Long vega delta theta neutral

Discussion in 'Options' started by murphmack, May 30, 2012.

  1. I'm just wondering if anybody knows whether its possible to be long Vega while remaining delta theta neutral without using more than 4 legs?

    By delta theta neutral I don't mean strictly zero, but close enough to where it's negligible.

    Also just an offshoot trivial question..
    Is equity options expiry the third calendar friday of every month or the third trading friday of every month?
  2. Beams


  3. dmo


    The more time remaining, the higher the vega and the lower the theta. So if you buy back month options and sell front month options at a ratio that will make you theta neutral, you will be long vega. It's not perfect because IV of front and back months move independently. But I don't know a better way.

    As for delta - once you've bought the back month and sold the front month, calculate your delta and offset with the underlying.

    That's just 3 legs.
  4. Sure, this is all laid out explicitly in the books of Lawrence McMillan, such as __McMillan on Options__ or __Options as a Strategic Investment__. In fact, McMillan uses the example of being long Vega and neutral everything else. You can set the Vega to any value you like at will and neutralize everything else down to zero with a simple equation.

    As for the number of legs, each leg will correspond to the Greeks you want to deal with. If dealing with delta, gamma, theta, and vega, you'll need 4 legs. Of course, delta can always be neutralized with the underlying, as dmo stated. That's usually cheaper anyway.
  5. Jgills


    are you concerned with your gamma? or is this just a hypothetical?