Neutral trading strategies are designed to profit in markets that are neither strongly bullish nor bearish. These strategies aim to minimize exposure to market movements while capitalizing on price fluctuations, volatility, or Pairs Trading.
Further, Neutral Trading Strategies involves taking long positions in strong stocks and short positions in weak stocks, aiming to profit from relative performance rather than overall market direction.
Neutral Trading Strategies
Pairs Trading
A trader goes long on one stock and short on a correlated stock, betting that their price relationship will return to historical norms.
Iron Condor
An options strategy that profits when an asset stays within a defined price range, using two credit spreads to limit risk
Delta-Neutral Trading
Adjusting positions to maintain a neutral delta, meaning the portfolio is insensitive to small price movements.
Convertible Arbitrage
Buying convertible bonds and shorting the underlying stock, profiting from pricing inefficiencies.
Summary
These strategies are commonly used by hedge funds and institutional investors to generate consistent returns with lower correlation to market trends.
