Options Calculators

⚖️ Options Pair Trade Hedge Ratio Calculator

Calculate vega-weighted and theta-weighted hedge ratios for options pair trades

📉 Asset A (Sell Options)

📈 Asset B (Buy Options)

💡 Understanding the Trade

Vega-Weighting:

  • Neutralizes exposure to absolute volatility changes
  • Best when you believe the vol spread will converge
  • Trade has net theta exposure

Theta-Weighting:

  • Neutralizes exposure to proportional volatility changes
  • Best when you believe the vol ratio will converge
  • Trade has net vega exposure

Beta-Aware Gamma Weighting:

  • Neutralizes dollar gamma exposure adjusted for correlation and vol ratio
  • Formula: ((Price_A)² / (Price_B)²) × (Gamma_A / Gamma_B) × (1/β)²
  • Where β = correlation × (Vol_B / Vol_A) - treating B as the hedge instrument
  • Rarely used in practice - included for completeness

Default Recommendation: Theta-weighting (betting on the ratio) is generally more robust across wide volatility changes, as ratios tend to be more stable than spreads.

📚 Learn More

Deep dive into the mathematics and theory behind pair trade weighting: