How to Build a Delta Neutral Strategy
Delta neutral strategies generate yield while neutralizing exposure to price movements. You profit from funding rates, yield differentials, or arbitrage - not from price direction.
What is Delta Neutral?
Delta measures price sensitivity. A delta neutral portfolio has zero net delta - gains from longs offset losses from shorts (and vice versa).
Common Approaches:| Strategy | Long | Short | Yield Source |
|---|---|---|---|
| . . . . . | . . . | . . . - | . . . . . . . |
| Funding Arbitrage | Spot ETH | Perp Short | Funding rates |
| Basis Trade | Spot ETH | Future Short | Basis premium |
| Yield Farming | LP Position | Hedged Short | Trading fees |
Risk Considerations
- Funding rates can flip
- Liquidation on short leg
- Execution slippage
- Counterparty/protocol risk
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Step-by-Step Instructions
Choose Strategy Type
Select between funding arbitrage, basis trade, or hedged farming based on market conditions.
Tips
- ✓Funding arb best with high funding
- ✓Basis trade needs futures premium
- ✓Check historical rates
Calculate Position Sizes
Long and short positions must equal in notional value for true delta neutral.
Tips
- ✓Account for fees in sizing
- ✓Consider leverage on short leg
- ✓Use spreadsheet to track
Open Long Leg
Buy spot asset or enter yield-generating position.
Tips
- ✓Spot is simplest
- ✓LP positions add yield but IL risk
- ✓Document entry price
Open Short Leg
Short same asset on perp exchange (GMX, dYdX) or futures.
Warnings
- ⚠Use low leverage to avoid liquidation
- ⚠Keep buffer for price spikes
- ⚠Monitor margin closely
Verify Delta
Confirm position sizes create net zero price exposure.
Tips
- ✓Small delta drift is normal
- ✓Rebalance if off by >5%
Monitor and Collect
Collect funding payments, yield, or fees. Monitor for rate changes.
Tips
- ✓Funding paid every 8 hours
- ✓Compound or withdraw yield
Manage Risk
Rebalance if delta drifts. Add margin if needed. Close if rates flip.
Warnings
- ⚠Negative funding = you pay
- ⚠Close before losses exceed yields
Exit Strategy
Close both legs simultaneously to lock in profits.
Tips
- ✓Close short first usually
- ✓Account for exit fees
- ✓Timing matters for slippage