Max Pain

Max pain is the settle price at expiration that would minimize the total payout option writers owe across every open call and put on a stock. Compute what writers would pay at each candidate settle price, weighted by open interest, and the price producing the smallest total is max pain — the point where option buyers, as a group, lose the most.

The controversial part is the theory bolted on top: that dealer hedging drags the stock toward this price into expiration. The mechanism is real, but the evidence that it reliably lands prices at max pain is mixed — academic work firmly supports clustering near strikes generally, not settlement at max pain specifically. Read it as a map of where positioning is stacked, not as a target.