Max Pain Theory & Calculator – Definition, how it works


Max Pain Theory

When there are most open options contracts, there is a strike price for Max pain. We also call it max pain price or Max Pain Theory. The options contracts involve puts and calls. It is the price at which a stock can cause financial losses at expiration to a large number of option holders.

This term is actually the theory of maximum pain. This thing means that there are most traders buy and then hold the options contracts till the expiration. Eventually, they lose money.

Things to Know About Max Pain Theory

The price of strike having the maximum open calls and puts of the contract is Max Pain or Max pain price. At this point, the stock losses financially. And it happens for the major amount of option receptacles at the time of expiration.

According to the Max Pain Theory, the price of the options will settle towards a maximum pain price. There are most cases where the price of the strike is equal for an option. It reasons the all-out option number in expiring without any worth.

There is a proper Max pain Calculator as well. In Calculation of Max Pain, the sum of dollar values include. The outstanding call and put options for the value of the strike are there.

How to Understand Max Pain?

The price of any underlying stock starts gravitating towards the “all-out pain strike price”, and this is the theory of maximum pain. It gravitates towards the value where the highest number of options expire without any specific worth. Here the price is in dollar values.

According to the Max pain theory, the writers of options hedge the agreements that they write. When it comes to the marketplace maker, to stay unbiased in the stock, hedging takes place. 

When the option termination approaches. Then the option writers try to sell or buy the shares of the stock. These are done to drive the value towards any closing price that seems profitable. Or they can hedge the expenses to holders of the option.


For example, the call writers will need that the price of the share must go down. While the put writers will like to understand, prices of the share going up.

There are almost sixty percent of options that trade out. The 30% options expire without any worth. And the remaining 10% are in exercise. When the owner of the options will stand at the point at which they can lose the maximum amount. Then this point is maxed pain. And we drive it from max pain theory. At the same time, the option sellers stand at this point to gain the max rewards.

What do we know about Maximum Pain Theory?

The theory of max pain is actually a bit controversial. There are opponents of the theory that are having different viewpoints. Some say that a stock price that is gravitating towards strike price in maximum pain is important. While others say, that situation of market management is essential to consider.

Max Pain Calculator

To calculate max pain, you will require some time. However, it is simple but requires time. Basically, it is the number of unresolved calls and put dollar value. It is for the strike price of each in-the-change.

Calculation of each in-the-money price of strike for calls and puts:

  1. First, you will have to discover the variance between the strike price and stock price
  2. Then you will be multiplying the result at the strike by the interest that is open
  3. After that at that strike, add the dollar worth for the call and put
  4. Then repeat for every strike price
  5. Afterwards, you will have to find the strike price having the highest worth. The value is equal to the price of max pain.

The price of max pain changes daily. If it does not change daily, it changes from time to time. So, by means of using a tool is not an easy thing. However, it can add value sometimes where there is a big variance between the max pain price and the current stock price.

There can be an inclination for the stock is moving close to max pain. But then again the possessions are not meaningful until the expiration time approaches.

What does Max Pain mean?

Max pain is a specific situation where the price of the stock is locked in on strike price on an option. It locks as it is near expiration. This causes financial damages for the maximum of options traders that are possible.

It goes to describe how, during the past days, the fundamental stock values cluster. These cluster about the prices of strikes for bringing fatalities to the option purchasers.

A Brief About Max Pain

There are many people who exactly do not know about Max Pain. It is an exchange notion that states market manipulation and dynamics. They can source the price of the market of several retreats close to termination and expires worthless.

There is an assumption under the max pain mechanisms. It is that near the date of expiration, the selling and buying of stock options can lead to price activities. These are towards the opinion of extreme pain. Or here, the marketplace setters use price directories in gaining additional from the price of a stock that is closing.

To trade the stock options is thought-provoking that uses the max pain. The reason is the strike price changes too often.

What happens to the stocks?

There are 10% of stocks that are exercising. The 60% are for trading. While the rest of 30% is expired without any worth at all. This thing is important to keep in mind. Here the max pain happens when the market makers are reaching a net progressive position.

It is of call and put option at a strike value. Here the option frames stance to misplace the most money. The theory of max pain is not simple, and it always remains controversial.


Calculation of Maximum pain can be hard because of the changing strike rates. It will require a lot of time of yours. But the steps are relatively easy. The max pain will give you an idea about losing the maximum value of stocks and how to save them.

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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