Options trading part 2: delta hedging
A professional options trader/dealer or market maker employs an option strategy to control his profit and loss with the hope of gaining a “theoretical edge.”
The “theoretical edge” is the amount of predicted profit based on analyzing current market circumstances and numerous risk variables. There are numerous different risk considerations.
This article explains the delta of options and how to hedge them. The delta is one of the option’s Greeks, and it measures the rate of change of the option price with respect to the underlying asset.
The delta Δ can be used to determine how much an option’s price will change in response to a change in the underlying asset's price. Delta hedging is a strategy used to mitigate the risk associated with an option’s delta.
See part 1 of my options trading article
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