Max pain is a term used in options trading to describe the strike price with the most open options contracts, and it is the price at which the stock would cause financial losses for the largest number of option holders at expiration. The term "max pain" comes from the maximum pain theory, which states that most traders who buy and hold options contracts until expiration will lose money. The theory postulates that the price of an underlying stock tends to gravitate towards its "maximum pain strike price" - the price where the greatest number of options (in dollar value) will expire worthless.

Calculating the max pain involves the summation of the dollar values of outstanding put and call options for each in-the-money strike price. The max pain price fluctuates hourly or daily, and it is important to note that when the difference between the max pain price and the current stock price bears a large value.

In summary, max pain is a trading tool that helps traders determine the strike price with the most open options contracts and the price at which the stock would cause financial losses for the largest number of option holders at expiration. It is based on the maximum pain theory, which states that most traders who buy and hold options contracts until expiration will lose money. Calculating the max pain involves the summation of the dollar values of outstanding put and call options for each in-the-money strike price.