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A risk offsetting position-consisting in part of short-term option contracts- that neutralizes the market risk of an underlying position in an instrument with some embedded option features. The hedge offsets the current delta within a narrow range and attempts to match the change in delta (gamma) of the underlying position over a wider range of possible prices. In contrast to dynamic hedging or delta hedging, which relies on a series of transactions in the underlying, forwards, or futures to match changing deltas, a delta/gamma hedge has an option payoff pattern built in. See also Delta (1), Delta Hedge, Dynamic Hedging, Neutral Hedge Ratio.
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