How Does Delta Hedging Relate to the Need for Large, Non-Public Trades in the Underlying Asset? ⎊ Path

How Does Delta Hedging Relate to the Need for Large, Non-Public Trades in the Underlying Asset?

Delta hedging is a strategy used by options writers and market makers to maintain a delta-neutral portfolio, meaning the portfolio's value is insensitive to small changes in the underlying asset's price. When a large options trade occurs, the market maker must immediately execute a large, corresponding trade in the underlying asset to adjust their delta.

Executing this large trade non-publicly, via OTC or dark pools, is crucial to prevent the hedge itself from moving the underlying asset's price and creating a loss.

How Does an ‘Immediate or Cancel’ (IOC) Order Differ from a ‘Fill or Kill’ (FOK) Order?

Does Proxy Hedging Fully Eliminate the Need for Delta Hedging on the Underlying Asset?

What Is ‘Information Leakage’ and How Does It Impact Market Efficiency?

How Does the Exchange Protect ADL’d Traders from Adverse Price Movement?

How Does the “Greeks” Parameter Delta Affect the Price Movement and Potential Slippage of an Option?

What Is the Term for the Price Movement That Triggers a Margin Call?

Define ‘Delta’ in the Context of Options Greeks.

How Do Dark Pools Relate to the Institutional Preference for Off-Exchange Trading?

Glossar

Delta Hedging

Framework ⎊ Delta hedging, within cryptocurrency derivatives, represents a dynamic risk management strategy designed to neutralize the directional exposure arising from options positions.