A trader decides to hedge her portfolio against large market moves by taking positions in the underlying
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Question:
A trader decides to hedge her portfolio against large market moves by taking positions in the underlying asset and two options (see table below).
| Delta | Gamma | Vega | |
| Portfolio | 0.50 | -1000 | -500 |
| Option a | -0.03 | 10 | 2.5 |
| Option b | 0.10 | 80 | 10 |
a) How many units of options a and b, respectively, are needed to make the portfolio both gamma and vega neutral?
b) How many units of the underlying asset are needed to make the hedged portfolio from part (a) delta neutral (indicate long/short position)?
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