How Does an LP Manage the Directional Risk Acquired from an RFQ Trade?

A Liquidity Provider (LP) manages the directional risk (Delta risk) acquired from an RFQ trade primarily through Delta hedging. Immediately upon executing the option trade, the LP will buy or sell the underlying asset or a highly correlated futures contract in a quantity determined by the option's Delta.

This offsetting position aims to make the combined position Delta-neutral, meaning its value is insensitive to small movements in the underlying asset's price.