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Delta Neutral

Delta Neutral

by The MoleJanuary 7, 2013

Someone just mentioned in the comment section that the media was long volatility and hence the bus was pretty empty right now. Point taken, good sir, but even I, a notorious market megalomaniac, have a hard time justifying a positive delta portfolio if I see Mr. VIX scrape the bottom of the barrel again:

There are times to be a contrarian and then there are times when it’s best to be running with the crowd. And then again there are times when you try to be as delta neutral as possible. And guess what, today is one of those times. In other words – just because the bus is empty means it’s taking off in the direction you think it will. But that’ doesn’t mean we can’t get positioned – let’s just make sure we keep it delta neutral.

In case you don’t know what that means – here it is right out of investopedia: A portfolio consisting of positions with offsetting positive and negative deltas. The deltas balance out to bring the net change of the position to zero. As a result, you neutralize the response to market movements for a certain range.

In English this means that your long exposure should match your short exposure. Got it? Good! So let’s look at some setups, shall we?

The Dollar – I love this setup! Long at the 25-hour/25-day SMA (both are in sync right now). Short on a breach. I hope it’s an SMA retest which would be extremely peachy.

Nice inside day setup developing over at the evil empire. Long/short triggers shown on the chart.

FSLR – only interested in a long IF it manages to hold the 25-day and pushes back above the 100-hour SMA.

I got quite a bit more, including some FX plays – please step into my lair:
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USD/JPY – inside day after a pretty relentless two month ramp. I would take either entry without prejudice.

GBP/USD – inside day near the (still rising) 100-day SMA. I would take either trigger tomorrow – the downside would be awesome of course as it’s below the 100-day SMA.

CAD/JPY – same idea as on USD/JPY.

Let’s do a bit more equities:

XLU – long if she holds the NLSL, short if it breaches. I like this as it’s also near the 25-day SMA.

WYNN – inside day after a ramp – I like it.

POT – inside day but I would only take a long here as I like the 100-day SMA bounce. Too crowded below.

PCP – use the NLBL to pick your direction.

Another inside day on JPM – you know what to do.

JNJ – you can either play the hourly panel via the 25-hour SMA or if we get an inside day on the daily then use those triggers.Tough choice and it’s up to your taste buts.

ICE – exactly the same type of setup. Have at it.

IBM – long if she holds the NLBL, short if not. However I would wait for a short until the 25-day gives way. Call me anal retentive but the rules are the rules.

Nice inside day setup on EXPE – I like that preceding ramp. A breach below that daily NLSL would be confirmation of the short side. Not sure what the odds are on this.

DUST – inside day at the 25-day SMA. You know what to do.

COG – long if she holds the NLBL. Short only if we see a drop below the 25-day SMA.

CCJ – long if we get a push above the 100-hour SMA. I do like the fact that it’s been holding the 100-day SMA.

BHI – inside day after a ramp. Eager to take either direction.

And I’m sneaking in a commodities play – cocoa right at its 100-hour SMA. I’m also curious to see what’ll happen here at the NLBL which is about to expire. Although it officially expires tomorrow I’d use it as my separation between a long and a short. You can also play the 100-hour of course – same difference.

That ought to keep you guys busy for a while 😉



About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.