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To: Stock Farmer who wrote (109043)	6/18/2001 2:57:20 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 436258

John, basically delta hedging is a method to hedge against adverse price moves against options that have been sold short. so when the price moves down into an expiration, the sellers of puts are forced to short the underlying stock, or basket of stocks, in increasing amounts as strike prices are approached and breached, conversely, they buy the underlying against shorted calls when prices rise. essentially it's a step by step approach...the closer you get to the strike, the more you add to the hedge in the underlying instrument, and then progressively add less after the strike is breached, until you reach a fully hedged position. 'delta' is an option's sensitivity to price changes in the underlying instrument, thus the term 'delta hedging'. for market analysis purposes an exact understanding of the process isn't really necessary. suffice it to say, we know that the bulk of written options usually resides in the front month, and that we're in a liquid market where delta hedging is feasible. as a result, price moves during expiration week are magnified by this activity, and delta hedge positions in stocks are taken aboard by the option sellers, especially when the price moves during expiration week are large (making them even larger). so after a sharply down expiration week, they will be left with short positions in stocks, which are bound to be unwound after expiration by buying the shorted stocks back...conversely, after a sharp rally they will be long stocks and sell them after expiration.