27*. Delta-Neutral Trading
Delta-neutral trading can take on a variety of different forms and encompasses much more material than can be covered in this chapter. There are delta-neutral strategies designed to generate profits and delta-neutral strategies designed to protect profits. In this chapter, the basic concept of delta-neutral portfolios is discussed, and an example demonstrates how trading a delta-neutral position can generate profits.
Review of the Delta Concept
Before discussing delta-neutral trading, it is worthwhile to review the concept of the delta of a financial instrument (stock, option, future, and so on). Extending the definition stated in Chapter 4, “The Greeks,” the delta of a financial instrument is the change in value of ...
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