DELTA HEDGING

Delta hedging is a risk management strategy used in options trading to offset the risk associated with the price movement of the underlying asset. The strategy involves adjusting the position of the options and the underlying asset in such a way that the overall delta (the rate of change of the option’s price with respect to the underlying asset’s price) is close to zero. This helps to neutralize the effect of small price changes in the underlying asset on the option’s value, reducing the overall risk for the trader. It’s mainly used in options market for managing risk by large financial institutions and hedge funds.!