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sidml


Total Posts: 39
Joined: Sep 2009
 
Posted: 2012-06-12 23:45
I recently met an oil and oil options trader / fund manger who claims his portfolio is long vega, long gamma, and accrues positive theta. Intuitively this does not make sense to me.

How is it possible?

Would it have to do with the shape of the vol term structure? The portfolio is long vega overall at high levels, but short the short end and long on the long end. i.e. profiting from rolling down the vol curve?

granchio


Total Posts: 1540
Joined: Apr 2004
 
Posted: 2012-06-13 00:14
it could be the termstructure, it could be the skew.
You can naively construct portfolios both long gamma and long theta (the vega is not a big issue).
But that relies on blindly using BlackScholes models. The moment you start thinking about what it a bit more, you realise you have to start questioning what gamma and theta means... in a broader sense, you just cannot have both positive (or it is an arb).
From then on, the subject does not quite belong to basics anymore. In fact following on from it, you will then realise you have to think about volsurface dynamics, about what it actually means to use a volsurface as a construct, etc etc.

"Deserve got nothing to do with it" - Clint

FDAXHunter
Founding Member

Total Posts: 8370
Joined: Mar 2004
 
Posted: 2012-06-13 01:03
Agree with Granchio. Long Theta and long gamma is possible in a naive way without any problem. In fact it's an interview question I like asking.

The Figs Protocol.

sidml


Total Posts: 39
Joined: Sep 2009
 
Posted: 2012-06-27 16:17
Thank you for your answers.

Jurassic


Total Posts: 172
Joined: Mar 2018
 
Posted: 2018-05-26 13:01
>Long Theta and long gamma is possible in a naive way without any problem. In fact it's an interview question I like asking.

@FDAXHunter Whats the answer you look for?
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