How Does Latency Impact the Delta Hedging of a Crypto Options Portfolio?

Delta hedging is a strategy to reduce the directional risk (delta) of an options portfolio by taking an offsetting position in the underlying asset. High data feed latency means the delta value calculated by the smart contract is based on a stale price.

This leads to an inaccurate hedge ratio, resulting in over- or under-hedging. Low latency is critical to ensure the hedge is based on the current market price, minimizing tracking error.