Archive for June, 2009
Delta Neutral Trading
June 11th, 2009 | 
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There are many ways to trade futures option spreads. One way is to trade spreads that can profit from time decay. You can sell options which you believe will lose more time value than the options you buy. 
Another way is to buy and sell options based on their deltas. Some of these trades are called delta neutral trades. Delta neutral trades are option trades in which the total delta of all the options is Zero. At the money options have a delta of 50.
If you buy an at the money call, you will have a
delta of +50.
If you sell an at the money call, you will have a
delta of -50.
If you buy an at the money put, you will have a
delta of -50.
If you sell an at the money put, you will have a
delta of +50.
Basically, the deltas will be determined by where you want the market to go. Think of it this way: If you sold an at the money call option, where would you want the market to move to? You would like it to go lower. So, you would have a delta of -50.
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