Pin Risk
Pin risk is the uncertainty faced by traders who are short options contracts when the underlying stock closes exactly at — or very near — the strike price at expiration, creating ambiguity about whether the option will be exercised and resulting in an unexpected stock position.
Pin risk gets its name from the market phenomenon known as option pinning: when a stock price appears to gravitate toward a heavily traded strike price as expiration approaches, as market makers hedge their gamma exposure by dynamically buying and selling shares. This gravitational pull can cause the stock to close precisely at a strike price, leaving traders who are short that option uncertain about whether they will be assigned.
The problem for traders who are short an at-the-money option near expiration is that even a tiny difference in the final closing price determines whether they face assignment. If a stock closes at $100.01, a $100 call expires in-the-money by $0.01 and will be automatically exercised by the OCC (exercise by exception), resulting in the seller being assigned. If it closes at $99.99, the call expires worthless. This creates a binary uncertainty for the short option holder that is impossible to hedge perfectly in the final minutes of trading.
Retail traders who sold options and forgot to manage them before the close on expiration Friday are particularly exposed to pin risk. A trader who sold a straddle or strangle expecting the stock to expire harmlessly between two strikes may suddenly find themselves assigned on one or both legs if the stock settles on or between strikes. The resulting stock position — potentially 100 or 200 shares long or short — may require immediate action to avoid unintended overnight exposure.
Professional traders and market makers who carry large gamma books near expiration deal with pin risk systematically by monitoring the final hours of trading closely, submitting exercise instructions or contrary exercise notices when appropriate, and hedging gamma exposure in real time. For retail traders, the most practical approach to avoiding pin risk is to close all short options positions — particularly those near at-the-money — well before the close on expiration day.
Pin risk is more severe for weekly options than for monthly options due to their shorter lifespan and the larger relative concentration of open interest at nearby strikes. The proliferation of zero-day-to-expiration (0DTE) options on products like the SPY ETF and SPX index has made pin risk a topic of active discussion among institutional and retail market participants alike.