INV 201: A delta hedge leaves other risks to assess
Delta describes a local first-order sensitivity. Nonlinearity, volatility changes, discrete rebalancing, basis differences and transaction costs can remain after a delta hedge.
Original practice scenario
An original option position is delta-neutral at inception. After a large market move its delta changes, and a volatility change also affects value. Identify gamma and volatility sensitivity before claiming the hedge eliminates risk. State the rebalancing assumptions and a practical limitation.
Study check
Write the assumptions, the decision being supported and one limitation. Use the current course syllabus for the required terminology and scope; this introductory guide is not a complete course summary.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.
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