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Delta-Neutral Hedging

This section illustrates how OptiFi Market Maker (OMM) achieves Delta-Neutral.
Take a BTC Option Vault as an example:
  1. 1.
    Orderbook Management: Dynamically update orderbook pricing based on delta level
    • When OMM is overexposed, Delta > 0, it will reduce the amount of BTC options it is willing to buy calls (or sell puts)
    • When OMM is underexposed, Delta < 0, it will reduce the amount of BTC options it is willing to sell calls (or buy puts)
  2. 2.
    Risk Management: Use Futures to hedge
    Once Delta Mismatch occurs, OMM will automatically hedge the whole portfolio through Mango Futures Market, to make sure the delta is under a manageable level at nearly to zero.
This way, OMM will:
  • Provide better than mid-price buy sell prices when it needs to source delta hedges
  • Create more competitive pricing and attract liquidity to the futures market as well as help balance flows between options and futures