Delta Neutral


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 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.

BREAKING DOWN '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 their holdings accordingly. Puts always have a negative delta (ranging from -1 to 0), while long calls always have a positive delta (ranging from 0 to 1), 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.

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  1. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  2. What industries typically use delta hedging techniques?

    Those industries which are connected to the finance and commodity markets and are trading derivatives are the most likely ... Read Full Answer >>
  3. How can you use delta to determine how to hedge options?

    The delta of a derivative security tells you the relationship between the underlying security's price and the security's ... Read Full Answer >>
  4. What does it mean to say that a straddle is "delta neutral?"

    The option Greek delta measures how much an option moves in relation to the changes in an underlying stock price. It's the ... Read Full Answer >>
  5. What is a common strategy traders implement when using the Weighted Alpha?

    A trader can use weighted alpha to measure a stock's price action over a certain time frame, usually measuring growth over ... Read Full Answer >>
  6. How do I use Weighted Alpha to create a forex trading strategy?

    In foreign exchange or conventional security markets, weighted alpha is designed to help discriminate between different instruments ... Read Full Answer >>
  7. How can I use alpha in conjunction with the Treynor Ratio?

    Alpha and the Treynor ratio are two technical indicators widely used in risk management to assess the effectiveness of investment ... Read Full Answer >>
  8. Does a negative alpha automatically mean I should sell?

    Investors and analysts use numerous technical indicators to assess the relative risk associated with a given stock. Optimal ... Read Full Answer >>
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