Explain 'Delta Hedging'.

Explain 'Delta Hedging'.

Approach: Describe a strategy to make a portfolio immune to small changes in the underlying asset price.

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. The goal is to keep the portfolio delta at zero.

Follow-up: Is delta hedging a static or dynamic process?

Key concepts: delta-neutral, rebalancing, gamma risk.