The Foundation of Risk Neutrality

Delta hedging is an options strategy that aims to reduce, or hedge, the risk associated with price movements in the underlying asset by offsetting long and short positions. For a stock broker, understanding Delta is critical for managing institutional client portfolios.

How It Works

When you delta hedge, you are effectively attempting to make your portfolio ‘delta neutral’. This means that for small changes in the underlying asset’s price, the value of the portfolio remains relatively stable.