The Max Pain theory suggests that on option expiry day, the price of an underlying asset (like Nifty or BankNifty) will gravitate towards a 'pain point'—the strike price where the most option buyers will lose money and option sellers (writers) will preserve most of their premium. This tool helps traders identify that magnet price.
How Max Pain is Calculated
Max Pain is based on the 'Net Loss' to option sellers. We simulate an expiry at every single strike price available in the option chain.
- Step 1: For every strike, we calculate the intrinsic value payouts for all Put and Call options held by buyers.
- Step 2: This payout is a 'Loss' for the writers. For example, if Nifty expires at 25000, all 24900 Call writers lose 100 points per lot.
- Step 3: We sum up these losses for writers across all strikes at every possible expiry price.
- Step 4: The strike price with the minimum total loss is designated as the Max Pain Point.
Interpreting PCR (Put-Call Ratio)
Along with Max Pain, traders use the PCR to gauge market sentiment.
• PCR > 1.0: More Puts are being written than Calls. This is generally Bullish as sellers are aggressive on support.
• PCR < 0.7: More Calls are being written than Puts. This is Bearish as sellers are aggressive on resistance.
• Divergence: If the price is rising but Max Pain is dropping, a reversal might be near.
Frequently Asked Questions
⚠️ Disclaimer
The figures provided by this calculator are estimates based on the inputs you provide and standard financial formulas. STOCKCALC.IN does not offer investment advice. Please consult a qualified financial advisor before making any investment decisions.