What Is Delta Hedging & How Does It Work In Crypto?

If you're new to long-term trading and investing, you'll likely encounter instances when a catalyst causes huge volatility in your portfolio. While this might be acceptable for risk-tolerant individuals who are investing in growth-oriented assets, it's often advisable for investors to take up hedges to mitigate the risk exposure in one's crypto portfolio. That's where hedging comes in.

Curious as to how hedging works and how advanced investors take this to the next level with delta hedging? Find out how fund owners are limiting their risk exposure and engaging the use of derivatives with our beginner's guide to delta hedging in crypto portfolios.

Key Takeaways

• Delta hedging is used to manage risk by purchasing or writing options contracts to achieve a delta-neutral position.
• There are three types of options contracts that you can use when delta hedging: in-the-money options, at-the-money options and out-of-the-money options.
• While there are benefits to delta hedging, it also has risks due to the constant position tinkering involved. We would advise only those who are well-versed in options trading and the mechanics that go into their premium pricing to attempt delta hedging.

What Is Delta Hedging?