Delta hedging
Delta hedging is the practice of holding underlying, usually futures or shares, against an option position so that the combined delta stays near zero. Because option delta changes with spot, volatility and time, the hedge has to be rebalanced, and the direction of that rebalancing depends on whether the book is long or short gamma.
Senzoukria · Glossary · Updated September 2026
The mechanics
Suppose a hedger is short 10 standard calls with a multiplier of 100 and each call has a delta of 0.40. The option position carries -400 underlying-equivalent units, so the hedge holds +400 units. If spot rises and the call delta moves to 0.50, the position is now -500 units and the hedger buys 100 more to remain neutral. If spot falls and the delta drops to 0.30, the hedger sells 100. This is a short-gamma book: it buys after rises and sells after falls, trading with the move.
Long gamma and short gamma
- Long gamma (net long options): the hedge sells after a rise and buys after a fall. The rebalancing pushes against the move.
- Short gamma (net short options): the hedge buys after a rise and sells after a fall. The rebalancing pushes with the move.
- The size of each rebalance scales with gamma and with the move; near expiry, at-the-money gamma is high and small moves produce large adjustments.
- Volatility and time also change delta, so vanna and charm create rebalancing even when spot is still.
What a GEX model can and cannot say about it
Gamma exposure estimates how much delta a modeled book would gain or lose over a move, and therefore how much rebalancing a delta-neutral policy would require. It does not say when the hedge is executed, in which instrument, or whether the dealer hedges to zero at all. A hedge on SPX options may pass through ES futures, SPY shares or other options. A print on the ES footprint near a gamma level is a print; it is not labelled as a hedge.
In Senzoukria
The GEX module's regime panel is written in delta-hedging terms. The Dampened state describes dealers long gamma who sell into strength and buy weakness; the Amplified state describes dealers short gamma who hedge with the move, not against it; On the edge marks price sitting on the flip. The Dealer positioning setting in Calculation assumptions decides which of those readings applies, because the same open interest gives opposite hedging under the two conventions. The module places these levels on the same chart as the footprint so that executed bid and ask volume at a level can be compared with the modeled hedge direction, without claiming any individual trade is a hedge.
Common mistakes
- Assuming a short-call dealer sells into every rise near a call wall; the isolated example above shows the hedge buys.
- Expecting hedges to show up as visible blocks on the futures tape at the modeled level.
- Forgetting that hedging is continuous and depends on the whole book, not on one strike.
Related
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Frequently asked questions
- Why does long gamma dampen price moves?
- A long-gamma hedger sells underlying after a rise and buys after a fall to keep delta at zero. If that rebalancing is large relative to other flow, it leans against the move. The effect is conditional on the positioning assumption, on the hedge policy and on everything else trading at the time.
- Can I see dealer delta hedging on a footprint chart?
- You can see executed volume at the bid and ask, but nothing in the data identifies the participant. A print near a gamma level may be a hedge, a stop, a spread leg or unrelated flow. Record the level and timestamp first and compare the price response afterwards rather than labelling trades as hedges.
- Does delta hedging only happen when price moves?
- No. Delta also changes with implied volatility (vanna) and time (charm), so a delta-neutral book rebalances after a volatility shift or overnight decay even when spot is unchanged. That is why Senzoukria's surface page plots vanna and charm exposure next to gamma exposure.