Pension funds don't.

They do just a random quote on the subject : "While public pension programs have traditionally stayed away from using options strategies in their portfolios, that is beginning to change.

This year, John Colville, Portfolio Manager, disclosed that he was successfully employing options on up to 66% on the equity portion of the City of Sacramento’s pension fund. We also learned that Tim Walsh, former Investment Director with New Jersey’s public pension system had similar success employing covered call options. Most recently we learned that CalSTRS intends to allocate to one or more managers a total of $150 million across both low volatility equity and covered call strategies. Upon evaluation of the performance of this initial allocation, CalSTRS may expand the program in terms of number of managers or capital invested."

Well, those are long term calls, I can see it being used for hedging (though yikes, I hope none of my retirement funds are doing that, talk about timing the market)

Pension funds most absolutely do not speculate in options near expiry.

read up on what covered call is and what it is used for :)

Laugh. Better yet, trade in,covered,calls and actually,learn what they are used.for. They are great for.obfuscating positions, I'll.give,it,that.

Perhaps not directly very often, but they certainly allocate money to funds that trade options.