Why Is a Delta-Neutral Portfolio Not Perfectly Hedged against Large Price Moves? ⎊ Path

Why Is a Delta-Neutral Portfolio Not Perfectly Hedged against Large Price Moves?

A Delta-neutral portfolio is only perfectly hedged against small, instantaneous price movements. It is vulnerable to large price movements because of Gamma risk.

Gamma measures the rate of change of Delta. A large move in the underlying crypto price will significantly change the portfolio's Delta, requiring immediate re-hedging to restore neutrality, which incurs transaction costs and potential slippage.

What Is the Next Level of Hedging beyond Delta and Gamma Neutrality?

Explain the Difference between “Delta-Neutral” and “Gamma-Neutral” Trading Strategies in Options

Why Is a “Gamma-Neutral” Position Not Necessarily Risk-Free?

How Does a Market Maker Manage the Risk of Gamma in a Delta-Hedged Portfolio?

Why Does High Volatility Necessitate More Frequent Delta Hedging?

What Is ‘Gamma’ and Why Is a High-Gamma Position Sensitive to Small Price Movements?

How Does Gamma Risk Lead to Potential Losses for a Delta-Neutral Portfolio?

Is a Delta-Neutral Position Also Gamma-Neutral?