Delta Neutral

What is 'Delta Neutral'

Delta neutral is 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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RELATED FAQS
  1. How can you use delta to determine how to hedge options?

    Learn what delta is, how to use delta to hedge options and how to maintain a delta-neutral position by delta-hedging options ... Read Answer >>
  2. What are common delta hedging strategies?

    Learn about common delta hedging strategies, including how to make a position in options delta neutral by offsetting risk ... Read Answer >>
  3. Why does delta only range from 1 to -1?

    Learn what the option Greek delta is, what affects the value of delta for an option and why the delta of an option can only ... Read Answer >>
  4. What does it mean to say that a straddle is "delta neutral?"

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  5. What are the limitations of using delta to hedge options?

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