A financial institution has the following portfolio of options for some underlying asset:
Type Position Delta Gamma
Put +1000 -0.3 1.3
Call -500 0.7 0.2
Call -800 0.4 2.6
(a) What position in the underlying asset would make the portfolio delta neutral?
(b) Another traded option has a delta of 0.5 and a gamma of -0.4. What positions in this option and
the underlying asset would make the portfolio both delta and gamma neutral?
(c) Why do we want our portfolios to be greek-letter neutral? What does it mean?
