- Has a mix of future and options , suitable for tight sideways market where less movement is expected
- To leverage options theta time decay in tight sideways market when price moves within a specific range within current expiry.
- Logic is to buy one lot of current month future and to keep the delta neutral sell 4 lots of CE of current expiry
- Recommended to apply for stock or index options with good volume and liquidity.
- As compared to butterfly strategy, this strategy may use very higher margins , as futures and multiple options sold. To bring down the margin , buy deep OTM lots having premium less than Rs.2.
- As returns are high , so is the risk if market opens with a wider gap.
Steps to setup Neutral Delta strategy
- Buy 1 lot of Index future of current month
- Sell 4 lots of CE strikes of delta 0.25 of current expiry
- To reduce margin if needed , buy 4 or more lots of CE at deep OTM strikes with premiums less than Rs.2
- Multiply the lots based on personal target risk management levels
Profit levels
- Profitable when Market remains sideways within the breakeven range during the current expiry
- Exit if personal target levels reached
- Exit at breakeven if 70% of threshold reached
- Exit at full profit on current expiry date
- Review and trail stop loss every day once as per personal profit gain levels
Loss
- Loss when price nears breakeven points
- Exit at breakeven points
- Exit at personal Stop loss levels breach
Interim Adjustments
- When price reaches around 70% of breakeven levels exit and re-execute the steps , this will lead to carry forward to next cycle with minimal profits or loss.