**WARNING: I am confused here. If you are confused as well I would not read any further as what I’m about to type may confuse you more and ruin what you learned. *** Can someone help me with this topic? It’s bothered me for awhile now and I’m trying to get some last minute clarification. For Delta Hedging w/ STOCK (you are long the underlying): An increase is stock price (assuming no change in delta) --> Buy more options An increase in delta --> Sell options For Delta Hedging w/ CURRENCY: An increase in FX --> Sell more options? A decrease in FX --> Buy more options? Thanks.
One is a put, one is a call. Delta is inverse for calls and puts. A decrease in the FX rate that causes an decrease (remember we are negative here, between 0 and -1) in Delta, would leave you overhedged. Sell puts. An increase in FX that causes delta to increase (closer to 0), would leave you underhedged and you would have to buy more puts. That assumes portfolio value is linear, if portfolio value is changing just use t1 portfolio / delta to find new amount of puts to buy.