Pin Risk (Options) Explained - Derivatives
PIN risk occurs when the underlying security of an option (e.g. the PIN number) is close to the exercise price of the option. In this situation the underlay is said to have struck or been "hit." It may be that the price of the subtenant develops disadvantageous, which leads to an unexpected loss for the author. The author can end up with a loss of profit and therefore cannot secure his position exactly. The risk for authors and sellers of options is that they cannot predict with certainty whether the option will be exercised or not. Option positions lead to a higher risk of loss than other options (e.g. high - risk, low - reward options). Sellers of option contracts often hedge their option contracts to create a delta-neutral portfolio. The aim is to minimise the risk of below-average price developments and at the same time implement the strategy that led to the sale of the option in the first place. In order to counteract the price changes of undervalued securities...