Closing portfolio of Equity Options

rish · January 13th, 2012, 10:21 am

Hi guysPretty new to Wilmott! So please be nice! Hopefully this is a straightforward and easy question for you guys.How would you close out the VEGA of portfolio of Equity Options? Easiest way is to close out each of these positions individually but this is going to cost a lot. At the other extreame, you apply all types of netting (e.g. large cap, small cap etc). You also need to account for smile and skew. But is there a optimal way of doing this? Is creating a basket of options any good?Many thanksRish

daveangel · January 13th, 2012, 10:58 am

there is no easy answer to your question. the only clean way of doing this is to buy/sell all your positions. Clearly you dont want to do this so what you are really asking is how do I change my vega ? Well th answer to this is itself not so straightforward but you could try to spread your risk.1. if you are short an 80% put perhaps you might want to buy the 90% put 2, if you have a lot of positions in a specific maturity then you might want to create a claendar position3. you might want to trade index vol against your stock vol to create a dispersion position