How many units of the second option will you trade

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Reference no: EM132056966

You have a Delta-neutral portfolio of options and underlying stocks with Gamma -4880 and Vega -7880. You can trade two options. The first option has Delta, Gamma and Vega, respectively, of 0.5, 0.6 and 1.5. The second option has Delta, Gamma and Vega, respectively, of 0.4, 0.7 and 2.5. Determine your hedging strategy to make your portfolio neutral for Delta, Gamma and Vega. Based on your calculations:

a) How many numbers of the first option will you trade?

b) How many units of the second option will you trade?

Reference no: EM132056966

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