Gamma Pinning Explained: Why Pin Risk Matters & How Market Makers Hedge

Gamma is a term a lot of people know about, but not many understand what it does. Let's talk about gamma pinning and start breaking down this second-order Greek.

What Is Pin Risk?

Pin risk emerges when you sell options that are at or near expiration. Imagine stock XYZ is trading at $100.75 with expirations that day at $97.50, $100, and $102.50. The $100 and $102.50 strikes have very high open interest. If Ape A is turbo‑long the $100 strike, the market maker (MM) on the other side has to be short the $100 strike in equivalent delta with respect to the underlying (probably short ~55–60 shares).

Gamma is the rate of change of delta; it measures how much delta moves with a $1 change in the underlying. Gamma increases when contracts are near expiration and at the money. The closer the contract is to expiration, the narrower the tails on the bell curve become, and you see extreme movements in gamma and delta.

Why does this matter? Because as gamma increases near expiration, it acts like a magnet around strikes with heavy open interest; when gamma exposure is significant, it pins the underlying around a price range and increases liquidity while reducing volatility.

Why Gamma Pinning Occurs

Pin risk emerges when you sell options that are at or near expiration. Imagine stock XYZ is trading at $100.75 with expirations that day at $97.50, $100, and $102.50. The $100 and $102.50 strikes have very high open interest. If Ape A is turbo‑long the $100 strike, the market maker (MM) on the other side has to be short the $100 strike in equivalent delta with respect to the underlying (probably short ~55–60 shares).

Gamma is the rate of change of delta; it measures how much delta moves with a $1 change in the underlying. Gamma increases when contracts are near expiration and at the money. The closer the contract is to expiration, the narrower the tails on the bell curve become, and you see extreme movements in gamma and delta.

Why does this matter? Because as gamma increases near expiration, it acts like a magnet around strikes with heavy open interest; when gamma exposure is significant, it pins the underlying around a price range and increases liquidity while reducing volatility.

Why Gamma Pinning Occurs

Stocks become very volatile during these expirations, so MMs try to understand where their greatest risk is. Since MMs are short quite a lot of contracts to hedge against all the apes buying tens of thousands of 1DTEs, they want to lower the share price. If there’s high open interest at the $100 strike call, there will probably be high open interest at the $100 put as well. But let’s say instead of 25k open interest on the call, there is 12.5k open interest on the put.

For the put side, MMs want the stock to close at $100.01 or above; for the call side, $99.99 or below. Net open interest is positive by 12,500 contracts, so MMs have more incentive to pin the price below $100. If XYZ closes that expiration cycle at $99.99, MMs keep all the premiums they collected from selling the calls at the $100 and $102.50 strikes — unless someone exercises those out‑of‑the‑money (OTM) calls (don’t do that; you’ll lose money). Naturally, MMs will do everything in their power to keep the stock under $100. This effect is known as pinning.

Gamma Pinning: Delta Hedging's Side Effect

"But you said gamma pinning?" I know, we're getting to it. Pinning the strike is how MMs manage risk. Gamma pinning is a byproduct of delta hedging. Since MMs want to remain delta neutral (directionally neutral), they have to target gamma.

A standard gamma pin occurs at the strike with the most net gamma. In our XYZ example, the $100C / $100P strike had a positive net gamma because of the positive 12,500 net open interest. That positive gamma leads MMs to keep the stock under $100 by expiration so they can collect sweet premiums.

This isn't just theory; large call exposure at a particular strike will cause the underlying to gravitate toward that strike, effectively creating a supply zone. If there's a cluster of strikes with elevated exposure, the price tends to pin that group. Conversely, when put exposure is elevated, it acts as a demand zone.

Key Takeaways and Caveats

Pinning and gamma pinning allow traders to see where dealers might try to steer the price near expiration. But this is not investment advice. Liquidity, volatility, and market conditions all play a role.

Elevated gamma exposure at a strike acts like a magnet, but if liquidity dries up or volatility spikes, moves can still be violent. Also, the net call/put exposure can shift daily — something you can track with tools such as net gamma exposure dashboards.

None of this is advice. Do your own research, question everything (feel free to poke holes in what I said), and always do your due diligence. This was meant to be a fairly easy interpretation of higher‑level options concepts.

More Options Education from Unusual Whales

• Gamma: A Primer – Defines gamma as the change in delta per $1 move and explains why gamma rises sharply as options approach expiration.
• Max Pain Indicator: A Primer – Discusses the max‑pain concept and compares it to gamma exposure; explains how market makers hedge delta‑neutral with long calls/short puts and steer prices to where most options expire worthless.
• Delta: A Primer – Explains delta as the rate of change of an option’s price relative to a $1 move, how delta ranges from 0 to 1, and how traders use it as a proxy for the probability of finishing in the money.

(Editor's note: This article was updated for content and clarity on November 11, 2025)