Delta hedging is a critical risk management strategy employed by market makers to balance their positions and minimize directional risk in options trading. By adjusting their holdings of the underlying asset, market makers keep the net delta of their positions close to zero, ensuring that their quotes reflect fair market values and provide consistent liquidity.
This process not only stabilizes prices but also prevents excessive volatility, contributing to overall market efficiency. Understanding delta hedging gives traders an edge in anticipating market moves and managing their own risks effectively.
