Got a technical question and not sure how to answer, would be grateful if anyone could give me a helping hand
Assume there is a basket of options that includes:
- 1 long call option on underlying A
- 1 long call option on underlying B
- 1 long average price put option on underlying A
- 1 long average price put option on underlying B
Where the Greeks (delta, gamma, vega etc.) are offset between the options, would the basket of options LONG or SHORT correlation?
My 2 cents: The basket will be short correlation, because the Greeks are offset, the basket will be sensitive primarily to changes in correlation. While the individual price movements will tend to offset each other, some days one asset rises while the other falls increases the probability that the average price of the assets over the option period will be lower than either individual asset path, hence allows for a wider range of possible average prices over time and enhance overall expected value.
Assume there is a basket of options that includes:
- 1 long call option on underlying A
- 1 long call option on underlying B
- 1 long average price put option on underlying A
- 1 long average price put option on underlying B
Where the Greeks (delta, gamma, vega etc.) are offset between the options, would the basket of options LONG or SHORT correlation?
My 2 cents: The basket will be short correlation, because the Greeks are offset, the basket will be sensitive primarily to changes in correlation. While the individual price movements will tend to offset each other, some days one asset rises while the other falls increases the probability that the average price of the assets over the option period will be lower than either individual asset path, hence allows for a wider range of possible average prices over time and enhance overall expected value.
