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Options Glossary - Most Used Terms
Delta-Hedged
An options strategy protecting an option against price changes in the option's underlying instrument by balancing the overall position delta to zero. These hedges are constructed by taking a position in the underlying instrument that is equal in magnitude but opposite in sign (+/-) to the option's delta.
See Also:
Delta: A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying security. Call options have positive deltas, while put options have negative deltas. Technically, the delta is an instantaneous measure of the option's price change, so that the delta will be altered for even fractional changes by the underlying entity.
Hedge: A conservative strategy used to limit investment loss by effecting a transaction which offsets an existing position. Hedging is taking a position through options or futures opposite to the current position they hold in the market.
