Delta-Neutral Portfolio
A portfolio whose value is insensitive to small moves in the underlying — achieved by balancing positive and negative deltas.
A delta-neutral position has ΔPortfolio = 0. For a single short call (Δ = −0.6), the hedge ratio is: buy 0.6 shares per short call. Delta neutrality is maintained dynamically: as the stock price changes, delta changes (due to gamma), requiring rebalancing. The P&L of a delta-neutral, gamma-positive position is: P&L ≈ ½Γ(ΔS)² − Θ·Δt. Delta-neutral strategies isolate volatility exposure (gamma/vega) from directional exposure.