A fictional stock XYZ trades for $100.00 dollars. The stock options strike prices and opem interested for XYZ are listed below.

strikeput open interestcall open interest
95 21 9
100 33 45
105 5 25

Max Pain is the strike the price at which the option buyer loses the maximum amout of money. Or, if you prefer, the point at which the option writers pay out the least of money. We must look at each strike and see how much cash value the combined calls and puts have at that strike. The first strike is 95, so lets determine how much cash value all the stock options will have if the stock were to close at $95 on options expiration.

Put options at 95 strike will be worthless, the cash value is $0. But 100 strike puts will be in the money, and have $5.00 intrinsic value. There are 33 put contracts shown in the open interest. 33 open interest x 100 shares per contract x $5.00 intrinsic value is $16,500.00 cash value. Similarly, the 105 puts will be in the money. 5 open interest x 100 shares x $10.00 intrinsic value = $5,000.00.

All call options are at the money or out of the money. All the call options expire worthless.

Adding colums to the table, we have the cash value for all options at a $95.00 stock price on options expiration.

Stock PriceStrikePutCall
Intrinsic ValueOpen InterestCash ValueIntrinsic ValueOpen InterestCash Value
95 95 0 21 $0.00 0 9 $0.00
95 100 5 33 $16,500.00 0 45 $0.00
95 105 10 5 $5,000.00 0 25 $0.00
sum cash values $21,500.00 $0.00

Now do the same calculations for the stock prices of $100 and $105.

Stock PriceStrikePutCall
Intrinsic ValueOpen InterestCash ValueIntrinsic ValueOpen InterestCash Value
100 95 0 21 $0.00 5 9 $4,500.00
100 100 0 33 $0.00 0 45 $0.00
100 105 5 5 $2,500.00 0 25 $0.00
sum cash values $2,500.00 $4,500.00

Stock PriceStrikePutCall
Intrinsic ValueOpen InterestCash ValueIntrinsic ValueOpen InterestCash Value
105 95 0 21 $0.00 10 9 $9,000.00
105 100 0 33 $0.00 5 45 $22,500.00
105 105 0 5 $0.00 0 25 $0.00
sum cash values $0.00 $31,500.00

Next, summarize the put and call cash values at the various strikes. We can add the put and call cash values to arrive at a combined cash value.

strikeput cash valuecall cash valuecombined cash value
95 $21,500.00 $0.00 $21,500.00
100 $2,500.00 $4,500.00 $7,000.00
105 $0.00 $31,500.00 $31,500.00

Last, we see combined cash value paid out by the option writers at each strike. The lowest cash value is the small amount they will pay out. It is the max pain point for the option buyers. It is the 100 strike price.

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