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Dealer Logic · DL-13 · Core

Hedging across global sessions

Why does an overnight move matter to the next option session?

One concept per page · original written lesson · 318 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Why dealers hedge

Linked products have different schedules. Futures can incorporate overnight information while many individual-stock options are less available. Some index options have extended sessions, so the exact product calendar must be identified.

An overnight move changes sensitivities of existing inventory but does not reveal what inventory remains at the next open.

Understand the mechanism

Gamma, time and IV assumptions can alter the book's opening Delta. A broad futures hedge may manage part of that exposure, but individual-company jumps and basis remain.

Asia and Europe supply observations and different liquidity; they are not direct measurements of U.S. dealer holdings.

Walk through the process

Record the estimate's timestamp and recompute at the new state. Distinguish hedgeable broad exposure from idiosyncratic risk. At the cash open, update with actual option prices and new flow.

A large move may require full repricing instead of a fixed-Gamma approximation.

Evidence boundary

The arithmetic is original conditional teaching material, not a measurement of current dealer positions. The cited Cboe research is historical product-specific evidence, not a live inventory feed. Model outputs should remain distinguishable from observed market facts.

A worked example

A fictional book has +100 dollars per point-squared of Gamma. A +5-point overnight move adds approximately +500 dollars per point of Delta. With a matching 50-dollar-per-point future, neutralizing that increment means selling ten contracts.

The example assumes unchanged inventory and a matching index. If either fails, the numerical implication no longer represents the same book.

Hedging across global sessions—worked comparison

Vertical: Incremental futures hedge contracts
Horizontal: Index point change

Hedging across global sessions—worked comparisonFictional data from the written example. The chart organizes the comparison; its shape is not a forecast. The complete numerical data are available below.-10.9-8.54-6.18-3.82-1.460.9012345
1. Fictional example
Fictional data from the written example. The chart organizes the comparison; its shape is not a forecast.
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Index point changeFictional example
00
1-2
2-4
3-6
4-8
5-10

What would invalidate the reading?

A stale close-based allocation can miss new trades and overnight hedges. A broad-index future cannot eliminate single-company earnings risk.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

How many extra short futures offset the example's +500 dollars/point increment?

Reveal the worked answer

Ten at 50 dollars per point.

500/50=10, with opposite hedge sign.

Critical risk question

What is the critical failure to avoid?

Reveal the worked answer

A stale close-based allocation can miss new trades and overnight hedges. A broad-index future cannot eliminate single-company earnings risk.

Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.

Takeaway

Return to the question: Why does an overnight move matter to the next option session? State the observed facts, the assumptions and the failure condition separately.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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