All You Need to Know About Non-Directional Trading

Non-directional trading strategy, also known as delta-neutral trading is one of the best options for traders, who do not want to make predictions based on multifaceted market data, pages and pages of stock charts, or anything else. This strategy is known as non-directional strategy because the potential to profit does not depend on whether the underline stock price will go up or down. When a price is moving sideways, the underlying security is in, what’s known as a non-directional trend. When talking about directional trading, it is quite a risky trading, especially when the market runs in the opposite direction. To conquer such situation, non directional trading strategy is the best option.

The traders using non-directional trading strategy make trades to benefit regardless of which direction a stock moves. A large number of traders are already using this strategy and several others are putting their efforts to learn this strategy. With proper usage of non-directional options strategies, traders can earn steady profits. Some of the key advantages of non directional option trading strategy include:

  • Under the non directional option trading strategy, you need not to worry about earning risks and you can focus on the same asset over and over again

  • When selling credit spreads, your trade structure is usually considerably out of the money, so there is a high likelihood of success

  • The credit spreads do well in an uneven or range-bound market as they are high probability trades

  • In this kind of trading option, your entries will be structured the same each time. You focus should not be on being right or wrong, it must be on managing the risk.

  • The OTM credit spreads are not time consuming to select or maintain and are a great option for people who work full time jobs.

Below mentioned are some of the major income trades under non-directional option trading strategy:

  • Iron condor: An iron condor spread is build by selling one call spread and one put spread with the same expiration day on the same underlying instrument. It is basically made up of four options contracts, at four different strike prices. An iron condor is generally sold when the implied volatility rank is too high to take benefit of increased option premium.

  • Calendar spread: A calendar spread usually involves buying and selling the same type of option including calls or puts for the same underlying security at the same strike price, however at various expiration dates.

  • Butterfly spread: A butterfly spread strategy is a neutral strategy that combines a bull spread and a bear spread. It is simply a limited profit, limited risk options strategy.

Non-directional traders can make money most of the times as compared to directional traders, by using non-directional option trading strategy in a proper and efficient manner.