I don't understand Wikipedia's example on Pin risk (options). As I colored in green, the put buyer exercises $\color{LimeGreen}{49}$ contracts. The bolded sentence presumes that the trader already shorted \$7500 shares. So why'd the trader $\color{red}{\text{still be short 2600 shares}}$?


A trader has sold 75 put contracts on XYZ Corp. stock, struck at \$50 and expiring on Saturday, October 20, 2012. On Friday, October 19—the last day these contracts are traded—XYZ stock closes at \$49.97, which means the options are \$0.03 in-the-money. Because each contract represents an obligation to buy 100 shares of XYZ stock at \$50.00, the trader will have to buy anywhere from 0 shares to 7500 shares of XYZ stock as a result of the puts being exercised. In fact, $\color{LimeGreen}{\text{only 49 of the contracts are exercised}}$, meaning that the trader must buy $\color{LimeGreen}{\text{4900 shares of the underlier}}$. If at the close on Friday, October 19, the trader's position in XYZ stock was short 7,500 shares, then on Monday, October 22, $\color{red}{\text{the trader would still be short 2600 shares}}$, instead of flat as the trader had hoped. The trader must now buy back these 2600 shares in order to avoid being exposed to risk that XYZ will increase in price.

  • 2
    $\begingroup$ $7500 -(49\times 100)=2600$ $\endgroup$ – Henry Apr 18 at 1:19
  • $\begingroup$ I thinking bolding would suffice for emphasis $\endgroup$ – Brennan Apr 18 at 20:16

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