hard · FRM Part 1 Valuation and Risk Models
A Δ-neutral portfolio consists of long calls and short puts on the same underlying with the same strike and expiration.
What is the net Γ of this portfolio?
- It is infinite, since the deltas of the long calls and short puts move in exactly opposite directions.
- Zero, because the positive Γ of the calls is cancelled by the negative Γ of the short puts.
- It equals roughly double the gamma value of holding a single long call position alone.
- It is positive, since call gamma always dominates put gamma in a delta-neutral setup.
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