What Is “Pin Risk” in Options Trading?
Pin risk occurs when the price of the underlying asset closes exactly at or very near the strike price of an option at expiration. This creates uncertainty for the seller (writer) of the option, as they do not know whether they will be assigned the underlying shares.
If the option is a call, the writer doesn't know if they will have to sell their shares. This uncertainty makes it difficult to manage the position and can lead to unexpected losses or unwanted stock positions over the weekend.
Glossar
Strike Price
Reference ⎊ The Strike Price is the predetermined reference level set at the contract's inception against which the underlying crypto asset's spot price is compared at expiration or exercise.
Pin Risk
Definition ⎊ Pin risk refers to the specific risk faced by option writers when the underlying asset's price hovers near the option's strike price at expiration.
Unwanted Stock
Definition ⎊ Unwanted stock in options trading refers to shares of an underlying asset acquired by an option seller as a result of assignment on a short put option.
Unexpected Losses
Definition ⎊ Unexpected losses refer to financial losses that exceed the predicted maximum loss calculated by risk management models, such as Value at Risk (VaR).
Options Clearing Corporation
Corporation ⎊ The Options Clearing Corporation (OCC) is the world's largest equity derivatives clearing organization, though in the cryptocurrency context, the term refers conceptually to the central clearing counterparty (CCP) or decentralized clearing protocol fulfilling a similar role.
Underlying Asset
Foundation ⎊ The concept of an Underlying Asset, within cryptocurrency derivatives and financial markets, establishes the core reference point for valuation and risk transfer.