It is expiry Friday afternoon. You are short 500 contracts of the 50-strike call on a stock trading 50.02 with minutes left. Describe the exposure in shares, what you do into the close, and what the position looks like on Monday morning if you do nothing.

It is expiry Friday afternoon. You are short 500 contracts of the 50-strike call on a stock trading 50.02 with minutes left. Describe the exposure in shares, what you do into the close, and what the position looks like on Monday morning if you do nothing.

Approach: Convert the contract count into shares, treat the delta near the strike at expiry as a coin flip on assignment, and think about what happens between the close and Monday's open.

You face pin risk on 50,000 shares and should flatten most of it before the close rather than guess the assignment. 500 contracts is 50,000 shares, and at expiry with spot 50.02 the delta of the call jumps between 0 and 1 on a two-cent move, so the expiry gamma is effectively unbounded and no hedge ratio is stable. If you are hedged as though every call is exercised and only 60% are assigned, Monday opens with 20,000 shares of unwanted long stock exposed to the weekend gap. The standard handling is to buy back the strike cheaply while it still trades, hold a hedge sized to your best estimate of the assignment fraction rather than to a Black-Scholes delta, and check that customer exercise notices follow the money since retail holders under-exercise marginally in-the-money calls. Being short the pin is worse than being long it, because the holder chooses after seeing the close.

Follow-up: Where does the extra risk come from if the name has a dividend going ex on the Monday, and which way does it push the assignment rate?

Key concepts: pin risk, assignment, delta, expiry gamma.