Delta hedging

Example

Say a market maker sells 10 calls with a delta of 0.50 each, a position delta of −500 shares, and buys 500 shares to bring it back to zero. If the stock rises and the calls’ delta climbs to 0.60, the short calls now act like −600 shares, so the dealer buys 100 more. If the stock then falls and delta drops to 0.45, the dealer sells 150 shares.

Hypothetical numbers, for illustration only.