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I.Portfolio Manager Sally has a position in 100 option contracts with the following Greeks, theta=+25000 , vega=+330000 and gamma = -200 . Which of the following additional trades, utilising generally ATM options will neutralise (hegde) the portfolio with respect to theta, vega and gamma ?

1. Sell short term(ST) options + sell long term (LT) options ( both ATM)

2.Sell short term(ST) options + buy long term (LT) options ( both ATM)

3.Buy short term(ST) options + Sell long term (LT) options ( both ATM) - CORRECT

4.Buy short term(ST) options + buy long term (LT) options ( both ATM)

II.Each of the following is true, please explain these statements :

1. For the long ATM positions , both position vega and theta increase as maturity increases.

2. For the short ATM options,both position vega and theta decrease as maturity increases.

3. Position Gamma decreases with maturity for a long position but increases (negative to negative) with maturity for a short position.

I get really muddled up with the concepts of Greeks when faced with so many situations? Can someone please tell me how to crack questions on OPTION GREEKS, I am aware of the meaning of each of these yet the problems are very tricky.

Also, "Vega and theta are increasing functions with maturity whereas gamma is a decreasing function with maturity ." Please explain this statement.

Thanks a lot.

1. Sell short term(ST) options + sell long term (LT) options ( both ATM)

2.Sell short term(ST) options + buy long term (LT) options ( both ATM)

3.Buy short term(ST) options + Sell long term (LT) options ( both ATM) - CORRECT

4.Buy short term(ST) options + buy long term (LT) options ( both ATM)

II.Each of the following is true, please explain these statements :

1. For the long ATM positions , both position vega and theta increase as maturity increases.

2. For the short ATM options,both position vega and theta decrease as maturity increases.

3. Position Gamma decreases with maturity for a long position but increases (negative to negative) with maturity for a short position.

I get really muddled up with the concepts of Greeks when faced with so many situations? Can someone please tell me how to crack questions on OPTION GREEKS, I am aware of the meaning of each of these yet the problems are very tricky.

Also, "Vega and theta are increasing functions with maturity whereas gamma is a decreasing function with maturity ." Please explain this statement.

Thanks a lot.

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