Hi Saray,

This is a tough question, IMO. First, you need to know/assume two things:

1. Vega is increasing with maturity

2. In general, Theta is negative but increasing (toward zero) with maturity

The portfolio has a negative position vega and a negative position theta; i.e.,

Greek vega = change in value/increase in volatilty. If an increase in volatility causes a decrease in value, we much have negative position vega

Greek theta = change in value/as time passes. If time passage is associated with a decrease in value, we have negative position theta

(there is an unessential interim point: Position vega = Greek per option vega * Number of options; this is how an "always positive Greek Vega" can become a negative Position Vega. For example, if you are short 100 options with Greek per option vega = +2.0, then your position vega = -100 * 2.0 = -200)

To hedge the negative (position) vega, negative (position) theta portfolio, you must:

* add positive (position) vega, and

* add positive (position) theta

Per (1) above, the way to add more positive vega is to BUY long-dated options (selling options will add negative position vega and cannot be correct; with regard to vega we can eliminate answers #2 and #3 because they both reduce our negative vega, so they go in the wrong direction)

Per (2) above, the only way to add positive theta is to SELL (go short) with near-dated options (with respect to theta, we can eliminate #4 and #2)

Hope that helps, tough question.... thanks, David

## Stay connected