Pin Risk

January 27th, 2022, 10:10 AM

Anyone who trades options at any time should view one or both of these
videos on U-Tube.

Pin risk for stocks. Video 2 explains this. There are 90 min. after
close of market on expiration day where an option could be exercised
by the owner leaving you with a large short position over the week end
and huge losses. Not paying attention or saving minimal $ over commissions
,etc can be deadly.

The SPX is cash settled which (as far as I know) eliminates pin risk for SPX.

Now for futures (ES, NQ, etc.) . There is pin risk for futures. If you are caught
in a vertical (for example pinned ) between the short and long at expiration, you must
take possession of the underlying (on the side that is in the money).
Which in this case if a futures contract. Again you will have a large directional bias
over the weekend with the possibility of huge losses.

The solution is easy. Close out all positions before expiration.
My broker tells me that he gets a good number of calls after expiration day
about pin risk losses.

January 27th, 2022, 12:22 PM

This is a really great post, thank you for sharing. Though I once had to take a FINRA exam on all of this stuff, I had completely lost track of when options are auto-assigned, what the manual exercise window is, and all of that.

The world of options is truly a minefield, and it's amazing how many folks are out there trading them without understanding how dangerous it can be!

When it comes to options on futures, like those on ES for example, the offerings alone are pretty large and it takes some work to understand what you're actually trading, based on the code. You have end-of-month, quarterly, weekly. Some are American and some are European. Some are AM-settled, some PM. Then there's the SOQ... Lots of details there.

Pin Risk

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