Max pain call writing
This positional strategy uses the max pain strike as an anchor for monthly NIFTY call writing. About two weeks before the monthly expiry it calculates max pain from open interest, freezes it, and sells one call at least 5% above it. The position is a naked short call held to expiry, on the view that the index rarely runs that far above the level where option writers are most comfortable.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
All 12 trades won in this test, so the evidence can only show where the gains were larger, not where it lost. No condition had the 8 trades needed to judge it. In the 7 months when NIFTY fell more than 1% while the call was held, the trades made ₹6,568 in total; the 2 months with a rise of over 1% made ₹862. That fits the mechanism: a falling market drags the far call's value down faster, while a rally lifts it toward the strike. A month with a rally of more than 5% above max pain did not occur in this period, and that is the case the rule has no protection against.
About this strategy
- Wait for the first session with 15 or fewer calendar days (and at least 3) left to the NIFTY monthly expiry.
- At 15:00, take the open interest of every call and put within 12 strikes either side of ATM on that monthly contract.
- Find max pain: the strike where the total payout to option buyers at expiry would be smallest. Freeze it for the month.
- Sell one lot of the first call strike at or above max pain plus 5%.
- Optionally also sell a put 5% below max pain; this is off by default.
- There is no stop by default; hold to the monthly expiry and close at 15:15 that day.
Why traders use it
Max pain marks the strike where option sellers as a group would keep the most premium, and some traders believe the index tends to settle near it into expiry. Writing a call well above that level, with a 5% cushion, aims to collect premium on strikes the market seldom reaches within two weeks. Writing calls rather than puts reflects a common view that markets fall faster than they rise, so upside spikes are less frequent than crashes.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, all 12 monthly calls expired out of reach and every trade made money, for ₹10,580 before costs and no drawdown at all. The catch is the size of each gain: the average was ₹882 per month, and the best, in March, was ₹2,964. With only two orders a month, costs were light, leaving ₹9,990 after ₹20 per order and bid-ask slippage. A perfect record over twelve trades says little about the rare month when NIFTY rallies more than 5% above max pain, and a naked call has no cap on that loss.
What the settings do
Risks
- A naked short call has unlimited loss if the market rallies sharply, and there is no stop by default.
- The small premium per month means one bad month could wipe out years of gains.
- Max pain changes as open interest shifts during the month, but here it is frozen at entry.
- Naked call writing needs full margin, which is large compared with the premium collected.
Who it suits
Experienced option sellers with ample margin who understand naked call risk and want a once-a-month, low-maintenance trade. It suits those comfortable earning small, steady amounts while accepting a rare but potentially large loss.
Questions traders ask
What is max pain in options?
Max pain is the strike at which option buyers would lose the most, and sellers keep the most, if the index expired there. It is worked out from the open interest at each strike. Some traders expect the index to move toward it near expiry.
Is max pain call writing profitable?
In this backtest on NIFTY from 1 Oct 2025 to 30 Sep 2026 it won all 12 months, making ₹10,580 before costs and ₹9,990 after ₹20 per order and bid-ask slippage. The gains were small and the position is a naked call. Past results do not guarantee future ones.
Why sell only calls and not puts?
The idea behind the original rule is that markets tend to fall faster than they rise, so a far call is less likely to be breached than a far put in two weeks. Switching “Write puts” on adds the put side so you can test that view.
Can I add a stop loss to the short call?
Yes. Set “Stop mult” above 1, for example 3, and the call is bought back if its premium triples. The default has no stop, which is why the backtest shows no drawdown but also no protection against a big rally.