Delta Neutral

RECENT NEWS  Feb 23  Comment 
I was teaching a class once at the Chicago Board Options Exchange. At the intermission, a student came up to me and asked if I could teach him delta-neutral strategies. I asked why he wanted to learn about them and he replied, "... because that's...
Wall Street Sector Selector  Aug 11  Comment 
Over the next few posts I’ll explore the potential benefits of delta neutral trading, a very aggressive approach to risk management. While you’re never going to hit a 10 bagger with this tactic, the good news is there is virtually no drawdown...
FX Street  Dec 23  Comment 
RHT - Red Hat, Inc. – Shares of the software company are down 2.5% at $46.67 in the final hour of... For more information, read our latest forex news and reports.
FX Street  Dec 7  Comment 
For more information, read our latest forex news and reports.
FX Street  Sep 16  Comment 
ORCL - Oracle Corp. – Shares of the software company rallied as much as 1.45% this afternoon to... For more information, read our latest forex news and reports.
FX Street  Jul 14  Comment 
SYMC - Symantec Corp. – A sizeable delta neutral transaction on the provider of security, storage... For more information, read our latest forex news and reports.
  May 16  Comment 
The strategies that have been discussed so far have signified either a bullish or bearish bias on the underlying stock. This chapter will introduce new concepts that allow investors to to take a neutral stance and profit. These concepts also...
Condor Options  Aug 12  Comment 
There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc.  Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied...
Invest2Success  Jun 11  Comment 
Anyone, who knows anything about options trading, knows that to make profits on a consistent basis you have to predict something. The days of arbitrage trading for the public customer are long since gone, and in fact, even market makers and other...


Delta Neutral

Delta neutral refers to a position or portfolio which has an overall delta value of zero or very close to zero. This means that the portfolio does not react to small changes in price of the underlying assets.

When a position or portfolio is delta neutral, not only does it not react to small changes in the price of the underlying asset, it is also able to profit when the underlying asset breaks out in price, no matter to upside or downside. Yes, profiting both to upside and downside.

Delta neutral is especially useful in options trading when positions are set up to take advantage of time decay. When a position is designed to profit through time decay, it needs to react as little as possible to changes in the underlying asset as possible. In order to do so, a concept known as dynamic hedging is used where the overall delta value of the position is rebalanced whenever it moves out of neutrality.

Delta neutral hedging can be attained using options, futures, stocks or any combination of them.

Delta neutral positions are often held by market makers since their main aim is to profit by trading at a spread - rather than earning a return on their position.

See Also

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