NZDUSD 3 months price bounces have now taken a halt and reversing into bearish sentiments s you can see in the technical charts.

The current ATM IV of NZDUSD is at 11.42%, and most likely to jump at 13% ahead of mounting expectation on RBNZ's further cuts in monetary policy in the months to come.

And technical situations of NZDUSD is again puzzling for this month, prices began tumbling back again after 3 months of upswings with RSI's divergence to the previous upswings.

While, sensitivity table shows you how delta moving in sync with IVs and skews.

These delta value indicates the option’s equivalent position in the underlying spot market.

Hence, to hedge an option, you take the opposite position in the underlying market.

For example, a NZD/USD Call option with delta value +0.50 NZD can be delta hedged by selling 50,000 NZD against USD in the spot FX market.

An option trader finds this technique desirable if they do not want to be exposed to changes in the underlying market price. You would want to do this if you have a book of open options and you want to negate the risk of market moves without having to close the options.

Additionally, you may have a view on expected volatility and want to trade only it, hence you need to reduce the effects of other factors influencing the premium value.

For example, let’s say you thought implied volatility in the 1-month NZD/USD option was overpriced, therefore you want to short (sell) the volatility. You could sell an at-the-money Call option with an amount of 100,000 NZD.

Remember that selling an option means you benefit when volatility falls. The delta is -0.5 (since this is an ATM option) amounting to -50,000 NZD. To eliminate the risk occurring when the underlying market moves, you can go long in 50,000 NZD against USD in the market.

This renders the delta neutral position. Suppose your analysis turns correct, you will profit via the short Call option with zero risk as the market moves around as long as you continue to update the delta hedge.