When you sell a call contract, you are effectively going short. So you short the underlying to hedge your position.
Maybe we're using the term hedge differently, but if I'm effectively short by selling a call contract, isn't my hedge a long position in the underlying? The reason I say this is because if I also short the underlying, then I'm on the hook for both the call delivery and short covering if the underlying goes up. I think this is right, but correct me if it's otherwise.
You worry that it will continue going up because it's already gone so far against you, you'll never break even by OE.
The way I see it is that if the stock has gone against me and my option writing position, what I should do is to use the premium proceeds to fund transactions shorting the stock. If I short enough, I drive the price down. Along the way, I would hope to take out some stops, which would force others to sell. Effectively making them do my 'dirty work'.
In a strong downtrend, the hedging happens in the opposite direction, and prices continue downward.
This may again be a terminology issue, but I understand hedging to be what happens when price moves against my position. If I'm long in a downtrend, I need my hedging strategy to move prices up, not down, or vice versa. So, call writers want to push prices down in an uptrend.
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