Understanding Max Pain: A look at Apple options expiration

“Let’s pretend I own the entire [AAPL] options chain,” Richard Bloch writes for Seeking Alpha. “What’s the best outcome for me? Either a really high price or a really low price, but certainly not something in the middle.”

“The worst possible outcome for me would be an expiration with AAPL closing at around 560,” Bloch writes. “At that level, based on all my open interest, the intrinsic value of all my calls and all my puts would be worth ‘only’ $2.45 billion.”

Bloch writes, “And that’s the point of maximum pain… Why is this so painful? Probably because those options cost way more when I bought them. After all, these options are expiring, so there’s little time, nor time value left.”

“What’s the ‘maximum pleasure’ (or really, ‘minimum pain’) if I happened to be short all those April calls and puts? The best possible outcome is the same, 560. And the theory of maximum pain relies upon the premise that sellers of options do better than buyers of options – and that collective market action will drive the price to a level where option sellers minimize their pain and maximize their pleasure,” Bloch explains.

“The maximum pain theory is interesting, but I’m not convinced that it does much good when there’s less than a 1% difference between strike prices for a stock like Apple,” Bloch writes. “But I do look at the graphs sometimes. And when you review them for future expirations, thinking in these terms of owning the entire options chain might help you understand how these figures are calculated and what they mean, if anything at all.”

Read more, and see the graphs, in the full article here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]


  1. OMG… No wonder those analysts are so brain cooked!!! I understand the desire to make sudden money but with the market bouncing, and Apple being manipulated so much, and this shorts, puts, craps, and dumps all just make it too weird.

    Me, I am Apple long till they run out of steam. Say 2016??


  2. The average price of the stocks I own for AAPL is about $100 per share.

    I am swimming in profits right now, and intend to hang in there until I need the money in retirement. Not that long a time away)

    It would have to fall a LONG way to make me lose money!

    1. The moment the stock drops, you are losing money. If you sold the stock and had the money, you could buy the stock at the lower price and increase the number of shares you own. You would be richer.

      The opposite is true also. You don’t sell the stock when it is high and keep it while it drops and you are not as rich. It doesn’t take a genius to figure out that you are wrong.

      1. Actually, he hasn’t made or lost any money unless he sales. In this case he’s lost or gained value but not actual money.

        It’s easy to say buy low, sale high and reinvest but unless you are a big fish, the average investor is just at the mercy of the market manipulation.

        Buy it like you love it and if you believe the company will either go up or down, then invest accordingly.

        Really, does anyone not believe that Apple will be considerably higher by January of next year?

  3. Long play is obviously a safe one. Daily / weekly gyrations don’t really matter much when the company is still showing massive rapid growth and keeps accumulating all that cash.

    For those who trade daily, though, this article clearly makes sense.

    Options are a very big game. Every single move of the stock is amplified 5 – 10x on options, especially when they are near expiration, and near the money. Those in the options game, especially those with a lot to gain / lose, have a lot of reasons to take action to improve their odds with those options.

    There is a reason why we often see strange gyrations during the last week before option expiration. It all evens out in the end, though, and the stock value bounces right back to where it belongs.

  4. “Max pain” simply is the average clearing price of stock at options expiration in the absence of other buying or selling pressure. In short, mildly interesting, but otherwise no big deal. Market makers hedge off their risk when opening a position by buying and selling stock, and the reverse flow happens at expiration, albeit in a much more compressed form.

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