Delta Neutral Volatility Example?

Discussion in 'Options' started by BenChi, Nov 22, 2006.

  1. BenChi


    Would someone be kind enough to instruct me how to put on a Delta neutral volatility spread in the QQQQ?

    I'm wanting to go long volatility in the medium term.

    My understanding is that I want an out of the money call and an out of the money put at the same strike price?

    How far away should the strike prices be from one another?

    Thanks for your help!

  2. BenChi



    what if i were mildly bearish? how would i skew the strikes?

    thanks again!
  3. atozcom


    I am new to this, but I am going give your question a try:

    Volatility would imply price movement, except that you don't know the direction.

    A straddle or strangle would fit your requirement: long volatility and delta neutral, at least at the beginning. Once the price start moving, your delta will not be neutral.

    QQQQ may not have enough movement to make the straddle or strangle profitable.
  4. BenChi



    'movement' is relative. the probability of a move in a givin direction is already priced into the contract - if the QQQQ move more than people expect them to move, then you will make a profit, regardless of how volatile the instrument.