What Is Delta Hedging and Why Is It Important for a DAO Acting as a Market Maker for Options?

Delta hedging is a risk management technique used to maintain a portfolio's Delta (price sensitivity) near zero, making the portfolio temporarily insensitive to small price movements in the underlying asset. For a DAO acting as an options market maker, this is crucial for neutralizing directional risk.

The DAO achieves this by dynamically buying or selling the underlying asset (or its futures) to offset the Delta of the options it has sold, ensuring profitability comes from premium collection rather than price speculation.