Skip to main content

How Does a Writer Typically Hedge the Risk of Early Exercise?

A writer typically hedges early exercise risk by maintaining a dynamic hedge, adjusting their position in the underlying asset based on the option's delta. They may also use other options to create a spread.

For American options, the hedge must also account for the probability of early exercise, often using models that estimate the optimal exercise boundary.

How Is Delta Used as a Probability Estimate for an Option Expiring ITM?
How Does the Relationship between Delta and the Probability of an Option Expiring In-the-Money Affect Trading Strategy?
What Is the Primary Limitation of Using Delta as a Probability Measure?
What Is the Primary Difference between a Static Hedge and a Dynamic Hedge?