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pin risk wikipedia jump to content main menu main menu move to sidebar hide navigation main page contents current events random article about wikipedia contact us contribute help learn to edit community portal recent changes upload file special pages search search appearance donate create account log in personal tools donate create account log in contents move to sidebar hide top 1 background 2 example 3 management of pin risk 4 see also 5 references toggle the table of contents pin risk add languages add links article talk english read edit view history tools tools move to sidebar hide actions read edit view history general what links here related changes upload file permanent link page information cite this page get shortened url switch to legacy parser print export download as pdf printable version in other projects wikidata item appearance move to sidebar hide from wikipedia the free encyclopedia type of risk in options trading the topic of this article may not meet wikipedia s general notability guideline please help demonstrate the notability of the topic by citing reliable secondary sources that are independent of the topic and provide significant coverage of it beyond a mere trivial mention if notability cannot be shown the article is likely to be merged redirected or deleted find sources pin risk news newspapers books scholar jstor july 2026 learn how and when to remove this message this article needs more citations please help improve this article by adding citations to reliable sources unsourced material may be challenged and removed find sources pin risk news newspapers books scholar jstor july 2026 learn how and when to remove this message pin risk occurs when the market price of the underlier of an option contract at the time of the contract s expiration is close to the option s strike price in this situation the underlier is said to have pinned the risk to the writer seller of the option is that they cannot predict with certainty whether the option will be exercised or not so the writer cannot hedge their position precisely and may end up with a loss or gain there is a chance that the price of the underlier may move adversely resulting in an unanticipated loss to the writer in other words an option position may result in a large undesired risky position in the underlier immediately after expiration regardless of the actions of the writer background edit sellers of option contracts often hedge them to create delta neutral portfolios the objective is to minimize risk due to the movement of the underlier s price while implementing whatever strategy led to the sale of the options in the first place for instance a seller of a call may hedge by buying just enough of the underlier to create a delta neutral portfolio as time passes the option seller adjusts his hedge position by buying or selling some quantity of the underlier to counteract changes in the price of the underlier at expiration usually either the option is in the money and the seller has bought or sold enough of the underlier to satisfy his obligation under the option contract or the option is out of the money and the option will expire worthless and the seller of the option would have no position in the underlier however the cost to the option buyer of exercising the option is not zero for instance the buyer s broker may charge transaction fees to exercise the option to buy or sell the underlier if these costs are greater than the amount the option is in the money the owner of the option may rationally choose not to exercise thus the option seller may end up with an unexpected position in the underlier and thus risk losing value if the underlier s price then moves adversely before the option seller can eliminate this position perhaps not until the next trading day the costs of exercise differ from trader to trader and therefore the option seller may not be able to predict whether the options will be exercised or not example edit a trader has sold 75 put contracts on xyz corp stock struck at 50 and expiring on saturday october 20 2012 on friday october 19 the last day these contracts are traded xyz stock closes at 49 97 which means the options are 0 03 in the money because each contract represents an obligation to buy 100 shares of xyz stock at 50 00 the trader will have to buy anywhere from 0 shares to 7500 shares of xyz stock as a result of the puts being exercised in fact only 49 of the contracts are exercised meaning that the trader must buy 4900 shares of the underlier if at the close on friday october 19 the trader s position in xyz stock was short 7 500 shares then on monday october 22 the trader would still be short 2600 shares instead of flat as the trader had hoped the trader must now buy back these 2600 shares in order to avoid being exposed to risk that xyz will increase in price management of pin risk edit on the day that an option expires for u s exchange traded equity options this is the saturday following the third friday of the month if an option s underlier is close to pinning the trader must pay close attention a small movement of the underlier s price through the strike e g from below the strike price to above or vice versa can have a large impact on the trader s net position in the underlier on the trading day after expiration for instance if an option goes from being in the money to out of the money the trader must rapidly trade enough of the underlier so that the position after expiration will be flat for example a trader is long 10 calls struck at 90 00 on ibm stock and five minutes before the close of trading ibm s stock price is 89 75 these calls are out of the money and therefore will expire worthless at this price however two minutes before the close of trading ibm s price suddenly moves to 90 26 these options are now in the money and the trader will now want to exercise them however to do so the trader should first sell 1000 shares of ibm at 90 26 this is done so that the trader will be flat ibm stock after expiration thirty seconds before the close ibm drops back to 89 95 the calls are now out of the money and the trader must quickly buy back the stock option traders with a broad portfolio of options can be very busy on expiration friday pinning of a stock to a particular strike can be exploited by options traders one way is to sell both a put and a call struck at the pinned value as noted above stocks can break their pin and move off the strike so the trader must keep a careful eye on his positions in this market the last available price of the underlier which is used to determine whether an option is automatically exercised is the price of the regular hours trade reported last to the options clearing corporation at or before 4 01 30 pm et on the friday before expiration this trade will have occurred during normal hours i e before 4 00 pm it can be any size and come from any participating exchange the occ reports this price tentatively at 4 15 pm but to allow time for exchanges to correct errors the occ does not make the price official until 5 30 pm 1 see also edit option finance volatility arbitrage delta neutral references edit occ infomemo 30048 underlying prices for expiration accessed jan 21 2012 v t e derivatives market derivative finance list of futures exchanges options terms delta neutral exercise expiration moneyness open interest pin risk risk free interest rate strike price synthetic position the greeks volatility vanillas american bond option call employee stock option european fixed income fx option styles put warrants exotics asian barrier basket binary callable bull bear contract chooser cliquet compound forward start interest rate lookback mountain range rainbow spread swaption strategies backspread box spread butterfly calendar spread collar condor covered option credit spread debit spread diagonal spread fence intermarket spread iron butterfly iron condor jelly roll ladder naked option straddle strangle protective option ratio spread risk reversal vertical spread bear bull valuation valuation methods continuous time stochastic processes arithmetic diffusion bachelier geometric diffusion black black scholes garman kohlhagen margrabe stochastic volatility heston jump processes jump diffusion multi curve framework multi curve framework discrete time processes binomial trinomial lattices numerical methods finite difference mc simulation real options model free put call parity vanna volga swaps amortising asset basis commodity conditional variance constant maturity correlation credit default currency dividend equity forex forward rate agreement inflation interest rate overnight indexed total return variance volatility year on year inflation indexed zero coupon zero coupon inflation indexed forwards futures contango spot contract backwardation commodities future currency future dividend future forward market forward price forwards pricing forward rate futures pricing interest rate future margin perpetual futures single stock futures slippage stock market index future exotic derivatives energy derivative freight derivative inflation derivative property derivative weather derivative other derivatives collateralized debt obligation cdo constant proportion portfolio insurance contract for difference credit linked note cln credit default option credit derivative equity linked note eln equity derivative foreign exchange derivative fund derivative fund of funds interest rate derivative mortgage backed security power reverse dual currency note prdc market issues consumer debt corporate debt government debt great recession municipal debt tax policy business portal retrieved from https en wikipedia org w index php title pin_risk oldid 1363836356 categories options finance derivatives finance hidden categories articles with short description short description matches wikidata articles with topics of unclear notability from july 2026 all articles with topics of unclear notability articles needing additional references from july 2026 all articles needing additional references this page was last edited on 12 july 2026 at 19 45 utc page was rendered with parsoid text is available under the creative commons attribution sharealike 4 0 license additional terms may apply by using this site you agree to the terms of use and privacy policy wikipedia is a registered trademark of the wikimedia foundation inc a non profit organization privacy policy about wikipedia disclaimers contact wikipedia legal safety contacts code of conduct developers statistics cookie statement mobile view search search toggle the table of contents pin risk add languages add topic