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.

  1. Volatility Arbitrage

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

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

    Dimensions of risk involved in taking a position in an option ...
  4. Delta Hedging

    An options strategy that aims to reduce (hedge) the risk associated ...
  5. Gamma

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

    The ratio comparing the change in the price of the underlying ...
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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 >>
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  3. How can you use delta to determine how to hedge options?

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  4. What does it mean to say that a straddle is "delta neutral?"

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  6. 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 >>
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