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Delta Neutral

Delta neutral is an options trading strategy where the total delta of a portfolio or position is adjusted to zero. This means the position is designed to be unaffected by small changes in the price of the underlying asset. Traders achieve delta neutrality by balancing call and put options with various strike prices or using other financial instruments, ensuring that positive and negative deltas offset each other. This strategy helps manage risk by minimizing exposure to price movements of the underlying asset.

Example

A trader holding a portfolio of call options with a delta of 100 may add put options with a delta of -100 to create a delta-neutral position.

Key points

• Neutralizes the effect of price changes in the underlying asset.

• Requires active management and adjustment.

• Can be used to profit from factors like volatility rather than price movements.

Quick Answers to Curious Questions

Traders use delta-neutral strategies to minimize price risk and profit from other factors like volatility or time decay.

Delta neutrality is achieved by balancing the delta of options or other instruments, but it requires constant adjustments as prices change.

No, delta-neutral strategies are complex and typically used by experienced traders or institutions.

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