Options Pin Risk Management At Expiry

When to Use

Use this skill on the expiration date of an options position, while the option can still be traded. Pin risk is the writer's problem of not knowing what position they will hold when the market reopens, and it exists because three deadlines are separated in time:

Between 4:00 and 5:30 the underlying keeps trading after hours while the writer cannot. A holder who watches the stock cross the strike can file a Contrary Exercise Advice either to cancel the automatic exercise of an in-the-money option or to exercise one that would otherwise be abandoned. That is the whole of pin risk, and it cuts both ways.

When NOT to Use

• On cash-settled contracts, as an assignment screen. SPX, NDX and similar settle in cash at the exercise-settlement value. There is no share position to be surprised by. The engine reports them with a zero share delta and status CASH_SETTLED_NO_ASSIGNMENT_AMBIGUITY; their real expiry exposure is settlement-value determination — AM-settled contracts settle off the next morning's opening prints — which belongs to physical-vs-cash-settlement-handling and options-chain-expiry-cycle-conventions-by-exchange.
• As a probability of assignment. Whether your account is assigned depends on OCC allocation to your clearing member and then that member's FIFO / random / equally-random allocation across its short open interest (FINRA Rule 2360(b)(23)(C)). None of that is an input here. The output is a directive, not a likelihood.
• Before expiration day, as an early-exercise screen. Ex-dividend capture and carry-driven put exercise are a different problem on a different clock — see early-exercise-assignment-risk-management.
• As a clock, session calendar, or broker-cutoff scheduler. hours_to_trading_close is a number you supply. The engine does not know the venue's session, the holiday calendar, or your broker's exercise cutoff — and the broker's cutoff, not the 5:30 p.m. ET regulatory deadline, is what actually binds a customer.
• As reference data. contract_multiplier and settlement_type are contract terms you must source. A corporate action changes the deliverable: OCC publishes an adjustment memo, and an adjusted contract may deliver a non-round share count, cash in lieu, or a basket rather than 100 shares.

Prerequisites

• Per position: symbol, underlying_symbol, strike, option_type (CALL/PUT), position_qty (signed, non-zero), spot_price, hours_to_trading_close, contract_multiplier (100 for standard US equity options), settlement_type (PHYSICAL/CASH).
• spot_price should be the official closing price once it is known. OCC applies the exercise-by-exception test to the close, so any moneyness verdict from an intraday last price is provisional. Set price_is_official_close=True when it is final; until then the report carries a PROVISIONAL_PRICE_NOT_OFFICIAL_CLOSE flag.
• hours_to_trading_close, not hours to expiry. Expiry is 11:59 p.m. ET, about eight hours after the equity option close. A cutoff measured against expiry reports hours remaining on a position that can no longer be traded out of. Negative values are accepted and mean trading has already closed.
• Pin policy: pin_distance_pct (default 1.0%), pin_cutoff_hours (default 2.0), optionally pin_distance_abs_usd.

Workflow

1. Pin Zone Detection:
   • $\text{PinDistance}_{%} = \frac{|S - K|}{S} \times 100%$; the position is in the pin zone when the distance is inside the band and $\text{HoursToTradingClose} \le \text{PinCutoffHours}$.
   • Decision point — a percentage band alone scales the wrong way. 1% of a $5 underlying is $0.05, too tight to catch any realistic after-hours move; 1% of a $600 underlying is $6.00, wide enough to flag positions that are not remotely pinned. Set pin_distance_abs_usd to add an absolute band, applied with OR. It defaults to None so no threshold is invented for you.
2. Signed Moneyness vs the Exercise-by-Exception Threshold:
   • $\text{Moneyness}{\text{call}} = S - K$, $\text{Moneyness}{\text{put}} = K - S$.
   • In the money by $\ge $0.01$ per share at the close $\implies$ default outcome AUTO_EXERCISED under OCC Rule 805; otherwise EXPIRES_WORTHLESS.
   • Decision point — compare on a rounded value. Binary floating point renders an exact one-cent difference as slightly less than $0.01 for most strikes ($1234.01 - 1234.00 = 0.009999999999990905$), so a raw comparison misclassifies the exact boundary the rule turns on.
3. Direction-of-Surprise Resolution — the band is not a symmetric condition:
   • Short, ITM: assignment is the default; a holder's contrary advice can cancel it, so a writer who pre-hedges by buying stock can end up holding the hedge and no assignment $\implies$ CLOSE_POSITION_BEFORE_EXPIRY.
   • Short, OTM: abandonment is the default, but a holder can still file to exercise, leaving an unhedged share position $\implies$ CLOSE_POSITION_BEFORE_EXPIRY. An OTM short is not safe.
   • Long, ITM: will be exercised into shares unless a do-not-exercise instruction is filed. The exposure is unwanted or unfunded delivery $\implies$ CLOSE_POSITION_BEFORE_EXPIRY, with dne_eligible set and the intrinsic that a DNE would forfeit quantified.
   • Long, OTM: expires worthless by default and the holder elects. There is nothing to resolve $\implies$ NO_ACTION_HOLDER_ELECTS. A DNE here is a no-op on a contract already abandoned by default.
   • Trading already closed ($\text{hours} < 0$) $\implies$ POST_CLOSE_EXPOSURE_REVIEW, never a close order that cannot be executed.
4. Exposure Quantification — two different numbers, both reported:
   • $\text{ShareDelta} = \pm, |Q| \times \text{Multiplier}$, signed by delivery direction (short call and long put deliver shares away; short put and long call receive them).
   • $\text{ShareNotional} = |\text{ShareDelta}| \times S$ — market value of the shares that move.
   • $\text{AssignmentCash} = |\text{ShareDelta}| \times K$ — cash actually exchanged. Use this one to size a margin call: an assigned short put is funded at the strike, and spot understates it exactly when the put is ITM.
5. Portfolio Netting (audit_portfolio_pin_risk): per underlying, report the range $[\min, \max]$ of share positions the book can wake up to, and the short contracts with no reliably-exercising long leg against them.

Full procedure: see references/workflows.md. Standards reference: see references/standards.md. Printable pre-flight checklist: see assets/checklist.md.

Common Pitfalls

• Treating an out-of-the-money short as safe. A Contrary Exercise Advice can be filed to exercise an option that exercise-by-exception would abandon. A short that closed $0.05 out of the money is a candidate for assignment, not a position that has expired.
• Pre-hedging an in-the-money short and assuming assignment. The advice runs the other way too: the holder can cancel the automatic exercise. Buying the stock to cover an "certain" assignment converts pin risk into an outright long position over the weekend.
• Unwinding one leg of a defined-risk spread. Closing the long leg while the short leg is pinned turns a defined-risk spread into a naked short. So does keeping a long leg that is far enough out of the money that it will not be exercised: it delivers nothing, so it hedges nothing. Only a long leg in the money beyond the $0.01 threshold covers the short's delivery — this is what audit_portfolio_pin_risk checks, and a per-position audit structurally cannot see it.
• Measuring the cutoff against expiry rather than the close. OCC expiration time is 11:59 p.m. ET. A cutoff measured against it happily reports "8 hours remaining" on a position that stopped trading at 4:00 p.m. and can no longer be closed.
• Assuming the regulatory deadline is your deadline. 5:30 p.m. ET is the outer limit under FINRA Rule 2360(b)(23)(A); members may and routinely do set earlier cutoffs. Your broker's published cutoff is the one that binds you — look it up rather than assuming a number.
• Reporting assignment exposure at spot. Delivery moves shares worth $|\text{ShareDelta}| \times S$, but the cash that must be funded is $|\text{ShareDelta}| \times K$. Sizing a short-put assignment at spot understates the funding requirement precisely when the put is in the money.
• Hard-coding a 100-share multiplier. Mini contracts and options adjusted for a split, spin-off or merger deliver something other than 100 shares. Read the deliverable from reference data or the OCC adjustment memo.
• Running the assignment logic over cash-settled index options. There is no share delivery to be uncertain about; reporting a six-figure "assigned share notional" for an SPX position is a number the contract cannot produce.
• Scoring on a provisional price. The exercise-by-exception test is applied to the official close. A verdict computed at 3:55 p.m. is a forecast.

Verification

• Instantiate OptionsPinRiskManagementEngine(). Audit a short 10-lot $100 call at $100.50 spot with 1.0h to the close: verify pin_distance_pct == 0.497512, status == "HIGH_PIN_RISK_ACTION_REQUIRED", recommended_action == "CLOSE_POSITION_BEFORE_EXPIRY", assigned_share_delta == -1000.0, assigned_share_notional_usd == 100_500.0 and assignment_cash_usd == 100_000.0.
• Flip it to a short put at $99.60 spot: verify assigned_share_delta == +1000.0 and that assignment_cash_usd ($100,000, at the strike) exceeds assigned_share_notional_usd ($99,600, at spot).
• Boundary: at strikes 45, 3 and 1234 with spot exactly $0.01 higher, verify is_itm_at_ex_by_ex_threshold is true for all three — raw float subtraction returns false for each.
• Long 5-lot $100 call at $100.02: verify dne_eligible is true, intrinsic_forfeited_if_dne_usd == 10.0 against assignment_cash_usd == 50_000.0. At $99.98: verify status == "PIN_ZONE_HOLDER_ELECTION" and is_pin_risk_high is false.
• Spread: short 10 × $100 calls pinned at $100.20 with long 10 × $105 calls $\implies$ UNPAIRED_SHORT_PIN_EXPOSURE, unpaired_short_shares == {"CALL": 1000.0}, range $[-1000, 0]$ shares. Replace the long leg with $95 calls $\implies$ PINNED_SHORT_DELIVERY_COVERED, range $[0, +1000]$.
• Netting is in shares: pair the same pinned short against 10 long $95 calls with contract_multiplier=10 and verify unpaired_short_shares == {"CALL": 900.0} — matching contract counts alone would call it covered. Verify too that a long call does not cover a short put, and that a long leg which is itself inside the pin band is not counted as reliable delivery.
• Negative checks: NaN/inf spot, NaN hours, zero quantity, non-positive strike or multiplier, and unrecognised option_type/settlement_type must each raise ValueError.
• Run python -m unittest discover -s skills/options-pin-risk-management-at-expiry/scripts.

Related Skills

• early-exercise-assignment-risk-management
• physical-vs-cash-settlement-handling
• american-vs-european-style-option-exercise-handling
• options-chain-expiry-cycle-conventions-by-exchange
• options-greeks-real-time-portfolio-aggregation