Vega hedging a butterfly

Discussion in 'Options' started by hlpsg, Dec 21, 2009.

  1. hlpsg

    hlpsg

    The Vega curve of an ATM fly resembles a smooth "S" if one looks at minor price moves (1-2%) and looks like two mountains on both sides of a valley if one looks at a bigger price range (-10% to +10%).

    Is there a way to Vega hedge a fly so that its Vega curve becomes an:

    1) almost straight line OR
    2) reverse it's Vega profile so that it's a reverse "S" shape?

    In the real world, do you rehedge Vega risk once it gets above a certain threshold, or is the hedge static and held all the way to expiration?

    Thanks!
     
  2. MTE

    MTE

    A butterfly is already a hedged position, how much more hedging do you want!? I mean, the more you hedge the less is your return.

    If you want a flat vega profile then don't trade options.

    If you want to have an inverse vega profile then just do the inverse trade.