Leaderboard

Our goal is to be delta neutral. So lets take the latest YUM trade as an example. On Friday we had the May04 85.5 straddle and Apr20 short 84.5/86.5 strangle. The stock was at 86.40. After closing the Apr20 strangle, we needed to sell Apr27 options in order to remain delta neutral. Since the stock moved from the straddle price, the best way to stay delta neutral was selling Apr27 86.5 call. On Tuesday the stock moved to 85.20: The trade became delta negative (-33 delta) so we sold Apr27 84.5 put to get back to delta neutral: Now remember: reducing delta will turn against you if the stock continues the same direction. But our goal is to reduce risk, even if it means to reduce gains in some cases. We trade non-directionally, we do not want to take directional bets.