Options trading: In an options contract, the investor who bought the contract has the choice of whether or not to execute it on the settlement date. If their position is profitable they can do so and claim their money. If they’re holding an unprofitable position they can simply walk away.
Many options traders use delta neutral positions to profit off this dynamic. They enter into mutually offsetting contracts knowing that they can keep whichever one makes money and abandon the one that loses value. A common example of this is the trading position known as the “straddle.” It is restricted, however, by the fact that options traders pay a premium for each contract they enter. A delta neutral options strategy needs the underlying asset to swing in value by enough to cover their multiple contract premiums, otherwise their position will net them a loss.
Many options traders use delta neutral positions to profit off this dynamic. They enter into mutually offsetting contracts knowing that they can keep whichever one makes money and abandon the one that loses value. A common example of this is the trading position known as the “straddle.” It is restricted, however, by the fact that options traders pay a premium for each contract they enter. A delta neutral options strategy needs the underlying asset to swing in value by enough to cover their multiple contract premiums, otherwise their position will net them a loss.
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