Insights
Max Pain
The price level where option buyers' profits are smallest (their pain is greatest) at expiry — the day the contracts settle.
Option size by price level. The yellow bar is the max pain price.
How to read this chart
Max pain is the price where option buyers' profits are smallest at expiry. The further the current price is from it, the more likely the price gets pulled toward it as expiry approaches.
New to this indicator?
What is max pain? It's the price where option buyers hurt the most on expiry day. There's a hypothesis that the price tends to get pulled toward it as expiry nears, so it's often used like a magnet for expiry week.
Why would the price converge there?
Option sellers (mostly institutions) pay out the least when the settlement price lands near max pain. The hypothesis is that as they adjust the hedges they hold to reduce risk, the price gets pushed in that direction. It doesn't always hold, though — big news breaks it easily.
What is expiry?
It's the day option contracts end and profits and losses are finalized. Bitcoin options expire every Friday, and quarter-end expiries draw the most attention because the amounts at stake are large. Price swings have also tended to grow just before expiry.
How should I use it?
From a few days before expiry, watch the distance between the current price and max pain. If the price is well above it, check for a possible pullback around expiry; well below it, a possible rebound. It's only a hypothesis, so treat it as a supporting signal rather than a standalone basis.