Max Pain in Options Trading Explained

What is Max Pain in Options Trading?

Max Pain in options trading refers to the price at which the greatest number of options (both calls and puts) would expire worthless. This strike price causes the most financial loss, or "pain," to option buyers, while benefiting sellers who keep the premiums.

It represents the level where the combined open interest of calls and puts is highest, suggesting maximum contracts expire out-of-the-money if the stock settles there. As a result, option sellers experience minimal payout obligations, making it a profitable outcome for them.

Traders often observe that stock prices tend to gravitate toward the Max Pain level as expiration nears, a phenomenon known as “pinning.” While not guaranteed, this behavior reflects the influence of large options positions and highlights how market forces can align around key price levels.

How Is Max Pain Calculated?

To calculate Max Pain, you simulate the total payout across all strike prices and identify the level where option holders would receive the least. The goal is to find the price at which the combined intrinsic value of all in-the-money calls and puts is minimized. Here’s how it works at a basic level:

1. Collect Open Interest Data: List the open interest for all strike prices at a given expiration for both calls and puts using reliable market data.
2. Calculate Call Option Payouts: For each strike, if the strike is below the hypothetical closing price, compute the payoff using (Price - Strike) x 100 x Open Interest.
3. Calculate Put Option Payouts: For each strike, if the strike is above the hypothetical closing price, compute the payoff using (Strike - Price) x 100 x Open Interest.
4. Sum All Intrinsic Values: Add up the payouts for all in-the-money calls and puts at that strike price.
5. Repeat for All Strikes: Perform the same calculation for each strike price across the option chain.
6. Find the Minimum Payout: Identify the strike with the lowest total payout across all calculated values.
7. Label the Max Pain Level: This strike is the Max Pain price, or the point where most options expire worthless and sellers face minimal losses.

In practice, you don’t need to calculate this manually as platforms like Binance and CoinGlass show Max Pain in real time based on open interest. For example, Binance lists a Max Pain of $90,000 for BTC options expiring on Sep 26, 2025. If Bitcoin closes at that price, it would result in the lowest overall payout to option holders.

Max Pain in Crypto Options (Bitcoin, Ethereum, and More)

Max Pain has become a widely observed concept in crypto options, especially on exchanges like Deribit, Binance, Bybit, and OKX. Traders track it mainly for Bitcoin and Ethereum to gauge potential price behavior as expiration nears, just like in traditional markets.

Unlike equities, crypto options trade in a 24/7 global environment, which adds complexity to Max Pain dynamics. Expirations still occur at set times, and large open interest clusters can make Max Pain levels especially relevant on major expiry days.

Platforms and data providers like CoinGlass actively display Max Pain for upcoming expirations, giving traders visual tools to interpret market pressure. These levels are often used to understand where most contracts will expire worthless, offering insight into trader positioning and possible price “pinning.”

Max Pain in Traditional Markets (Stocks & Index Options)

In traditional markets, Max Pain was first observed in stocks and index options, where traders noticed prices often "pin" near heavily traded strikes at expiration. This effect is especially common with large-cap stocks like Apple or Tesla, and major indices like the S&P 500 and can be observed using OptionCharts.

When open interest is concentrated at specific strike prices, the underlying stock often gravitates toward those levels as expiration nears. This alignment with Max Pain occurs due to factors like market maker hedging, trader behavior, and occasional coincidence.

How Traders Use Max Pain

It’s one thing to understand Max Pain, but how do real traders put it into action? Below are key ways traders incorporate Max Pain into their decision-making, often as a supporting signal rather than a primary driver:

• As a Guiding Indicator, Not a Precise Target: Traders use Max Pain to form a directional bias, treating it as an area of interest rather than a strict forecast.
• Timing Matters - Useful Near Expiration: Max Pain becomes most relevant in the final days before expiration, especially from mid-week onward.
• Choosing Strike Levels for Writing Options: Option sellers look to Max Pain to choose strikes where the most contracts might expire worthless, minimizing their risk.
• Avoiding Being “That Sucker”: Option buyers use Max Pain to avoid chasing contracts with low odds of profitability, especially when strikes are far from the Max Pain level.
• Combining with Other Indicators: Savvy traders pair Max Pain with tools like open interest charts, support/resistance zones, and the put/call ratio for deeper context.
• Hedging and Adjusting Positions: Max Pain helps traders decide when to lock in gains or hedge, particularly if prices are approaching a key strike near expiration.
• Watching Intraday Moves on Expiry Day: Some day traders look for intraday momentum toward Max Pain on expiration day, especially in highly liquid instruments.
• Cross-Market Awareness: In crypto, traders often monitor Max Pain leading into expiry and prepare for post-expiry breakouts once options pressure fades.

Common Misconceptions and Limitations

Like any popular trading theory, Max Pain comes with its fair share of misunderstandings. New and even experienced traders can misapply or overestimate its reliability without recognizing its nuances.

Most common mistakes when using Max Pain:

• “The stock/coin will close at Max Pain”: Max Pain is not a guaranteed target but a potential area of price gravitation under specific conditions.
• It’s often coincidence or natural market movement: Many instances of price pinning near Max Pain can be explained by normal trading behavior or randomness, not manipulation.
• Market Conditions Matter: External events like earnings, economic data, or geopolitical news can easily override any Max Pain influence.
• Shifting Open Interest: Max Pain is dynamic and changes as traders open or close contracts, so using outdated data can lead to faulty conclusions.
• Not All Markets or Strikes Have Impact: Max Pain works best when open interest is concentrated at a few key strikes; if interest is scattered, the effect weakens.
• Assumes Ability to Influence Prices: The theory presumes market makers can nudge prices, but even they can’t control highly liquid or volatile markets entirely.
• Misinterpreting Max Pain Directionally: Max Pain reflects position pressure, not a directional forecast; price may stay elevated or drop depending on broader trends.
• Overemphasis by New Traders: Beginners often put too much faith in Max Pain and ignore more critical factors like chart patterns or upcoming catalysts.

Example: Deribit shows Max Pain for BTC options expiring on September 26, 2025 at $80,000, around $10,000 less than Binance’s estimate from the "How Is Max Pain Calculated?" section above. Despite the difference, both point to a level where many options could expire worthless, minimizing payouts.

Origins of the Max Pain Theory

The Max Pain theory does not have a clearly documented origin, but it has circulated for years among retail traders and online investor forums. It proposes that as options expiration nears, the price of the underlying asset tends to move toward the strike level that results in the smallest combined payout for option writers.

This concept is based on the assumption that the Max Pain price is where the majority of open call and put contracts expire out of the money. As a result, it is seen as the most financially favorable outcome for those holding short positions in options.

In a 2024 academic study called "No Max Pain, No Max Gain", researchers Filipou, Garcia-Ares, and Zapatero analyzed whether price behavior aligns with this theory. Their findings support the idea that prices often move closer to the Max Pain level as expiration approaches, particularly among small, illiquid stocks.

The authors also observed that this effect may stem from short-term reversals and order imbalances, which tend to intensify during expiration week. While direct manipulation cannot be confirmed, the overlap between price reversals and expiration timing suggests that Max Pain might be more than just a coincidence.

Bottom Line

Max Pain blends market mechanics and trader psychology, pointing to the price where option sellers win and buyers lose the most at expiration. It’s a helpful tool for spotting potential price gravity, especially around expiry, but it’s no crystal ball.

Use it as one input among many, alongside charts, sentiment, and fundamentals, to better navigate those high-stakes end-of-week or month market moves.