What Is “Delta Hedging” and How Is It Used with Options?

Delta hedging is an options strategy used to reduce or neutralize the directional risk of an option position. Delta measures the sensitivity of an option's price to a change in the underlying asset's price.

A hedger buys or sells the underlying asset (or futures contracts) in an amount determined by the option's delta to maintain a "delta-neutral" portfolio. This strategy protects the hedger from small price movements in the underlying asset.