Options trading in India has experienced remarkable growth in recent years, particularly on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). As expiry approaches, traders often observe the underlying asset’s price curiously “gravitating” towards certain strike levels that have substantial open interest. This phenomenon, known as option pinning, has become an integral observation for active derivatives participants.
At the core of this occurrence lies a concept known as pin risk. Pin risk represents the uncertainty faced by option sellers and market makers when the underlying price closes near a strike at expiry, making it difficult to determine whether the option will be exercised or not. Although subtle, this risk can have a significant effect on trading outcomes, position management, and overall portfolio exposure.
Understanding how and why this phenomenon occurs is essential for anyone trading options—be it retail investors, institutional portfolio managers, or professional market makers.
During the final days of the expiry week, prices of actively traded stocks and indices tend to cluster around specific strike prices that have the highest open interest. This clustering, often referred to as “pinning”, occurs most strongly when both call and put open interests are heavily concentrated at the same strike.
Market makers and institutional traders dynamically hedge their exposure as the underlying price nears these critical levels. They frequently buy or sell the underlying asset to remain delta neutral, leading to repetitive hedging activity around those strike prices. This continuous adjustment causes prices to appear as if they are being “pulled” or “pinned” toward those levels.
The effect becomes particularly visible on expiry days when even small price moves can have meaningful implications for the settlement of thousands of option contracts.
Pin risk in options arises when the price of the underlying asset closes very close to a strike at expiry. In this scenario, it becomes uncertain whether the option will be exercised (or assigned) or allowed to expire worthless.
For option writers, this ambiguity creates practical difficulties. If the underlying price is just a few paise in-the-money (ITM), the option may be exercised, leaving the seller unexpectedly holding or shorting the underlying asset after expiry. Conversely, if the closing price is slightly out-of-the-money (OTM), the option expires worthless, and the seller retains the premium received.
The distinction often depends on closing auction prices or after-market trades, introducing unavoidable uncertainty. This narrow gap between ITM and OTM can expose traders to overnight or weekend risk, especially when the underlying security gaps adversely after expiry.
In India, such risks are heightened in securities with large open interest near strike levels—particularly in popular instruments like NIFTY, BANKNIFTY, and liquid large-cap stocks.
The pinning effect can both suppress and exaggerate volatility near expiry. When numerous traders and market makers simultaneously adjust their delta hedges, it generates substantial trading activity in the underlying. This often causes the price to oscillate narrowly around key strikes.
In highly liquid instruments such as NIFTY and BANKNIFTY, the gravitation effect can be seen clearly, as expiry prices frequently settle within a few points of the strikes carrying maximum open interest. This pattern is not merely coincidence; it reflects the combined hedging pressures of a large number of market participants.
| Expiry Month | NIFTY Close | Largest OI Strike | Distance to Strike |
| March 2025 | 21,750 | 21,700 | 50 |
| April 2025 | 22,100 | 22,100 | 0 |
| May 2025 | 22,250 | 22,200 | 50 |
This table demonstrates how NIFTY often closes within striking distance of the levels with the highest open interest, reinforcing the principle of price clustering.
Experienced traders routinely study option chain data to identify possible pin risk zones. Analysing shifts in open interest, intraday volume, and price behaviour helps them anticipate areas where expiry prices might cluster.
When both call and put open interests spike at the same strike, it suggests a potential “magnet effect.” This indicates that traders and market makers are actively positioning around that strike, increasing the likelihood of price convergence as expiry approaches.
Suppose the share price of ABC Ltd. trades at ₹1,250 near expiry. Both the 1,250 Call and Put options exhibit maximum open interest.
As expiry nears, the price tends to hover near ₹1,250 as participants continuously adjust their hedges and unwind their positions. The resulting narrow trading range reflects the intense battle between buyers and sellers around that strike.
For option writers and portfolio managers, pin risk introduces a layer of uncertainty that cannot be ignored. Traders holding short positions near key strikes may find themselves unexpectedly assigned after expiry. This can lead to unanticipated stock holdings or short deliveries, which in turn require capital allocation and overnight risk management.
For institutional managers, pin risk management forms part of broader expiry-week surveillance. Monitoring open interest concentration, adjusting hedges proactively, and maintaining sufficient liquidity to meet post-assignment obligations are crucial aspects of prudent risk control.
In particular, funds engaged in covered call writing or volatility strategies must ensure that their portfolios can absorb potential delivery obligations arising from pin risk scenarios.
While pinning and pin risk are well-known among active traders, several misconceptions persist:
Consider a major NIFTY constituent that closes exactly at ₹2,000 on expiry. This strike holds the largest open interest in both calls and puts. Although the stock traded marginally above ₹2,000 in the closing minutes, post-market adjustments caused many call writers to face unexpected assignments. Several traders were compelled to arrange last-minute deliveries, illustrating how small deviations can trigger operational challenges.
During May 2025 expiry, the NIFTY index settled at 22,100, precisely matching the strike with maximum open interest. Traders holding short 22,100 Calls were unexpectedly assigned, leaving them exposed to price gaps when markets reopened the following Monday. This incident reinforced the importance of monitoring open interest data closely as expiry approaches.
Sophisticated traders often deploy tactical approaches to manage or profit from pin risk options. Some of the notable strategies include:
As the underlying price nears a high open interest strike, volatility tends to rise. Traders practising gamma scalping continuously adjust their delta exposure—buying low and selling high—to capture small profits from these movements. This method, though complex, can help offset the unpredictability of price pinning.
Large institutional positions in short straddles or strangles often need to be squared off before expiry. The unwinding of these positions generates significant buying or selling pressure, sometimes amplifying the pinning effect. Traders aware of this dynamic can adjust their timing to avoid being caught in liquidity squeezes.
Certain professional traders use box spreads to create synthetic risk-free returns or to neutralise their exposure to pin risk. These spreads combine calls and puts across strikes to lock in a predetermined payoff, effectively insulating the trader from uncertain assignment outcomes.
While large institutions have sophisticated models, retail traders can still manage pin risk effectively through discipline and observation.
Pin risk in options is an unavoidable yet manageable element of modern derivatives trading. It reflects the natural balance between hedging forces, open interest concentration, and option settlement mechanics.
For Indian traders, understanding what is pin risk and recognising its influence on price movements during expiry can significantly improve decision-making. Through disciplined analysis, active monitoring of open interest, and thoughtful risk management, both retail and institutional participants can mitigate unwanted exposure while capitalising on short-term opportunities that emerge near expiry.
In essence, pin risk underscores the fine balance of probabilities that governs the derivatives market—a reminder that even the smallest price movements at expiry can shape substantial trading outcomes.
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