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Capital Neutral Trading Methods

  • #1
  • First Post: Jan 10, 2012 6:08am Jan 10, 2012 6:08am
Good evening all,

Just wondering if anyone has further information that they could provide on capital neutral trading?

From what I can gather, capital neutral trading involves a trader splitting their invested capital (HA I won't use the term "hedged") evenly between longs & shorts positions.

This method allows the trader to be constantly involved in the market at all times and in theory profit from either direction.

The use of scaling into positions can be useful with this approach.
Thoughts anyone?
  • #2
  • Jan 10, 2012 6:40am Jan 10, 2012 6:40am
Look up pair trading but it is more for invest or you can build arbs on stuff rather long the german 2years or us treasuries

anyway investing is more like this stocks and crap buy and hold strong yielding stuff http://www.zapiks.fr/share/player.swf?file=50284

Thats why the germans and tresuries would outperform logerterm.

But back to the question pair trading look in to that.

Offset currency risk or short ym long es things like that.
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  • #3
  • Jan 10, 2012 7:09am Jan 10, 2012 7:09am
There is something similar called "delta neutral" or "market neutral" trading. I've never heard of "capital neutral" until now.

http://en.wikipedia.org/wiki/Market_neutral
http://en.wikipedia.org/wiki/Delta_neutral
  • #4
  • Jan 10, 2012 8:01am Jan 10, 2012 8:01am
Quoting Adal
There is something similar called "delta neutral" or "market neutral" trading. I've never heard of "capital neutral" until now.

http://en.wikipedia.org/wiki/Market_neutral
http://en.wikipedia.org/wiki/Delta_neutral
Agreed, sounds like delta neutral trading.

OP - you end up simply betting on volatility - magnitude - of moves rather than direction using options rather than spot. Although you can theoretically recreate any option strategy in spot, it'd be hellish to manage so you'd be looking for options broker.
Be warned though, the retail options market is still pretty immature, so even if you become a veritable genius at it, you're limited by the strikes available to you OTC. And I'd be wary about doing it unless you had good market info - ie a live vols feed as a minimum which will cost you.
  • #5
  • Jan 10, 2012 10:55am Jan 10, 2012 10:55am
Quoting timster
Good evening all,

Just wondering if anyone has further information that they could provide on capital neutral trading?

From what I can gather, capital neutral trading involves a trader splitting their invested capital (HA I won't use the term "hedged") evenly between longs & shorts positions.

This method allows the trader to be constantly involved in the market at all times and in theory profit from either direction.

The use of scaling into positions can be useful with this approach.
Thoughts anyone?
This strategy is pretty common in stocks using options, but it is basically called a straddle, rather than capital neutral, the reason being is that there is decay with the option. The longer you hold them the less value they have.

If you can get really good at this method it's one of the higher paying ways to play stocks because of the controlled downside and the amount of leverage you can get out of options. You might want to time your purchases with off the chart events also, things that might drive volatility and can give you bigger returns.
  • #6
  • Last Post: Jan 11, 2012 4:33am Jan 11, 2012 4:33am
great feedback everyone thanks!

Is there a way we can apply the general principals to currency trading? Obviously pairs trading is one way, however can we utilize the general principals and apply it to one currency on the spot fx market?
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