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May
4
comment Why are options trades supposed to be delta-neutral?
(Continuing) The reason to keep it delta neutral is because you don't care about direction so much as changes in volatality. You'll make money over the long term by adjusting your position to maintain delta neutrality. However, all of this lies on whether your calculation of future volatility was actually correct (or close to correct) relative to implied volatility. (Is that right, too?)
May
4
comment Why are options trades supposed to be delta-neutral?
So, let me get this straight: There's nothing wrong with betting on direction, but in doing so, you need to perform proper market forecasting, which is generally much harder. By betting on the spread, you're aiming to make money from a mispriced option, and the only piece of option pricing that isn't a known fact is future volatility, so the work that needs to be done is calculating theoretical future volatality and comparing it against implied volatality. Is that right?