How Does a Market Maker Hedge the Risk from a Large RFQ in Cryptocurrency Options?
Market makers primarily hedge option risk using the underlying asset (e.g. BTC) to maintain a delta-neutral position.
This involves buying or selling the spot asset to offset the option's directional exposure. They also use other options or futures to manage gamma, vega, and theta risk.
Effective hedging minimizes the market maker's exposure to price movements after quoting an RFQ.
