Portfolio Greeks Management
Managing portfolio-level risk using Greeks across multiple positions
Learning Objectives
Portfolio Greeks Fundamentals
Understanding aggregate risk exposure
Net Portfolio Greeks
Sum of all individual position Greeks to understand total portfolio exposure to each risk factor.
Calculation:
Portfolio Delta = Σ(Position Size × Delta × Multiplier)
Same formula applies to Gamma, Theta, Vega, and Rho
Position Sizing Impact
Greek exposure scales with position size. A small position with high individual Greeks may have less impact than a large position with moderate Greeks.
Correlation Considerations
Greeks from correlated underlyings compound risk. SPY and QQQ positions may amplify portfolio exposure beyond simple arithmetic addition.
Portfolio Delta Management
Controlling directional exposure
Delta Neutral Strategies
Stock Hedging
Use underlying stock to offset option delta. Buy stock for negative delta, sell for positive delta.
ETF Hedging
Use SPY, QQQ, or sector ETFs to hedge broad market exposure from multiple positions.
Dynamic Hedging
Delta changes as underlying moves (Gamma effect). Requires periodic rebalancing to maintain neutrality.
Gamma and Theta Portfolio Effects
Managing convexity and time decay
Portfolio Gamma
Net Gamma determines how quickly portfolio Delta changes. High Gamma requires active management.
Gamma Scalping
Profit from Gamma by buying low, selling high as underlying oscillates. Works when realized volatility exceeds implied volatility.
Portfolio Theta
Daily time decay across all positions. Positive Theta generates income, negative Theta costs money daily.
Positive Theta
Income-generating, benefits from time passage
Negative Theta
Requires price movement to overcome decay
Theta-Gamma Relationship
High Gamma positions typically have high (negative) Theta. This relationship is fundamental to options pricing.
Portfolio Vega Management
Managing volatility exposure
Vega Concentration Risk
Large Vega exposure to single underlying creates volatility risk. Diversify across multiple names or hedge with VIX products.
Vega Hedging Strategies
Volatility Surface Risk
Different strikes and expirations may have varying sensitivity to volatility changes. Monitor term structure and skew exposure.
Practical Implementation
Daily Portfolio Review
Daily Checklist:
- • Calculate net portfolio Greeks
- • Check for concentration risks
- • Review correlation changes
- • Assess hedging needs
- • Monitor P&L attribution by Greek
Position Limits
Establish maximum Greek exposure limits to prevent excessive risk concentration:
Individual Position
Max 25% of portfolio Greeks
Sector Concentration
Max 40% in correlated names
Stress Testing
Regularly stress test portfolio under various scenarios: market moves, volatility changes, and time decay effects.