Max Pain
Max pain is the strike price at which the total payout to holders of open options would be smallest if the contracts expired there. It is the price that would cause the greatest combined loss for option buyers, and the smallest payout for option sellers.
How max pain is calculated
For each possible settlement price, you add up what every open call and put would be worth at expiry. Calls pay out when the price ends above their strike, puts when it ends below. The settlement price at which this total is lowest is the max pain point.
Max pain is often described as the strike where the most contracts expire worthless. That is close but not exact: what matters is the total value paid out, not the count of contracts, because a few deep in-the-money options can outweigh many that barely miss.
An example
Say there are heavy call positions at strikes of 60,000 and 65,000 dollars and heavy put positions at 50,000 and 55,000 dollars. If the asset settles at 57,000 dollars, all calls are out of the money and only the 55,000 puts pay a little. If it settles at 70,000, the calls pay out large amounts. The calculation might show that a settlement near 57,000 dollars minimises total payouts, which makes it the max pain level.
The price magnet theory
Some traders believe that prices tend to drift towards max pain as expiry approaches. The usual explanation is that market makers, who are often net sellers of options, adjust their hedges in ways that push the price towards strikes with heavy open interest. Others suggest deliberate manipulation, though that is rarely shown.
Evidence for a reliable effect is mixed. In crypto, spot and futures markets are usually much larger than options hedging flows, and price often settles far from max pain.
Using it with care
Max pain changes every time positions are opened or closed, and different data providers may calculate it differently. It is a description of where options positioning sits, not a price target, and trading on it alone is a gamble.
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Frequently asked questions
Does price always move to max pain?
No. Price sometimes ends near max pain, but often it does not, and there is no reliable evidence that it acts as a strong magnet in crypto markets.
Who loses at max pain?
Option buyers as a group lose the most, because their contracts pay out the least. Option sellers keep the largest share of the premiums they collected.
How often does max pain change?
Continuously. Each new or closed position changes the calculation, so the level can shift noticeably in the days before expiry.
Related terms
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