Pinning in the S&P 500 Futures

Abstract

We show that S&P 500 futures are pulled towards the at-the-money strike price on days when serial options on the S&P 500 futures expire (pinning), and are pushed away from the cost-of-carry adjusted at-the-money strike price right before the expiration of options on the S&P 500 index (anti-cross-pinning). These effects are driven by the interplay of market makers’ rebalancing of delta hedges due to the time-decay of those hedges as well as in response to reselling (and early exercise) of in-the-money options by individual investors. The associated shift in notional futures value is at least $115 million per expiration day.