Visit the Yahoo Finance message board and you'll find that many posters claim max pain and "pinning" on option expiration dates is manipulation. In truth, the concept is not difficult to comprehend.
First, and option is a two-sided contract. When you purchase an option, someone must sell, or write, the option. The option writer collects the premium, but then is ultimately responsible to fulfill the option contract should it get exercised.
The market maker (MM) for a stock is required to make a market. So, if you buy an option, the MM must write it. In the case of Apple (AAPL), the MM is Goldman Sachs (GS) and they write the options you purchase.
The MM has effectively established a position by writing the option. In order to remain neutral, the MM will hedge the written options with a position in the stock. The hedge is created when the option is written.
The stock prices flucuates as the option maturity approaches. In addition, contracts begin closing. The MM must periodically rebalance his hedges to remain nuetral. The rebalancing results in the buying and selling of shares and therefore affects the stock price. This rebalancing provides a force driving the stock to toward max pain.
This means a couple of things. One, max pain only becomes a factor as maturity approaches. For weekly options, you may see pinning begin on Thursdays. Monthly option max pain takes place during the last week before maturity.
Two, the more open interest the greater force behind max pain. More open contracts means more contracts written by the MM, more stock in the hedge, and therefore more influence over the stock. The large amount of weekly and monthly open interest in Apple (AAPL) is why that stock is the poster child for max pain. It also means max pain has more influence on the monthly expiration since there is usually more open interest in the monthly options.
Three, max pain is only one factor driving the stock price. Earning releases, breaking news and overall market sentiment are other factors. These factors may have more influence than max pain. In fact, max pain works best when there is low volume and little else is moving the stock.