Leaderboard

you are right, a long HOG (delta or any other greek) doesn't directly hedge a short in say IBM and you can still lose on both trades. However the idea is to hedge yourself against a general move in the market (up or down). If the S&P goes up, a specific stock that you have can obviously still go down but the odds are its are going to rise with the overall market. So if you are short delta on one stock the best delta hedge would be to add delta to that specific stock position (via options or shares) second best hedge if you don't want to do that is to add delta (long or short - whatever brings you overall portfolio delta closer to zero) in another stock to your portfolio. Same idea for gamma/theta - if the market doesn't move much or earnings trades aren't performing as well (as we hope for a big move) but at the same time this is the environment where IC and calendars make money (you don't wont the markets to move for these strategies) so these strategies PARTIALLY hedge each other.