**Suppose Nifty is trading at 8000.**

For Simplicity’s sake, I assume only three strike prices are there for the Nifty Options which are 7900, 8000, 8100. And here goes the Open Interest of Put Options and Call Options of the said strike price.

Open interestis the total number of open or outstanding (not closed or delivered) derivatives (options and futures) that exist on a given day. If A buys 1 lot of option contract and B sells 1 lot of option contract; then the Open Interest increases by 1

Strike | Put OI | Call OI |
---|---|---|

7900 | 1110975 | 322950 |

8000 | 3114525 | 966225 |

8100 | 2259900 | 570975 |

For Novice,

**Buying NIFTY FEB 7900 PE**means You’re betting on the underlying asset, Nifty will stay down 7900 at the time of expiry of the contract in February end.**Buying NIFTY FEB 7900 CE**means You’re betting on the underlying asset, Nifty will stay above 7900 at the time of expiry of the contract in February end. .

So, Selling NIFTY FEB 7900 PE = Buying NIFTY FEB 7900 CE in terms of concept. But Selling NIFTY FEB 7900 PE will have more probability of profit due to time decay. That’s another story.

**Options Max Pain Theory**

**Options Max Pain Theory suggests,** “On option expiration day, the underlying stock price often moves toward a point that brings maximum loss to option buyers.”

The theory has tons of pros and cons. You can read more here – **Option Strategy: Max Pain Theory**

However, let’s see how to find that point here because unless you manually calculate the point at least once, there is no way you can take advantage of this theory.

Max Pain is the strike the price at which the option buyer loses the maximum amount of money. But we will calculate the price where option sellers loses the minimum. Hence it’s the same point!

We must look at each strike and see how much Net Profit or Loss will be there if the underlying asset closes at that strike price. Then we choose the strike price that gives us the minimum loss.

**Let’s calculate on our hypothetical Nifty.**

**Case 1: Nifty closes at 7900 at the time of expiry**

- NIFTY 7900 PE i.e Put Options of NIFTY with strike price of 7900 is worthless.
- NIFTY 8000 PE and NIFTY 8100 PE are in the money.

Since the derivatives move proportionately with the underlying asset. We can get an intrinsic value of 7900 PE, 8000 PE and 8100 PE which we can use as a price difference instead of using assumptive hypothetical prices. (As we don’t know the real price at the time of expiry.)

- 8000 PE will have intrinsic value of (8000–7900) = 100
- 8100 PE will have intrinsic value of (8100–7900) = 200

Asset Price | Strike Price | Intristic | Put OI | Total Put Value | Intristic | Call OI | Total Call Value |
---|---|---|---|---|---|---|---|

763432500 | 0 | ||||||

7900 | 7900 | 0 | 1110975 | 0 | 0 | 322950 | 0 |

7900 | 8000 | 100 | 3114525 | 311452500 | 0 | 966225 | 0 |

7900 | 8100 | 200 | 2259900 | 451980000 | 0 | 570975 | 0 |

So the cash value of all the options at 7900 strike price is Total Put Value + Total Call Value = 763432500 + 0 = 763432500

**Case 2: Nifty closes at 8000 at the time of expiry**

Asset Price | Strike Price | Intristic | Put OI | Total Put Value | Intristic | Call OI | Total Call Value |
---|---|---|---|---|---|---|---|

225990000 | 32295000 | ||||||

8000 | 7900 | 0 | 1110975 | 0 | 100 | 322950 | 32295000 |

8000 | 8000 | 0 | 3114525 | 0 | 0 | 966225 | 0 |

8000 | 8100 | 100 | 2259900 | 225990000 | 0 | 570975 | 0 |

So the cash value of all the options at 8000 strike price is Total Put Value + Total Call Value = 32295000 + 225990000 = 258285000

**Case 3: Nifty closes at 8100 at the time of expiry**

Asset Price | Strike Price | Intristic | Put OI | Total Put Value | Intristic | Call OI | Total Call Value |
---|---|---|---|---|---|---|---|

0 | 161212500 | ||||||

8100 | 7900 | 0 | 1110975 | 0 | 200 | 322950 | 64590000 |

8100 | 8000 | 0 | 3114525 | 0 | 100 | 966225 | 96622500 |

8100 | 8100 | 0 | 2259900 | 0 | 0 | 570975 | 0 |

So the cash value of all the options at 8100 strike price is Total Put Value + Total Call Value = 0 + 161212500 = 161212500

**What the Maximum Pain Strike Price here? **

In this table, we see combined cash value paid out by the option writers at each strike price.

Strike | Put OI | Call OI | Call value | Put value | Total |
---|---|---|---|---|---|

7900 | 1110975 | 322950 | 0 | 763432500 | 763432500 |

8000 | 3114525 | 966225 | 32295000 | 225990000 | 258285000 |

8100 | 2259900 | 570975 | 161212500 | 0 | 161212500 |

8100 is the maximum pain strike price here as you can see from the ‘Total’ column of 8100 strike price causes minimum loss to the option writers.

**So according to the theory,**

- you can take any put positions as all of them will expire worthless.
- You can also sell call options of 8100 strike price as both call and put options will expire for 8100 strike price.

I had the entire Maximum Pain Strike Price of Nifty calculated in an excel sheet by hand. See my results of max pain **in this post along with notes on optimizing the strategy.**

Asset Price | Strike Price | Intristic | Put OI | Total Put Value | Intristic | Call OI | Total Call Value |
---|---|---|---|---|---|---|---|

18382590000 | 0 | ||||||

7900 | 7900 | 0 | 1110975 | 0 | 0 | 322950 | 0 |

7900 | 8000 | 100 | 3114525 | 311452500 | 0 | 966225 | 0 |

7900 | 8100 | 200 | 2259900 | 451980000 | 0 | 570975 | 0 |

7900 | 8200 | 300 | 3391050 | 1017315000 | 0 | 1185225 | 0 |

7900 | 8300 | 400 | 3573750 | 1429500000 | 0 | 1073775 | 0 |

7900 | 8400 | 500 | 4609875 | 2304937500 | 0 | 1189875 | 0 |

7900 | 8500 | 600 | 5305275 | 3183165000 | 0 | 1681350 | 0 |

7900 | 8600 | 700 | 4475475 | 3132832500 | 0 | 2206125 | 0 |

7900 | 8700 | 800 | 3318900 | 2655120000 | 0 | 3062475 | 0 |

7900 | 8800 | 900 | 1066575 | 959917500 | 0 | 4498575 | 0 |

7900 | 8900 | 1000 | 619650 | 619650000 | 0 | 3831675 | 0 |

7900 | 9000 | 1100 | 1542525 | 1696777500 | 0 | 6186750 | 0 |

7900 | 9100 | 1200 | 334950 | 401940000 | 0 | 2828025 | 0 |

7900 | 9200 | 1300 | 90750 | 117975000 | 0 | 2133000 | 0 |

7900 | 9300 | 1400 | 38100 | 53340000 | 0 | 888225 | 0 |

7900 | 9400 | 1500 | 31125 | 46687500 | 0 | 453300 | 0 |

However, if you do the calculation with tons of strike price, you will see like this above table.