Abstract
ABSTRACT Of the two ways to form the bull spread and of the two ways to form the bear spread, two of these four ways will result in non-trivial pin risk, which forcibly assigns investors the underlying shares they originally do not intend to buy or sell. Incidentally, both ways that give rise to the pin risk are credit spreads when initiated. Major investment textbooks, that ignore the existence of the pin risk, mislead their readers into believing the deterministic values of the maximum gain, maximum loss, and the breakeven stock price at maturity. The DNE (do not exercise) option available to debit spread investors offers only limited optimal exit strategy. This note attempts to highlight pin risk in option spread strategies and hopes to narrow the gap between theory and practice. Keywords Pin risk, investors, strategy
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
