Market StructureD

Delta Hedging

Delta hedging is a risk management strategy used in options trading that involves adjusting the position in the underlying asset to offset changes in the option's delta, thereby reducing directional exposure. As the delta changes with price movement, traders must continuously rebalance their hedge (dynamic hedging).

Example

“The options market maker delta-hedged her portfolio by selling 500 shares of the underlying stock to offset the positive delta from the call options she had sold.”