Pinning in the S&P 500 Futures
We document that S&P 500 futures finish in the proximity of the closest strike price more often on days when serial options on S&P 500 futures expire than on other days. The effect is driven by the interplay of market makers' rebalancing of delta hedges due to the time-decay of the hedges as well as in response to reselling (and early exercise) of in-the-money options by individual investors. Consistent with limits to arbitrage, we find that the effect is asymmetric and stronger above the strike price. In line with increased options activity, pinning becomes more pronounced in recent years.
|Date of creation:||23 Aug 2010|
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