Hello traders, Can you recommend software or a calculator that solves for the appropriate options spreads (in conjunction with the underlying, if helpful) to achieve neutrality of the greeks. I'd like to be able to neutralize as many as three of them. Thanks.
With the help of a calculator, I figure I could easily weigh profitability against cost in any given case. It may be that there's very little profit from it, but I do think one should manage to make some. Market makers hedge for all six Greeks with the intention of capturing the bid-ask spread--Even that small profit is enough to offset the limitations of hedging. To answer your question more specifically, though, I'm interested in neutralizing Gamma, Delta, and Vega, and capturing Theta. It could also be useful to hedge for Delta, Gamma, and Theta, and leave exposure to Vega. I know there are profitable trades in hedging three or more variables from having done them by hand, but a calculator or program would make things easier. Plus, I don't trust my own arithmetic!
Shouldn't you be able to do all this rather easily with Excel? I think with Solver etc, it should be able to do pretty much everything you need...
Are you a market maker or have a seat on the exchange? Cause if you are not a market maker or a seat holder then the costs (commissions, exchange fees and slippage) would pretty much neutralize any potential profit. Besides, theta and gamma closely related, if you hedge one then mostly likely the other one gets hedged automatically, well more or less.
TWS offers this functionality in the Option Portfolio tool. "Use the TWS Option Portfolio tool to help you adjust the risk profile of your portfolio by any of the Greek risk dimensions. Find the most cost-effective way to achieve your objective in Delta, Gamma, Vega or Theta by describing your objective and specifying any conditions. The algorithm mathematically optimizes an options portfolio based on user input and relevant economic criteria."