Delta Neutral

Having a Delta neutral position means the net value of the deltas of all legs of a given strategy add up to zero. Calls have positive Delta and Puts are negative Delta, the values are reversed for Short positions (so Short puts have positive Delta and Short calls negative Delta).

The Delta of each Leg is multiplied by the number of Options contracts bought or sold. For example:

A Bull Put Spread is composed of:

10 x Short Put at -0.15 Delta is equivalent to 0.15 Delta x 10 = 1.5 Delta.
10 x Long Put at -0.5 Delta is equivalent to .5 Delta x 10 = 0.5 Delta

The strategy (spread) Delta 1.5 - 0.5 = 1.

To make this Delta neutral, the Underlying stock could be sold Short as stocks have a Delta of 1 . Other techniques might include selling calls to reduce Delta, using futures or synthetic Short Stock Options positions.

Delta neutral positions are usually employed a hedging technique to reduce risks from market moves and to lock in profits (e.g. from time decay). Delta neutral strategies also utilised in Gamma scalping trades.