How Is Delta Used for Hedging in Options Trading?
Delta hedging is a strategy used to reduce or eliminate the directional risk associated with price movements of the underlying asset. A trader can achieve a "Delta-neutral" position by taking an opposite position in the underlying asset proportional to the portfolio's net Delta.
For example, a portfolio with a Delta of +50 can be hedged by shorting 50 units of the underlying asset. This minimizes risk from small price changes.
Glossar
Directional Risk
Exposure ⎊ Directional risk, within cryptocurrency derivatives and options trading, fundamentally represents the potential for financial loss stemming from adverse price movements.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.