Nifty max pain theory is all about finding the level around which option writers will have least loss. The theory of max pain is little controversial as there is not technical analysis or logic that could support it. But nifty max pain theory is usually helpful when used with tools like option chain analysis and Put-Call Ratio.
Live Nifty Max Pain Calculator
If want to understand the actual theory, varsity has good coverage. Though most of the people in trading arena disagree to the max pain theory, it still holds true.
This is because option writing is a high-probability but high-risk game. So the point where all risk-takers (or big players) have minimum loss if max pain point.
It is called pain point because this is point where option buyer’s loss is maximum. If you are a trader then you need keep an eye on pain point. If it is higher while market is falling then it can bounce back. If pain point is lower and market have increased, they are ought to fall. Remember, option writing requires huge margin. This means only people with good amount of trading capital do it.
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