Hedging Index Question

Discussion in 'Options' started by qazmax, May 17, 2005.

  1. qazmax

    qazmax

    Need help please...

    If you have a short iron butterfly position on an index (short put spread/short call spread) and short butterfly positions on the individual components, how would you determine the the proper ratio to hedge the index with the components?

    Since the iron can take up a lot more maintenance (if your broker's margin department sucks) without changing the risk exposure of the position?

    E.g.
    The fly might cost $100,000 maintenance
    and the Iron Fly costs $300,000 maintenance
    But they create essential the same position...

    How do you determine the proper ratio to make this an offsetting (or close to it) position?

    Lets suppose there is 4 components to the index all equal weighted at 25% to make it easy.

    :)