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 ... 
Delta Neutral
A portfolio consisting of positions with offsetting positive ... 
Hedge Ratio
1. A ratio comparing the value of a position protected via a ... 
Greeks
Dimensions of risk involved in taking a position in an option ...

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 >> 
What is the difference between in the money and out of the money?
In options trading, the difference between "in the money" and "out of the money" is a matter of the strike price's position ... Read Full Answer >> 
What techniques can be used to hedge exposure to the chemicals sector?
An investor can hedge exposure to the chemicals sector in two ways. Because the sector is cyclical, an investor can allocate ... 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
SECRegulated Options Brokers
Investopedia provides a List Of SECRegulated Options Brokers 
Options & Futures
Writing Covered Calls On Dividend Stocks
Writing covered calls on stocks that pay aboveaverage dividends is a strategy that can be used to boost returns on a portfolio, but it carries some risk. 
Mutual Funds & ETFs
The Top 3 Silver ETFs
Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand. 
Options & Futures
How To Trade Orange Juice Options
How do orange juice options work and which factors determine the orange juice valuations? Here's a sneak peak into the world of orange juice options. 
Active Trading Fundamentals
Invest In Gold Through ETFs
The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ... 
Forex Strategies
An Introduction To Trading Forex Futures
We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives. 
Fundamental Analysis
Explaining the Geometric Mean
The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.