Options Trading is a zero-sum game and Option Pain is the underlying level at which Option Buyers face having the maximum loss & Option Sellers will make the most profit or least loss at the point. (If held till expiration)
Max Pain is calculated by multiplying the Open Interest with Intrinsic Value of Options at various expiry levels for each strike and further Pain Curve is derived by adding Call & Put P&L at each strike. Level with Max Profit or lowest loss being the Option Pain.
Option Writers/Sellers are expected to be smart as they take an unfavourable Reward to Risk trade, and their trade has an unlimited loss scenario. So they tend to have a thoroughly researched approach, hence Max pain becomes key expiry level.Option Writers adjust positions with revised forecasts & the market as a whole tends to adhere to that.
We have many learning resources on the application & on Youtube to help you decode Option pain and use it for your expiry day trading. Learn from our videos by Mrs. Tina Gadodia (President, Quantsapp), Mr. Rahul Prajapati (Head Trainer) & Mr. Shubhankar Patil.