Max pain

Max pain is the strike price at which the total intrinsic value of all outstanding options, calls and puts combined, expiring on a given date is at its lowest. Put another way, it's the settlement price that would cause option buyers as a group to lose the most money and option sellers as a group to lose the least. It's calculated purely from open interest across every strike in the expiring chain. For each candidate settlement price, the calculation totals what every in-the-money call and put would be worth, and the strike with the smallest total is max pain.

The common read is that price tends to drift toward max pain as expiration approaches, the theory being that option sellers, who are net short across most strikes, have an incentive (and, some argue, a hedging-driven mechanical pull) to see price settle where the fewest contracts finish in the money. In practice it's most useful as a reference point to check against where price is actually trading. A stock sitting far from max pain with only a day or two left has more room to drift than one already sitting on top of it.

Max pain isn't a prediction, and it gets recalculated as expiration nears, so the strike it points to today can move before the actual settlement. It also ignores everything except options open interest. It says nothing about earnings, news, macro data, or plain directional trading in the underlying stock, any of which can push price well away from the max pain level regardless of the options math. Treat it as one input describing options positioning, not a target price the market is guaranteed to hit.

Say SPY is trading at 548 three days before a monthly expiration, and the max pain calculation across that chain comes out to 545. That's a small, three-point gap, consistent with the idea that price has only a modest pull left toward the pain point. Now compare a different session: max pain sits at 520 while SPY trades at 548 with only three days left. That's a much wider gap the theory would need a large move to close, exactly the kind of situation where max pain is worth watching but shouldn't be treated as more predictive than the size of the move it implies.