Delta Hedging a Short Options Position with the Underlying

Summary

The document explains how to adjust a short options position when its aggregate delta moves from neutral to positive. To bring delta back toward zero, the answer recommends selling the underlying, such as its futures contract. The position’s reported Greeks provide context, but no contract multiplier or hedge ratio is worked out, so the precise quantity to trade is not specified.

The answer also notes that repeated delta hedging may be reduced by first using other derivatives to neutralize higher order exposures such as gamma, then hedging delta with the underlying. This is a brief conceptual response rather than a full hedging procedure: it does not quantify costs, explain how gamma changes over time, or address other risks and assumptions that affect hedge frequency.

Key ideas

• A positive portfolio delta can be offset by selling the underlying exposure.
• The document does not calculate the number of underlying contracts needed for the hedge.
• Neutralizing gamma with other derivatives before delta hedging may reduce the need for frequent adjustments.

Tags

# What shall I do to make my delta neutral?


# What shall I do to make my delta neutral?












Suppose that yesterday I shorted some call and put option contracts of an underlying and I had a neutral delta. This morning, I have a positive delta, and I want to keep my delta neutral. What do I need to do and why do I need to make this action? Should I buy or sell its underlying future contract?

Below is what I have this morning:

| underlying | Delta | Gamma | Vega | Theta | Rho |
| A | 146718 | -1796 | -112258 | 1627 | 90326 |

## Answer by John (score 0, accepted)

https://quant.stackexchange.com/a/74699

Welcome, your delta is positive, you need to sell the underlier.

If you want to avoid having to delta hedge every day, then you might want to first neutralize second degree greeks like gamma using other derivatives, then delta hedge using the underlier.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.