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

Question

Quizplus · Accepted Answer

Cash-or-nothing options have a lower vega sensitivity compared to vanilla options, and in-the-money options have a higher vega than out-of-the-money options, making them more effective for hedging vega risk.

You Are Long a Portfolio of Vanilla Call Options