DEFINITION of 'Delta Hedging'
An options strategy that aims to reduce (hedge) the risk associated with price movements in the underlying asset by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock. This strategy is based on the change in premium (price of option) caused by a change in the price of the underlying security. The change in premium for each basispoint change in price of the underlying is the delta and the relationship between the two movements is the hedge ratio.
INVESTOPEDIA EXPLAINS 'Delta Hedging'
For example, the price of a call option with a hedge ratio of 40 will rise 40% (of the stockprice move) if the price of the underlying stock increases. Typically, options with high hedge ratios are usually more profitable to buy rather than write since the greater the percentage movement  relative to the underlying's price and the corresponding little timevalue erosion  the greater the leverage. The opposite is true for options with a low hedge ratio.

Charm
The rate at which the delta of an option or warrant will change ... 
Delta Spread
An options trading strategy where the trader initially establishes ... 
Super Hedging
A strategy that hedges positions with a selffinancing trading ... 
Hedge Ratio
1. A ratio comparing the value of a position protected via a ... 
Vega
The measurement of an option's sensitivity to changes in the ... 
Greeks
Dimensions of risk involved in taking a position in an option ...

What industries typically use delta hedging techniques?
Those industries which are connected to the finance and commodity markets and are trading derivatives are the most likely ... Read Full Answer >> 
What are the differences between delta hedging and beta hedging?
Hedging is used to reduce the risk of adverse price movements in an asset class by taking an offsetting position in a related ... Read Full Answer >> 
Is there a better metric for hedging options than delta?
Delta hedging is a way traders mitigate risk in their positions by taking an offsetting position. Although it is a common ... Read Full Answer >> 
What are the limitations of using delta to hedge options?
Delta hedging is a strategy used to mitigate the risk associated with the price move in the underlying asset of an option ... Read Full Answer >> 
How can you use delta to determine how to hedge options?
The delta of a derivative security tells you the relationship between the underlying security's price and the security's ... Read Full Answer >> 
What questions are commonly asked during a portfolio management job interview?
A portfolio manager is a person who is responsible for making investment decisions using money that other investors place ... Read Full Answer >>

Options & Futures
Getting To Know The "Greeks"
Understanding price influences on options positions requires learning about delta, theta, vega and gamma. 
Options & Futures
Capturing Profits With PositionDelta Neutral Trading
This trading strategy will show you how to gain from a decline in implied volatility on any movement of the underlying. 
Options & Futures
Options Trading Strategies: Understanding Position Delta
Learn more about the position delta hedge ratio and how it can tell you the number of contracts needed to hedge a position in the underlying asset. 
Options & Futures
Interpreting Overnight Action In The Index Futures
Overnight action in index futures sets the tone for the U.S. market day. Traders can use 24hour index futures charts to predict action in the coming day. 
Options & Futures
Stock Options To Trade On Intraday Momentum Index
The intraday momentum index, or the IMI, can offer a reliable way to profit on options, but only for the right stocks. 
Fundamental Analysis
Trading With Stage Analysis
Stage analysis offers market participants a powerful tool to identify current market conditions and make rapid adjustments to strategies. 
Options & Futures
Intro to NYSE Binary Return Derivatives
The New York Stock Exchange is entering into binary options trading. Here’s a quick introduction to how NYSE Binary Return Derivatives (ByRDs) work. 
Stock Analysis
Should You Short These DebtLaden Stocks?
These stocks have high debttoequity ratios making them prime candidates to short. 
Investing
Prospering In The Next Bear Market: Here's How
Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies. 
Professionals
The Coming Stock Market Decline: What to Expect
Many big investors are fearful of a market decline. Even if they're correct there is always a way to profit.