Delta Neutral Discussion

Delta-Neutral Trading

Selling a Strangle, such as Short V 80Call and Short V 80Put in our example, results in 0 (zero) Delta. Recall, that value of options with a 0 Delta position will not be affected by underlying price movement.

Perhaps by relating options to stocks, Delta can be better explained...

Long 100 shares of V = 100 Deltas
1 contract of Long V 80 Call (this is ATM Call) = 100 x 0.5 = 50 Deltas (1 option contract = 100 shares)
=> 2 contracts of Long V 80 Call = 50 x 2 = 100 Deltas

Therefore, Long 100 shares of V = 2 contracts of Long V 80 Call

(sidetrack : 100shares of V @ $80 = $8000 of capital. 2 contracts of V 80 Call will cost only a few hundred. such is the leverage nature of options)

802 is correct to suggest that if we Short 80 Call/Put, yielding a 0 Delta, which means that however V price swings, we just milk the Theta dry (read : profit from premium decay)... this is the intention !!!

Although such Short Strangles have 0 Delta, it doesn't mean that this Delta will stay totally unchanged. Given sufficient movement in V's price, this Delta will become more +ve or -ve; the reason? Gamma. This old faithful Gamma is at -0.14

Delta-Neutral trading is the process of ensuring that the overall option position is immune to price swing in either direction. It aims to profit from either Theta or/and Vega movement....

I'll leave it as such for now...and open this for further discussion...