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Building a Long-Gamma, Short-Vega Options Position

Article Quant Q&A · Author: Qing
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Summary

The document gives a basic calendar-spread construction for seeking long gamma while holding short vega in options on one underlying: buy shorter-dated options and sell longer-dated options. The position combines exposure across expiries, so the stated Greek directions depend on the selected options and their quantities; no strikes, sizing method, or market conditions are specified.

For managing the position, the answer names two simple approaches: take the opposite positions in the same options, or delta hedge. Delta hedging addresses directional exposure to the underlying, while reversing the options closes the stated option positions. The response is brief and provides no worked example, rebalancing rules, or discussion of how gamma and vega may change as time and market conditions move. Treat the construction as a starting point rather than a fully specified trading strategy.

Key ideas

  • Buying short-dated options and selling long-dated options is proposed as a way to seek long gamma and short vega.
  • The position spans expiries on a single underlying asset.
  • The answer identifies reversing the option positions and delta hedging as possible hedges.
  • The document gives no strike selection, position sizing, or hedge rebalancing guidance.

Tags

OptionsVolatilityDerivatives pricingRisk management
Full text
# construct an option portfolio on a single asset that is both Long Gamma and short vega


# construct an option portfolio on a single asset that is both Long Gamma and short vega












everyone, I have come across this question. How can we construct a portfolio that is both Long Gamma and short Vega and how do we actually hedge long Gamma/short vega position?

## Answer by Bram (score 2)

https://quant.stackexchange.com/a/37643

Buy short dated options and sell long dated options to become long gamma and short Vega.

The obvious way to hedge is by the same options in reverse positions. Another obvious answer is delta hedging.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.