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Max Pain

Max pain is a trading concept that states that the market dynamics or manipulation can cause the market price of certain securities close to expiration to expire worthless.

Max pain, or the max pain price, is the strike price with the most open options contracts (i.e., puts and calls), and it is the price at which the stock would cause financial losses for the largest number of option holders at expiration.

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.

The Maximum Pain theory states that an option’s price will gravitate towards a max pain price, in some cases equal to the strike price for an option, that causes the maximum number of options to expire worthless.

Max pain calculation involves the summation of the dollar values of outstanding put and call options for each in-the-money strike price.

"You are a manipulator. I like to think of myself more as an outcome engineer."

Jessica Bird - J.R. Ward, Lover EternalAmerican novelist

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