Max Pain Explained: How It Is Calculated and What It Tells Options Traders
Learn how options max pain is calculated, what minimum payout means, how put-to-call ratios provide additional context, and how traders can use max pain without treating it as a guaranteed price target.
Options traders frequently hear that a stock or ETF is trading above, below or directly at its “max pain” price. The term can sound more complicated than it is, but it refers to a specific calculation based on the open options contracts for a particular expiration date.
Max pain attempts to identify the expiration price at which outstanding call and put options would have the lowest combined intrinsic value. In simpler terms, it estimates the price where the least amount of value would remain in the options chain at expiration.
Capital Assets members may receive a daily report that looks like this:
SPY Max Pain
Eastern date: 2026-06-26
Today: 2026-06-26
Expiration: 2026-06-26
Underlying: $734.30
Max pain: $734.00
Minimum payout at max pain: $70,627,500
P/C notional: 0.6511
P/C open interest: 2.0154
Some of these figures are used to calculate max pain. Others provide additional context about the options market surrounding that calculation. Understanding the difference is important because max pain is often given more predictive power than it deserves.
What Is Max Pain?
The max pain price is the hypothetical expiration price that produces the lowest total intrinsic value across the outstanding calls and puts for one expiration date.
A call option gives its holder the right to buy the underlying security at a predetermined price. A put option gives its holder the right to sell the underlying security at a predetermined price. That predetermined price is called the strike price.
An option has intrinsic value when exercising it would provide an immediate financial benefit. A call has intrinsic value when the underlying security is above the call’s strike price. A put has intrinsic value when the underlying security is below the put’s strike price.
For example, if SPY is trading at $734, a $730 call has $4 of intrinsic value because it provides the right to buy shares at $730 when they are worth $734. A $740 call has no intrinsic value because buying at $740 would not make sense when shares can be purchased in the market for $734.
Options can also have extrinsic value, sometimes called time value. Extrinsic value is the portion of an option’s premium that exceeds its current intrinsic value. It reflects factors such as the amount of time remaining, expected volatility and the possibility that the option could become more valuable before expiration.
At expiration, extrinsic value falls to zero. The option is then worth only its remaining intrinsic value, if it has any. Because max pain models the options chain at expiration, the traditional calculation focuses on intrinsic value and does not include extrinsic value.
What Information Is Used to Calculate Max Pain?
A traditional max pain calculation needs the available strike prices, call open interest, put open interest and the contract multiplier for one specific expiration.
Open interest is the number of option contracts that remain open and have not been closed, exercised or allowed to expire. It is different from option volume, which measures how many contracts traded during a particular session. A contract may trade several times during the day while still representing only one open contract at the end of the process.
The contract multiplier determines how many shares one option contract represents. A standard equity or ETF option normally represents 100 shares, although adjusted contracts can have different deliverables after events such as stock splits, mergers or special distributions.
The following table separates the information used in the calculation from the metrics that are included for context.
| Metric | Used to Calculate Max Pain? | Purpose |
|---|---|---|
| Strike prices | Yes | Establishes where each option gains intrinsic value |
| Call open interest | Yes | Measures outstanding call contracts at each strike |
| Put open interest | Yes | Measures outstanding put contracts at each strike |
| Contract multiplier | Yes | Converts per-share value into contract value |
| Expiration date | Yes | Determines which options chain is being analyzed |
| Current underlying price | No | Shows where the market is trading relative to max pain |
| Put-to-call open interest ratio | No | Compares the number of open puts with open calls |
| Put-to-call notional ratio | No | Compares put and call positioning using a dollar-weighted measure |
| Option volume | No | Shows current trading activity but is not part of the standard calculation |
| Implied volatility and Greeks | No | Provide additional options context but are not part of traditional max pain |
This distinction is worth emphasizing. The put-to-call ratios in the Capital Assets report do not determine the max pain price. They are companion metrics that help describe the broader positioning in the options chain.
How Is Max Pain Calculated?
The calculation tests a range of possible expiration prices. At each possible price, it determines how much intrinsic value would remain in the outstanding calls and puts.
For calls, the calculation is:
Call payout at one strike = (hypothetical expiration price minus strike price, but never less than $0) × call open interest × contract multiplier
For puts, the calculation is:
Put payout at one strike = (strike price minus hypothetical expiration price, but never less than $0) × put open interest × contract multiplier
The words “never less than $0” matter because an out-of-the-money option cannot have negative intrinsic value. It simply expires without intrinsic value.
A call is in the money when the underlying price is above its strike price. A put is in the money when the underlying price is below its strike price. An option is out of the money when it has no intrinsic value. An option trading very close to its strike price is commonly described as at the money.
After calculating the call and put values at every strike, the values are added together:
Total theoretical payout = total call intrinsic value + total put intrinsic value
The process is repeated for every candidate expiration price. The price producing the smallest combined result becomes the max pain price.
Most calculations use the listed option strikes as the candidate settlement prices. A more detailed system could also test prices between strikes, although the minimum will usually occur at or near one of the listed strikes because that is where the payout relationship changes.
A Simplified Example
Assume a fictional stock has options at three strikes:
| Strike | Call Open Interest | Put Open Interest |
|---|---|---|
| $95 | 100 | 50 |
| $100 | 200 | 150 |
| $105 | 50 | 250 |
Each contract represents 100 shares.
If the stock expires at $95, the calls have no intrinsic value. The $100 puts are worth $5 per share, while the $105 puts are worth $10 per share.
The theoretical payout would be:
$100 put payout = $5 × 150 contracts × 100 shares = $75,000
$105 put payout = $10 × 250 contracts × 100 shares = $250,000
Total payout at $95 = $325,000
If the stock expires at $100, the $95 calls are worth $5 per share and the $105 puts are worth $5 per share.
$95 call payout = $5 × 100 contracts × 100 shares = $50,000
$105 put payout = $5 × 250 contracts × 100 shares = $125,000
Total payout at $100 = $175,000
If the stock expires at $105, the $95 calls are worth $10 per share and the $100 calls are worth $5 per share. The puts have no remaining intrinsic value.
$95 call payout = $10 × 100 contracts × 100 shares = $100,000
$100 call payout = $5 × 200 contracts × 100 shares = $100,000
Total payout at $105 = $200,000
The theoretical payout is lowest at $100, so $100 would be the max pain price in this example.
This demonstrates why max pain is not simply the strike with the most open contracts. The calculation considers how far each option would be in the money and converts that distance into a dollar value.
How to Read the Capital Assets Max Pain Report
Each line in the report serves a different purpose. Reading them together provides more useful information than focusing on the max pain price alone.
Expiration
Max pain is always tied to one expiration date. There is no single permanent max pain price for SPY or any other security.
The options expiring today may produce a max pain price of $734, while options expiring next week could produce a completely different result. Each expiration has its own strikes, open interest and theoretical payout curve.
Traders should therefore avoid discussing a max pain price without also identifying the expiration. A max pain figure without an expiration date is incomplete.
Underlying Price
The underlying price is the current or most recently available market price when the report is generated. In this example, SPY was trading at $734.30.
The underlying price is not used to determine max pain. It is included so members can see how far the market is currently trading from the calculated level.
In this case, SPY was only $0.30 above the $734 max pain price. That is a difference of approximately 0.04%, which means the underlying was already trading extremely close to the theoretical minimum-payout level.
It is also helpful to know when the underlying price was captured. A report generated before the opening bell, during the session or near the close may show the same max pain level but a very different underlying price.
Max Pain
The reported max pain price of $734 means that, based on the available open interest for the June 26 expiration, a settlement price of $734 would produce the lowest combined intrinsic value across the analyzed calls and puts.
It does not mean every option would expire worthless. Some calls below $734 and some puts above $734 would still have intrinsic value.
It also does not mean SPY is guaranteed to close at $734. Max pain is a calculation based on the options chain, not a price forecast based on momentum, company fundamentals, economic conditions or breaking news.
Minimum Payout at Max Pain
The reported minimum payout of $70,627,500 represents the lowest combined theoretical intrinsic value available across the tested expiration prices.
In this example, if SPY settled at exactly $734, the outstanding in-the-money calls and puts would represent approximately $70.63 million of gross intrinsic value under the calculation.
The word “payout” can be misleading if it is interpreted too literally. It does not mean one market maker or institution must pay $70.63 million. Every option contract has both a buyer and a seller, and many participants hold spreads or other positions that offset part of their exposure.
The figure also does not account for the premiums originally paid or received. An option holder can finish with intrinsic value and still lose money overall if the original premium was greater than that value. An option seller can owe intrinsic value at expiration and still have a profitable total trade if the premium received was larger or the position was hedged elsewhere.
Minimum payout should therefore be understood as a standardized measurement of gross intrinsic value across the open-interest chain. It is useful for comparing possible expiration prices, but it is not a complete profit-and-loss statement for traders or dealers.
What Does the Put-to-Call Open Interest Ratio Mean?
The put-to-call open interest ratio compares the total number of open put contracts with the total number of open call contracts for the analyzed expiration.
The calculation is:
Put-to-call open interest ratio = total put open interest ÷ total call open interest
The reported ratio of 2.0154 means there are approximately 2.02 open put contracts for every open call contract in the analyzed chain.
A ratio above 1.00 means put open interest is greater than call open interest. A ratio below 1.00 means call open interest is greater.
It can be tempting to label a high ratio as bearish, but open interest does not tell us why the options were opened. A put may represent a bearish trade, portfolio protection, a cash-secured put, one side of a spread or part of a larger institutional strategy.
Open interest also does not reveal which participant is long or short the option. Every contract has a buyer and a seller. The ratio describes the distribution of open contracts, but it does not provide a complete directional view of the market.
What Does the Put-to-Call Notional Ratio Mean?
The put-to-call notional ratio compares put positioning with call positioning using a dollar-weighted measurement instead of simply counting contracts.
The general relationship is:
Put-to-call notional ratio = total put notional ÷ total call notional
The reported ratio of 0.6511 means the calculated put notional equals approximately 65.11% of the calculated call notional.
Notional can be calculated in different ways depending on the data provider. Some systems use strike price multiplied by open interest and the contract multiplier. Others use the underlying price, option premium or a delta-adjusted value.
Because these methods measure different things, notional is not as universally standardized as open interest. The Capital Assets ratio should be read as a dollar-weighted comparison using the methodology supplied by the underlying data source.
The difference between the two ratios is still informative. The open-interest ratio shows approximately twice as many put contracts as call contracts, while the notional ratio shows less put notional than call notional.
That is not necessarily a contradiction. Open interest counts contracts equally, while notional gives contracts different weights based on the provider’s calculation. A large number of puts can produce a lower notional value if those puts are concentrated in contracts receiving a lower dollar weighting than the calls.
Neither put-to-call ratio is used to determine the max pain price. They are included to provide more context about how the options chain is structured.
Why Can Price Trade Near Max Pain?
Price sometimes appears to settle near a heavily populated option strike as expiration approaches. This behavior is commonly called pinning, meaning the underlying repeatedly trades around or closes near a particular strike.
One possible explanation involves dealer hedging. Option values respond to changes in the underlying price, and dealers may buy or sell shares to reduce the directional risk created by their option positions.
Under certain conditions, those hedge adjustments can have a stabilizing effect. Dealers may buy as the price falls and sell as it rises, which can encourage the underlying to remain near a heavily populated strike.
Under different positioning conditions, the opposite can happen. Hedging activity may require participants to buy into rising prices and sell into falling prices, adding momentum instead of reducing it.
Max pain cannot determine which condition is present because it does not reveal whether dealers are net long or short the options. It also does not calculate dealer gamma exposure.
Gamma measures how quickly an option’s directional sensitivity changes as the underlying price moves. Gamma exposure models attempt to estimate how option-related hedging flows could affect the market. Max pain simply calculates potential intrinsic value at expiration.
For that reason, max pain and gamma exposure should not be treated as interchangeable indicators.
Why Max Pain Is Not a Guaranteed Price Target
The biggest mistake traders make with max pain is assuming price must move toward it. There is no mechanism requiring the market to close at the minimum-payout level.
Open interest is also generally updated after the trading session rather than continuously with every trade. A max pain calculation during the day may rely largely on open positions reported from the previous session.
This limitation becomes more important with zero-days-to-expiration options, commonly called 0DTE options. These are options expiring on the same trading day. Significant positions can be opened and closed during the session without appearing immediately in the official open-interest figures used by many calculations.
Max pain also ignores option premiums, current volume, implied volatility and the direction of dealer positioning. It cannot account for all multi-leg spreads, hedges or positions held in other expirations.
Most importantly, options positioning does not override the broader market. Economic reports, interest-rate changes, earnings, geopolitical events and unexpected news can easily move the underlying far away from max pain.
The level is generally more relevant when the underlying is already close to it and little time remains before expiration. A max pain level located far outside the market’s expected range may have limited practical value.
How Traders Can Use Max Pain
Max pain is best used as a reference level rather than a stand-alone trading signal. It may help explain why price becomes choppy, repeatedly reverses near a strike or struggles to continue moving in one direction as expiration approaches.
The first consideration should be the distance between the current underlying price and max pain. In the SPY example, the difference was only $0.30, making $734 a more relevant reference than it would have been if SPY were trading several dollars away.
The amount of time remaining also matters. Options positioning generally has a more immediate relationship with expiration as the closing or settlement period approaches. A max pain level calculated several weeks before expiration has more time to change as positions are opened and closed.
Traders should also compare max pain with existing support, resistance, expected movement, volatility and the concentration of open interest at nearby strikes. A max pain price that overlaps with an established technical level may deserve more attention than a level that has no other market significance.
The most useful question is not, “Will price close at max pain?” A better question is, “Does this level help explain the current market structure, and is there other evidence supporting its relevance?”
Reading the SPY Example in Plain English
For the June 26 expiration, SPY was trading at $734.30 while the calculated max pain price was $734. The underlying was already within $0.30, or approximately 0.04%, of the minimum-payout level.
If SPY settled at $734, the analyzed options would represent approximately $70.63 million of gross intrinsic value. That was the lowest calculated total among the tested expiration prices.
The put-to-call open interest ratio of 2.0154 showed approximately 2.02 open put contracts for every open call contract. The put-to-call notional ratio of 0.6511 showed that put notional represented approximately 65.11% of call notional under the data provider’s calculation.
Those figures describe different aspects of the chain. The open-interest ratio measures contract count, while the notional ratio applies a dollar-based weighting. Neither ratio, by itself, establishes whether the overall market is bullish or bearish.
The most meaningful observation was that SPY was already trading almost directly at max pain. That made $734 a relevant expiration reference, but it did not guarantee that SPY would remain there or close at that exact price.
The Bottom Line
Max pain is the hypothetical expiration price that minimizes the combined intrinsic value of outstanding call and put options for a specific expiration.
The calculation uses strike prices, call open interest, put open interest and contract multipliers. It calculates the intrinsic value that would remain at each potential expiration price and selects the price with the lowest combined total.
The current underlying price, put-to-call open interest ratio and put-to-call notional ratio do not determine max pain. They provide context that can help traders understand where the market is trading and how the options chain is positioned.
Max pain can be useful when the underlying is already near the calculated level, expiration is approaching and other market evidence supports the same area. It should not be treated as a guaranteed closing price or as proof that market makers can force the underlying toward a particular strike.
Used correctly, max pain is one more piece of the options market roadmap. It helps describe the structure around an expiration, but it works best when combined with price action, volatility, open-interest concentration and broader market conditions.
Options involve risk and are not appropriate for every investor. Max pain and related options metrics are analytical estimates, not guarantees of future prices or individualized investment recommendations.