For every option, the trader needs to know about max pain. If you trade options and aren’t knowledgeable about the trading range you are entering, things can go wrong quickly. With individual stocks, anything can happen at any given time. But when trading the indexes, you get more forgiveness in a tradable range with less volatility. If you’re wondering what SPY max pain is, you’ve come to the right place.
It is probably easy to surmise what SPY max pain is from the name itself. You’ve probably even heard the phrase on social media or if you follow analysts or traders. In this article, I’ll explain SPY max pain, how you can find it, and why every trader needs to know.
What Is SPY?
Let’s start with the basics: What is SPY? SPY is probably the most commonly used ticker symbol worldwide. It is the ticker symbol for the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), which tracks the benchmark S&P 500 index. The SPDR S&P 500 ETF has the largest AUM or assets under management in the United States, with more than $630 billion in AUM as of 2025.
Why is the S&P 500 important? It is an index that holds the 500 largest publicly traded American companies. Therefore, the S&P 500 is a great indicator of the strength of the stock market and the American economy.
You have probably heard of the market making about 9-10% annually if you invest in index funds. This number is derived mostly from the S&P 500, which has returned about 9.0% annually since its inception in 1957.
You can trade options on SPY, so I am writing this article. SPY option volumes are some of the largest during any given trading session. You can buy or sell options against SPY or own the underlying asset.
Is it similar to trading options against the SPX Index itself? SPY options offer a bit more flexibility. SPX options are cash-settled, so the result of the trade will be credited or debited from your brokerage account.
They can also not be closed before the expiration date. However, SPY options are American-style, so you can roll them, exercise them, and close them anytime before the contract expires.
What Is SPY Max Pain?
Options traders already know the pain of buying calls or puts and having them lose their value by the expiration date. Max pain refers to the strike price or prices with the largest open interest (puts and calls outstanding) that would expire worthless by the expiration date of those contracts.
In other words, max pain is often the widely owned options contract strike price that can cause the greatest financial losses to the largest number of traders.
The Max Pain Hypothesis is a financial theory that states that most traders who hold options trades until the expiration date will eventually lose money. This is true because market makers or options writers hedge against large positions as the expiration date approaches.
This helps them balance and stay neutral on positions or stocks. It’s why we see volatility in well-traded names like Tesla or SPY as they approach a key expiration date.
It is a fairly pessimistic way to look at how market makers can impact the options market.
As for SPY max pain, it means the strike price for SPY options that can cause the greatest financial losses. For SPY, this can be a big job for market makers. More than 6 million SPY options contracts are traded daily, with an average open interest of more than 21 million contracts.
Another aspect of SPY options is that they have daily expiration dates. Thus, market makers must often devise a max pain scenario for each trading session.
Dealers generally know what the max pain price is heading into a session, but it’s ait’swhy you can see some funny price action in the last few minutes of each trading day. It’s aIt’s of work to balance the markets and prevent too many traders from being profitable.
How to Calculate the Max Pain Price for SPY Options
So, if you’re trading SPY or any asset, how can you calculate the max pain price? It’s not a difficult calculation, but it can be time-consuming. If you can create an algorithm or formula for this, you could automatically calculate for each session. If you still like to write things out with pen and paper, then here is how you calculate the max pain price.
Identify the in-the-money contracts for puts or calls of the underlying asset.
- Calculate the difference between the price of SPY and the strike price
- Multiply that number by the open interest (outstanding contracts) at that strike
- Add the dollar values of the put and call at that strike price together
- Repeat Steps 1-3 for each strike price for SPY options
The highest value strike price will be the max pain price for that expiration date.
This formula multiplies the number of outstanding options contracts for an asset by the difference between the price and the strike price. Generally, the largest order interest for a given strike price will be the max pain price, but it can deviate depending on the situation.
Is SPY Max Pain a Reliable Indicator?
As with most indicators, one should never decide to enter a trade based solely on the SPY Max Pain price. While the SPY Max Pain price indicates strike prices for avoiding buying options contracts, it’s just one of a long list of factors that can impact the underlying asset’s price.
Add it to your trader’s toolbox rather than using it to decide if you should trade SPY. The SPY Max Pain price can provide a great idea of what market makers look at to keep things balanced. The data and numbers are true: order interest and options volume determine which strike prices are overbought.
You can find the crowded trade for any given asset using the Max Pain price. It doesn’t have to be for SPY; it can be used for any stock or ETF that trades options.
Example of SPY Max Pain
Here is a hypothetical example of a max pain price for SPY. Let’s say that the current price of SPY is nice, even at $550 per share. If you want to look at the weekly options for SPY, you can see that the largest order interest for its options contracts is $555. Traders have bought the most contracts for $555 and anticipate moving to that strike price by expiration.
Why would they think $555 is a significant number? There are many possible reasons. For example, we could have seen a lot of institutional buying of the SPY $555 call options for that date. Technical analysis could be lining up for a confluence at $555 and above. We could expect a bullish market-moving event, such as good earnings or economic data.
There is a long list of things that traders could look at to make them decide that $555 is the best strike price. But here’s the thing: market makers are looking at the same things. If the most open interest is $555, they will do everything possible to ensure that the largest number of contracts expire worthless by Friday.
When you hear market makers are manipulating the markets or pinning it to that strike, this is what they mean. They would do this to incur the most pain possible for market participants.
Final Thoughts: SPY Max Pain
So, should you avoid or embrace the max pain price for options as a trader? As always, the answer lies somewhere in the middle. Before entering a trade, You should always know the potential max pain price. Don’t enter a trade because of it, but always know the potential outcomes and your exit strategy.
SPY max pain is essential for any trader who trades options on the SPY ETF. The calculation might be tedious, but it can save you a lot of pain when you have worthless options.
One way to avoid the max pain is not to hold your options until expiration. Selling them if you hit a certain profit level is always a smart strategy. Nobody ever went broke from taking profits!
Frequently Asked Questions
What Is SPY Max Pain Theory?
The SPY Max Pain Theory states that most holders of options contracts will lose money over time if they hold them until expiration. Market makers will attempt to find the max pain price, which is the strike price with the highest order interest. This causes the largest financial losses to the largest market participants.
Does SPY Max Pain Always Work?
In a way, SPY Max Pain will always be accurate, although the data is constantly changing. Order interest for options can change daily, so the max pain price one day may not be the same the next.
What Is the Max Pain Idea?
The max pain idea is the strike price for options contracts that will cause the most financial losses. These losses occur when the options contracts expire worthless by the expiration date.
What Does Open Interest Mean?
Open interest is the number of outstanding options contracts held after purchase. If options positions are closed out or sold to close, the order interest will decrease, while the open interest will remain the same.
