How Do Market Makers Use Delta Hedging in Options Trading?
Delta hedging is a strategy market makers use to neutralize the directional risk (delta) of their options inventory. By taking an opposite position in the underlying asset, they aim to keep their overall portfolio's delta near zero.
This makes their position less sensitive to small changes in the underlying asset's price, allowing them to profit primarily from the bid-offer spread and time decay (theta).
Glossar
Delta Hedging in Options
Hedging ⎊ Delta hedging within cryptocurrency options involves dynamically adjusting a portfolio's position to maintain a neutral sensitivity to changes in the underlying asset's price.
Market Makers
Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.