How Does Delta Hedging by Options Market Makers Contribute to a Price Spiral?

Options market makers (MMs) hedge their exposure by buying or selling the underlying asset to keep their portfolio delta-neutral. As the underlying price falls, the delta of their short options positions changes (becomes more negative).

To re-hedge, MMs must sell more of the underlying asset. This necessary selling pressure adds to the existing market panic, reinforcing the downward price movement and accelerating the spiral.