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Pinning in the S&P 500 Futures

75 Pages Posted: 25 Aug 2010 Last revised: 13 Feb 2013

Benjamin Golez

University of Notre Dame

Jens Carsten Jackwerth

University of Konstanz - Department of Economics

Date Written: December 6, 2011

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.

Keywords: pinning, futures, options, option expiration, hedging

JEL Classification: G12, G13

Suggested Citation

Golez, Benjamin and Jackwerth, Jens Carsten, Pinning in the S&P 500 Futures (December 6, 2011). Journal of Financial Economics (JFE), 106, December 2012, 566-585. Available at SSRN: https://ssrn.com/abstract=1664261 or http://dx.doi.org/10.2139/ssrn.1664261

Benjamin Golez

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-1458 (Phone)

HOME PAGE: http://business.nd.edu/BenGolez/

Jens Carsten Jackwerth (Contact Author)

University of Konstanz - Department of Economics ( email )

Universitaetsstr. 10
Konstanz, 78457
Germany
+497531882196 (Phone)
+497531883120 (Fax)

HOME PAGE: http://cms.uni-konstanz.de/wiwi/jackwerth/

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