Neutral
Candlefocus EditorIn financial markets, being in a neutral position is sometimes referred to as trendless or sideways. This can create opportunities for traders to take advantage of certain conditions that exist in neutral markets, such as low volatility or high liquidity. These conditions can be used to pursue different trading strategies that would otherwise be unavailable if one had a bullish or bearish stance.
Neutral trading strategies are most popular with options traders, who often use delta-neutral options positions to hedge a portfolio and achieve a neutral position. A delta-neutral options position involves being long options with a positive delta and shorting options with a negative delta of the same magnitude. Delta measures sensitivity of the option’s price to changes in the underlying asset’s price. By taking a delta-neutral stance, traders can eliminate the directional risk associated with holding options, and focus on making a profit from the option’s implied volatility or arbitrage opportunities.
Neutral trading strategies are often used by institutional investors, speculators and even proprietary trading firms to take advantage of the sideways markets and other neutral trends that exist in certain financial markets. By being in a neutral position, these traders are able to collect option premiums, exploit market volatility and can look for arbitrage opportunities in certain market conditions. Furthermore, neutral trading strategies can help traders manage risk and reduce potential losses as these strategies do not involve taking directional bets on the market.