How Can a Market Maker Hedge Their Gamma Exposure? ⎊ Path

How Can a Market Maker Hedge Their Gamma Exposure?

A market maker can hedge their gamma exposure by trading options with offsetting gamma. If they are short gamma, they can buy options (which are long gamma) to reduce the portfolio's overall gamma to zero or a manageable level.

They typically use options that are close to the money or have short-term maturities, as these have the highest gamma.

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Glossar

Exposure

Volatility ⎊ Exposure, within cryptocurrency and derivatives markets, represents the degree to which an instrument’s value can fluctuate due to shifts in underlying asset prices or implied volatility surfaces.

Market Maker

Agency ⎊ A market maker in cryptocurrency derivatives functions as a principal, providing liquidity by simultaneously posting bid and ask prices for contracts, notably perpetual swaps and options.