What Is Delta hedged?
Delta hedging is a technique used in quantitative finance to manage risk associated with options trading.
The most popular way to delta hedge in cryptocurrency markets is perpetual futures: buy spot, short perpetuals. This is cash and carry-style trade is popularised by Ethena.
An example:
Hedging with Spot or Opposite Futures: To delta hedge, traders can use either the underlying cryptocurrency (spot market) or an opposite position in the same perpetual futures contract. For example, if you have a long perpetual futures position with a delta of 0.8, you can hedge by:
Selling 0.8 units of the underlying cryptocurrency: This reduces your overall exposure to price increases in the cryptocurrency.
Opening a short perpetual futures position with a delta of 0.8: This creates an offsetting position that profits if the price goes down, counteracting potential losses in your long position.
If the price moves too fast, delta hedging might not be enough, but you need be gamma hedged.
See