Delta Hedging

Delta hedging is the process of buying and selling underlying shares in order to counteract (or flatten) the net delta risk of your options strategy. For example, to delta hedge a long at-the-money call option with 0.50 delta, a trader would sell 50 shares of the underlying stock, making the net delta position zero. These types of trading strategies often result in more direct exposure to implied volatility (vega risk) rather than largely underlying price moves (delta risk).

The Volatility Delta Hedging algorithm updates the delta hedge for your options strategy in the backtest daily. To add delta hedging, click Customize Delta Hedging within the Additional Customizations and select the "Delta hedge on market close" checkbox.