want the share price to go down while put writers would like to see share prices go up about 60 of options are traded out 30 of options expire worthless and 10 of options are exercised max pain is the point where option owners buyers feel maximum pain or will stand to lose the most money option sellers on the other hand may stand to reap the most rewards the maximum pain theory is controversial critics of the theory are divided whether the tendency for the underlying stock s price to gravitate towards the maximum pain strike price is a matter of chance or a case of market manipulation calculating the max pain pointmax pain is a simple but time consuming calculation essentially it is the sum of the outstanding put and call dollar value of each in the money strike price for each in the money strike price for both puts and calls because the max pain price can change daily if not from hour to hour using it as a trading tool is not easy however it is sometimes valuable to note when there is a large difference between the current stock price and the max pain price there could be a tendency for the stock to move closer to max pain but the effects may not be meaningful until expiration approaches 1example of max painfor example suppose options of stock abc are trading at a strike price on 48 however there is significant open interest on abc options at strike prices of 51 and 52 then the max pain price will settle at either one of these two values because they will cause the maximum number of abc s options to expire worthless correction jan 16 2022 a previous version of this article mistakenly stated that put holders want share prices to go up in fact put holders profit from lower share prices while put writers profit from higher ones 