Max Pain
The strike at which the total value of in-the-money options outstanding would be smallest at expiry.
Formula
For each strike, compute the total payoff owed on all open calls and puts if expiry settled there; the minimum is the max pain point
Unit
index points
In depth
Max pain is a computation over open interest, and the theory attached to it — that prices gravitate to this level at expiry — has no established mechanism and does not survive testing well. It assumes option writers can and do move the underlying, which would require capital far beyond the option position's value and would itself be manipulation. Open interest data also does not reveal who holds what, so the payoff calculation attributes losses to a group that may be hedged elsewhere. The calculation is defined here as vocabulary; this dictionary does not suggest it predicts where any price will settle.
Worked example
With open interest concentrated at 24,000 calls and 24,000 puts, the computed max pain point may be 24,000. The index settling at 24,380 that week is an entirely ordinary outcome and not evidence of anything.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Max Pain” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.