How to calculate max pain
Max pain is arithmetic on a single dated snapshot: the settlement strike where total intrinsic payout to option holders is lowest.
Step 1: list every observed strike
Gather call open interest and put open interest at every strike present in the snapshot for one underlying and one expiry. Strikes with no reported open interest are left out, not assumed to be zero unless the source confirms it.
Step 2: sum intrinsic payout at each candidate strike
For a candidate settlement price S, call intrinsic payout is the sum, across every strike K at or below S, of (S − K) × call open interest at K. Put intrinsic payout is the sum, across every strike K at or above S, of (K − S) × put open interest at K. Multiply the combined total by the contract multiplier.
Step 3: repeat for every observed strike and take the minimum
Recompute that sum treating each observed strike as the candidate settlement price, then find the strike (or tied strikes) with the smallest total payout. That strike is the max-pain candidate for that single snapshot.
Step 4: never treat it as a forecast
Max pain describes where option sellers as a group would owe the least, given today’s open interest. It is not a prediction of where the underlying will settle, and it can shift materially as open interest changes between now and expiry.