This article was originally published in The Option Strategist Newsletter Volume 13, No. 3 on February 12, 2004.
One of the most tantalizing, yet dangerous, items in all of trading is the expensive option. From an elementary viewpoint, one would like to sell the option and collect the time value premium decay as it wastes away to nothing. But, more often than not, the options were expensive for a reason, so the option seller suddenly finds himself fighting the trend of a volatile movement by the underlying. In this article, we're going to discuss a few of the things to look for and then suggest a strategy that might be a "middle ground" where a skew is also involved with the expensive option (which it often is).
This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.
The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.
This article was originally published in The Option Strategist Newsletter Volume 8, No. 16 on August 26, 1999.
Questions & Answers
Q: I would like to ask you about delta neutral trading which I have heard and read about. Could you give me a brief description, it's merits and drawbacks, and in what situations it is best used. K.T. 6/17/99
This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.
The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.
