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Delta is the rate of change of option value per dollar move in the underlying. Delta hedging means buying or selling shares so the portfolio's instantaneous P&L from a small underlying move is zero. It only kills the linear term โ convexity (gamma) leaks through, which is what dynamic hedging captures.
โ Intro ยท expand
Try first (productive failure)
Before the worked example: spend 60 seconds taking your best shot at this.
A guess is fine โ being briefly wrong about a problem makes the explanation
land harder when you read it. This appears once per tutorial; skip
if you already know the trick.
60s
โ Try first ยท expand
Worked example
You sell one call option contract on a stock at strike $\$100$. The contract covers $100$ shares, and the call's delta is $0.5$. How many shares should you buy or sell to be delta-hedged?
โ Worked example ยท expand
Practice 1 of 3Type a fraction, decimal, or expression.
โ Practice ยท expand
Reflection
Why does delta-hedging fail to capture gamma exposure? What kind of P&L does an unhedged short-gamma position produce when markets are quiet vs volatile?
