You are long a portfolio of vanilla call options.Which of the following will help you hedge away your theta risk?
A)Buying a portfolio of in-the-money cash-or-nothing call options.
B)Buying a portfolio of out-of-the money cash-or-nothing call options.
C)Buying a portfolio of in-the-money vanilla call options.
D)Buying a portfolio of out-of-the money vanilla call options.

Question

Quizplus · Accepted Answer

These are the only options above that have positive theta.Since the original portfolio of calls has negative theta,in-the-money cash-or-nothing options will offset this risk.

You Are Long a Portfolio of Vanilla Call Options