what is the best way, if any, to determie the risk of a portoflio consisting of only options contracts (listed US Equity options).Is there any benefit in converting the contract size, into the equivalent number of shares (by multiplying the delta) and then using the Beta of the underlying, to determine the hedge ratio? (assuming the goal would be to calculate the risk of this portfolio consisting of only options contracts, and hedging it using SPX futures)can anyone out there help. Anyone at all?Example: 100 contracts of APPL 440 calls October, with a delta of 0.34 (and the stock at 416.33)100 contracts = 10,000 shares, but this behaves the same as 3400 shares of aapl (as indicated by he delta, 10,000 x 0.34).aaple stock has a beta of 1.11therefore, i am syntheticaly long 3400 shares of aaple (equivalent via the option position), therefore exposed to 1,415,522$ with a beta of 1.1am i considered hedged if i sell 1,557,074.20$ worth of SPX futures? say about 5 contracts? (1,415,522$ x1.1)given this non linear investment, should I somehow incorporate other Greeks into the equation? the hedging will be very dynamic and might require constant upkeep and rebalancing.any advice at all? publications, books, eth?

Define "risk" first, then define the purpose of all this, you are half-way to the solution...

QuoteOriginally posted by: persefoniwhat is the best way, if any, to determie the risk of a portoflio consisting of only options contracts (listed US Equity options).Is there any benefit in converting the contract size, into the equivalent number of shares (by multiplying the delta) and then using the Beta of the underlying, to determine the hedge ratio? (assuming the goal would be to calculate the risk of this portfolio consisting of only options contracts, and hedging it using SPX futures)can anyone out there help. Anyone at all?Example: 100 contracts of APPL 440 calls October, with a delta of 0.34 (and the stock at 416.33)100 contracts = 10,000 shares, but this behaves the same as 3400 shares of aapl (as indicated by he delta, 10,000 x 0.34).aaple stock has a beta of 1.11therefore, i am syntheticaly long 3400 shares of aaple (equivalent via the option position), therefore exposed to 1,415,522$ with a beta of 1.1am i considered hedged if i sell 1,557,074.20$ worth of SPX futures? say about 5 contracts? (1,415,522$ x1.1)given this non linear investment, should I somehow incorporate other Greeks into the equation? the hedging will be very dynamic and might require constant upkeep and rebalancing.any advice at all? publications, books, eth?This is delta hedging. It requires a dynamic strategy to remain delta-neutral, but you are still exposed to volatility. You could hedge gamma using other options to reduce the amount of rebalancing.

fair enough, the purpose of all this it to hedge the options portfolio using SPX futures, in order to get a beta of 1. any ideas?and i like the image by the way, lol

If you think there is perfect hedging, go and play in a zen garden...Copyright, belongs to an old old member.Beta=1???

I am aware that there is no perfect hedge, but we try in this world to mitigate risk, lol, no matter how illusioned. I want to hedge the excess risk, since i want to be tracked on the perferomance of the SPX index. and in volatile markets, instead of liquidating a basket of maybe 50 options positions, might be easier to allign the beta with the SPX utilizing futures, and try to track the SPX (since the bonus is based on the SPX performance, lol).

Look up for delta hedging where you are doing a dynamic rebalancing of the hedge every time it changes. It's a lot of calculations ( I remember doing it from high school ) with sometimes really silly answers but it should atleast get you a theoretical(!) good hedge.

AAPL has an Alpha contract....you could just use that to hedge your risk.....own the options and short the alpha contract.....I believe that should do the trick