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.