medium · 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?
- Infinite, because the Δs of calls and puts move in opposite directions.
- Zero, because the positive Γ of the calls is cancelled by the negative Γ of the short puts.
- Double the Γ of a single call.
- Positive, because the call Γ always dominates in a Δ-neutral setup.
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