Max pain is an arithmetic exercise on an option chain. For each candidate expiry price, you compute what option writers would owe: every in-the-money call and every in-the-money put pays out its intrinsic value multiplied by its open interest and the lot size. The strike that minimises that total is the max pain strike.
The calculation is mechanical and takes one pass over the chain.
Worked illustration
An illustrative NIFTY chain with three strikes and a lot size of 1, showing writer payout at each candidate expiry level:
| Expiry level | Call payout | Put payout | Total writer payout |
|---|---|---|---|
| 24,000 | 0 | 3,00,000 | 3,00,000 |
| 24,500 | 1,00,000 | 1,25,000 | 2,25,000 |
| 25,000 | 3,50,000 | 0 | 3,50,000 |
Here 24,500 is the max pain strike. The numbers above are constructed to show the arithmetic and are not drawn from a live chain.
What it does and does not claim
The strike itself is just a summary statistic of where open interest sits. The interesting claim attached to it is separate: that the underlying tends to gravitate toward max pain into expiry, because writers are typically better capitalised and have an incentive to defend the level. That is a hypothesis about market behaviour, and it is contested. We are not in a position to tell you it holds in Indian index or stock options, and you should treat any published claim in either direction as something to verify on your own data.
Caveats
The number moves every day. Max pain computed on Monday and max pain computed on Thursday of expiry week are different statistics on different books, so a rule built on it needs to specify exactly when it reads the chain.
Open interest is two-sided. Writers are not a coordinated group with a shared objective, and the same open interest is somebody’s long position. The narrative treats one side as an agent and the other as scenery.
It is only available after the chain is published. Building a strategy on an end-of-day max pain figure means acting from the next session at the earliest.
The failure mode is statistical. Max pain is a single number derived from a chain that offers dozens of alternative summaries, over an expiry cycle that repeats often enough to make a favourable-looking rule easy to find by accident. If you test it, hold out data you have not looked at.