Max Pain


DEFINITION of 'Max Pain '

The point at which options expire worthless. The term, max pain, stems from the Maximum Pain theory, which states that most traders who buy and hold options contracts until expiration will lose money. According to the theory, this is due to the tendency for the price of a underlying stock to gravitate towards its "maximum pain strike price" - the price where the greatest number of options (in dollar value) will expire worthless.


About 60% of options are traded out, 30% of options expire worthless and 10% of options are exercised. Max pain is the point where option owners feel "maximum pain," or will stand to lose the most money. Options sellers, on the other hand, may stand to reap the most reward. The Maximum Pain theory is controversial, and there is disagreement regarding if the tendency for the underlying stock's price to gravitate to the maximum pain strike price is by chance, or by some sort of market manipulation.

  1. Option

    A financial derivative that represents a contract sold by one ...
  2. Time Value

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  3. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  4. Exercise

    To put into effect the right specified in a contract. In options ...
  5. Strike Price

    The price at which a specific derivative contract can be exercised. ...
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    The calendar cycle of expiration months that is assigned to basic ...
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