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WTF is delta hedging in RiskSwap

Delta hedging is a popular options trading strategy that allows to minimize volatility risks. Far from all crypto traders are familiar with this powerful technique however; and when it comes to decentralized crypto trading, RiskSwap is the first platform to support delta hedging.

The basics of delta hedging

In trading, hedging is a strategy that aims to minimize the risk of the price going against the trader’s open position. The most basic example is opening a long and a short position at the same time, or having open positions in two assets that are inversely correlated.

Learning how to hedge risks is essential in a volatile market like crypto. Experienced traders usually hedge their positions when the conditions are unstable — even if they are pretty sure about the future direction of the price. Hedging does reduce potential profits, but it ensures something far more valuable: capital preservation.

Delta itself reflects change — be it in mathematics, physics, trading, or other disciplines. In our case, it’s the speed with which the premium on the option changes as the price of the base asset changes. For call options, delta is positive: as the asset appreciates, the premium gets higher. And vice versa: delta is negative for put options.

Examples of delta hedging strategies

The actual value of the delta shows how much the option’s price will move if the price of the underlying asset moves by one point. Knowing the delta, you can calculate how many units of the base asset you need to buy or short in order to eliminate the risk. To do this, the delta is multiplied by the number of options and by the number of units, or shares, in each option.

Example. Bob buys 2 call options of 100 shares each, and the delta is 0.6. If he were to de-risk completely, he would need to sell (short) 2*0.6*100=120 shares, equivalent to -120 deltas.

One thing to remember is that the delta changes together with the price. Therefore, to keep the risk at zero, one has to continuously recalculate and adjust the positions based on the current delta.

Example. Let’s assume that the price of the underlying asset from the previous example went down, and the delta is now 0.55 instead of 0.6. Bob’s overall delta on the options is 2*0.55*100=110. His hedging short, however, is still worth -120 deltas, so he will need to buy back 10 shares to equalize the two — or become delta-neutral.

In real life, the delta changes constantly, so it’s practically impossible to keep one’s positions delta-neutral. It takes experience and skill to work out a delta adjustment schedule that helps preserve profits and doesn’t result in too much time lost.

Delta Hedging Suite on RiskSwap

Crypto is hyper volatile compared to traditional markets, with intraday price swings often exceeding 20%. Being able to use delta hedging under these conditions is even more valuable — and at the same time far more difficult, since prices change so fast. Another complication is that a large percentage of those who trade cryptocurrencies are relative beginners without experience with stocks and other assets.

It’s with these beginners in mind that RiskSwap developed the Delta Hedging Suite: an intuitive interface that lets users build a delta-neutral strategy in minutes. The Suite is very advanced in the sense that even professional traders will find what they need in it; and at the same time so easy to use that even beginner traders can effectively delta-hedge their derivatives positions.

Once you set up the parameters, the system will automatically readjust your positions as the price and delta moves. If you were to do it manually, you’d spend the whole day in front of the screen, so RiskSwap’s Delta Suite literally saves you hours each day.

The delta hedging algorithm is just one of many ‘firsts’ introduced by RiskSwap into the world of decentralized trading. For example, RiskSwap is the first DEX-like platform to have a central limit order book, which minimizes slippage and allows for efficient pricing. We are also among the first to offer DeFI-first derivatives.

Delta hedging may sound a bit daunting, but the sooner you learn this technique, the better your trading will be going forward. All you need is the desire to learn and earn more — and RiskSwap will make the rest easy.




Spin Finance is the first decentralized trading platform allowing for both futures and options trading built on Solana.

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Spin is the first decentralized trading platform allowing for both futures and options trading built on Solana.

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