wake2000

It is the sweet spot along the curve ...I believe it is actually the point where it switches from positive convexity to negative convexity. Usually denoted by r*. Due to the large effects the changes have, it needs more than just the standard 2/10 to hedge, thus you use options or hedge dynamically. You would hedge dynamically if the implied volatility is high, but think actual volatility will be lower (because options will be expensive due to BS model); if implied volatily is low and you think actual will be higher you'd use options.