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Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks by W. Edward Olmstead - Professor of Applied Mathematics McCormick School of Engineering and Applied Sciences Northwestern University

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Chapter 27. Delta-Neutral Trading[*]

[*] Chapters with more advanced content are marked with an asterisk and can be passed over by beginners during the first reading of this book.

Delta-neutral trading can take on a variety of different forms and encompasses much more material than can be covered in this one chapter. There are delta-neutral strategies designed to generate profits, as well as delta-neutral strategies designed to protect profits. In this chapter, the basic concept of delta-neutral portfolios is discussed, and an example is used to demonstrate how trading a delta-neutral position can generate profits.

Before discussing delta-neutral trading, it is worthwhile to review the concept of the “delta” of a financial instrument (stock, ...

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