Pinning Risk

Pinning risk occurs when the price of an underlying asset approaches the strike price of an option as expiration approaches. Market makers often have large open interest at these strike prices, leading them to hedge in ways that exert pressure on the underlying price to remain near that strike.

This phenomenon can cause increased volatility and unusual price behavior around the expiration time. Traders must be aware of pinning risk when holding positions near expiration, as it can impact the final outcome of their trades.

In the crypto markets, pinning risk can be particularly pronounced due to the influence of large participants and the concentration of open interest in certain strike prices. It is a key factor to consider for expiration-based strategies.