Delta Neutral

AAA

DEFINITION of 'Delta Neutral'

A portfolio consisting of positions with offsetting positive and negative deltas so that the position of delta is zero. A delta neutral portfolio balances out the response to market movements for a certain range to bring the net change of the position to zero. Delta measures how much an option's price changes when the underlying security's price changes.

INVESTOPEDIA EXPLAINS 'Delta Neutral'

As the value of the underlying assets changes, the position of the Greeks will shift between being positive, negative and neutral. Investors who want to maintain delta neutrality must adjust his or her holdings accordingly. Puts always have a negative delta (ranging from -100 to zero), while long calls always have a positive delta (ranging from zero to 100), so the two can be used together to create a delta neutral position. Options traders can use a neutral position delta strategy to make money when implied volatility declines.

RELATED TERMS
  1. Volatility Arbitrage

    Trading strategies that attempt to exploit differences between ...
  2. Delta Spread

    An options trading strategy where the trader initially establishes ...
  3. Gamma

    The rate of change for delta with respect to the underlying asset's ...
  4. Delta

    The ratio comparing the change in the price of the underlying ...
  5. Delta Hedging

    An options strategy that aims to reduce (hedge) the risk associated ...
  6. Greeks

    Dimensions of risk involved in taking a position in an option ...
Related Articles
  1. Options & Futures

    An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.
  2. Options & Futures

    Getting To Know The "Greeks"

    Understanding price influences on options positions requires learning about delta, theta, vega and gamma.
  3. Options & Futures

    Capturing Profits With Position-Delta Neutral Trading

    This trading strategy will show you how to gain from a decline in implied volatility on any movement of the underlying.
  4. Options & Futures

    Options Trading Strategies: Understanding Position Delta

    Learn more about the position delta hedge ratio and how it can tell you the number of contracts needed to hedge a position in the underlying asset.
  5. Options & Futures

    Option Spread Strategies

    Learn why option spreads offer trading opportunities with limited risk and greater versatility.
  6. Options & Futures

    A Detailed Look Into China's Options Market

    As the Chinese options market gradually takes shape, we provide an overview, including details of the initial phase and building blocks, primary beneficiaries, the impact on the overall financial ...
  7. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  8. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.
  9. Mutual Funds & ETFs

    How do hedge funds use short selling?

    Learn how hedge funds use short selling to profit from stocks that are falling in price. Explore different analytical techniques hedge funds employ to find investments.
  10. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center