Are you interested in Tarot or Astrology or Numerology? How can any of these help in Options trading? For the strike price prediction of expiry date in Options trading, you do not require any of these. The only thing that you require is the knowledge of basic maths.
What is Max Pain? Why is it so important? And the most important thing, how do we calculate Max Pain? Find answers to all your questions through this blog.
Max pain actually talks about pain, the pain of traders. This is the strike which causes the most pain to options buyers because they lose the most money on this strike. However, option sellers try to avoid this pain completely and this is the point of minimum loss for them.
On the option chain, you will see many strike prices which often confuses traders. Here, Max Pain is useful. By using Max Pain, traders narrow the range of stock or index and predict the expiry level. Once the strike price is known, buyers and sellers can use as many options as they want and keep the losses minimum.
Using basic maths, one just has to list the open interest of all strike prices and call input options of the asset. Calculate the loss of option sellers on each strike assuming the market closes at that strike. The strike which causes minimum loss to the option seller is Max Pain.
Pull up the Upstox power packed option chain. The only one you will need to find Max Pain and 10 plus data points right on your screen. Skip the hassle. Happy Trading!
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