What it is
Delta hedging removes the first-order directional exposure of an option position by taking an offsetting position in the underlying. A trader who wants exposure to volatility rather than to price direction hedges away the delta and keeps the gamma, vega and theta.
How it works
The hedge quantity is the position delta with its sign reversed: for a short call position, delta per contract multiplied by the number of contracts and the contract multiplier gives the number of shares to buy. Because delta itself changes as the underlying moves, and that rate of change is gamma, the hedge has to be adjusted repeatedly, either on a fixed schedule or whenever delta drifts outside a tolerance band.
How traders use it
This is the core mechanic of options market making, and in a directional form it is gamma scalping: a long-gamma position is rehedged by selling into rallies and buying into declines, capturing realised movement, which is profitable when realised volatility exceeds the implied volatility paid for the position. The economics of the trade are simply the comparison between what was paid out in theta and what was harvested in rehedging.
Where it breaks down
Continuous hedging exists only in the model. Discrete rehedging leaves residual profit and loss whose variance falls as rehedging becomes more frequent, but transaction costs rise at the same time, so there is an optimum frequency and it is not infinite. Gaps defeat the hedge entirely. And a short-gamma position requires buying as price rises and selling as it falls, which means hedging losses accelerate exactly when markets move fastest. The hedge controls direction; it does not eliminate risk.
Educational reference. This entry describes how a concept is defined and used. It is not investment advice, not a recommendation, and not a signal. Any rule you build from it should be tested with realistic costs before it is traded, and no historical result guarantees a future one.