What Is Delta Hedging, and How Is It Used by a CEX Market Maker? ▴ Learn

What Is Delta Hedging, and How Is It Used by a CEX Market Maker?

Delta hedging is an options trading strategy used to reduce the directional risk of a portfolio to changes in the underlying asset's price. A CEX market maker, when selling an option, calculates the option's delta (the change in option price for a $1 change in the underlying) and takes an opposite position in the underlying asset.

This keeps the portfolio's net delta near zero, minimizing price risk.

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