The Max Pain Strike Price is the price level at which the maximum number of options contracts both calls and puts would expire worthless, causing the greatest total financial loss to options buyers as a group. It is calculated by summing the total dollar or rupee value of in-the-money puts and calls at every strike price and identifying the strike where this combined value is minimised. The Max Pain theory suggests that the underlying asset's price tends to gravitate toward this level as expiry approaches, since options sellers who are typically well-capitalised institutional players — have an incentive to see the most options expire worthless. Traders use the Max Pain level as one input for identifying potential expiry price magnets in Nifty and Bank Nifty weekly options.
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