How Does ‘Delta Hedging’ Help a Market Maker Mitigate the Inventory Risk of an Options Position?

Delta hedging is a strategy to neutralize the directional risk of an options position. Delta measures the option price's sensitivity to the underlying asset's price change.

By trading the underlying asset (e.g. buying or selling Bitcoin) in a quantity equal to the options position's net delta, the market maker achieves a delta-neutral state, effectively eliminating the inventory risk from small price movements.