15 lines
946 B
Plaintext
15 lines
946 B
Plaintext
Direction Neutral, Direction Biased, and
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Direction Indifferent
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As typically traded, volatility-selling option strategies are direction neutral.
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This means that the position has the greatest results if the underlying price
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remains in a range—that is, neutral. Although some option-selling strategies
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—for example, a naked put—may have a positive or negative delta in the
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short term, profit potential is decidedly limited. This means that if traders
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are expecting a big move, they are typically better off with option-buying
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strategies.
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Option-buying strategies can be either direction biased or direction
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indifferent. Direction-biased strategies have been shown throughout this
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chapter. They are delta trades. Direction-indifferent strategies are those that
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benefit from increased volatility in the underlying but where the direction of
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the move is irrelevant to the profitability of the trade. Movement in either
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direction creates a winner. |