Option Gamma Hedging

Option gamma hedging is a strategy used by market makers and traders to manage the risk associated with changes in the delta of an options position. Gamma measures the rate of change of an option's delta as the price of the underlying asset moves.

Because delta is not constant, a position that is delta-neutral at one price may become exposed as the price changes. Gamma hedging involves buying or selling the underlying asset to keep the delta of the total portfolio near zero.

This process is essential for maintaining a neutral stance and profiting from the volatility itself rather than the directional movement. In high-volatility markets like crypto, gamma hedging can lead to significant market activity as dealers adjust their positions.

It is a core component of professional options trading and risk management.