Managing a portfolio of options is fundamentally different from managing individual trades. While a single position might have acceptable risk, the combination of multiple positions can create concentrated exposures that lead to unexpected losses. This comprehensive guide will teach you how to aggregate, monitor, and manage Greeks across your entire options portfolio.
Why Portfolio Greek Management Matters
Consider this scenario: You have 10 different options positions, each carefully sized with acceptable risk. But when you add them together:
- All have positive delta, creating concentrated directional exposure
- All expire in the same week, concentrating gamma and theta risk
- All are on correlated tech stocks, multiplying sector risk
Individually sensible trades can combine into dangerous portfolio exposure. Portfolio Greek management prevents this.
Key principle: Always evaluate new trades in the context of your existing portfolio Greeks, not in isolation.
Aggregating Portfolio Greeks
The first step is calculating your total portfolio exposure for each Greek. This involves summing individual position Greeks, accounting for position size.
Delta Aggregation
Sum the delta of each position (delta x contracts x 100). Include stock positions as delta (100 delta per 100 shares).
Example: Portfolio Delta
- Long 10 AAPL calls, delta 0.60 = +600 delta
- Short 5 AAPL puts, delta -0.40 = +200 delta (short negative = positive)
- Long 200 AAPL shares = +200 delta
- Long 8 MSFT calls, delta 0.55 = +440 delta
- Short 3 MSFT calls, delta 0.70 = -210 delta
- Total portfolio delta: +1,230
Your portfolio gains approximately $1,230 for every $1 increase across these positions (weighted by beta if different stocks).
Gamma Aggregation
Sum position gammas similarly. Stock has zero gamma, so only options contribute.
Theta Aggregation
Your daily theta tells you how much your portfolio loses (or gains) each day from time decay alone.
Vega Aggregation
Sum vegas to understand your portfolio's sensitivity to volatility changes.
Setting Greek Limits
Professional traders set limits on portfolio Greeks to prevent excessive exposure. These limits depend on your account size, risk tolerance, and trading style.
Delta Limits
Express delta limits as a percentage of your portfolio value. For example:
- Conservative: Keep net delta under 20% of portfolio value
- Moderate: Keep net delta under 50% of portfolio value
- Aggressive: Higher delta acceptable, but monitor closely
Example: Delta Limit
Portfolio value: $100,000
- 20% delta limit = $20,000 notional delta exposure
- If average stock price is $100, that is 200 delta maximum
- Your current 1,230 delta far exceeds this limit
Gamma Limits
Gamma limits control how quickly your delta changes. High gamma means large P&L swings from small price moves.
- Long gamma: Limit total gamma to a percentage of daily expected move impact
- Short gamma: Be especially careful. Short gamma amplifies losses during large moves
Theta Limits
If you sell options (positive theta), ensure daily theta does not exceed what you can afford to lose if trades go wrong.
- Rule of thumb: Daily theta should not exceed 0.1-0.2% of portfolio value
- Example: $100,000 portfolio, maximum theta = $100-200 per day
Vega Limits
Large vega exposure can devastate portfolios during volatility events. Set limits based on expected IV swings.
- Conservative: Vega x 10% IV move should not exceed 2% of portfolio
- Example: 500 vega x 10 = $5,000 potential loss from 10% IV drop
Greek Reports and Dashboards
Effective portfolio management requires regular Greek reporting. Key metrics to track include:
Summary View
- Total portfolio delta, gamma, theta, vega
- Greeks as percentage of limits
- Daily P&L attribution by Greek
Position Breakdown
- Greeks by individual position
- Greeks by underlying symbol
- Greeks by expiration date
Stress Tests
- Portfolio P&L if market moves 5%, 10%, 20%
- Portfolio P&L if IV changes 10%, 20%, 50%
- Combined scenarios (market crash + vol spike)
Rebalancing Your Portfolio
When Greeks exceed limits or become unbalanced, you need to rebalance. Common approaches include:
1. Add Offsetting Positions
Open new positions with opposite Greeks. For example, if too long delta, buy puts or sell calls.
2. Reduce Existing Positions
Close or reduce positions contributing most to the excess exposure.
3. Roll Positions
Roll to different strikes or expirations that have better Greek profiles.
4. Hedge with Stock
For delta specifically, buying or selling stock is often the quickest hedge.
Example: Rebalancing Excess Delta
Your portfolio has +1,230 delta. Limit is 200. Need to reduce by 1,030 delta.
Options:
- Sell 1,030 shares of stock (if single stock exposure)
- Buy puts: 10 puts with -0.50 delta each = -500 delta reduction
- Sell calls: 5 calls with 0.60 delta each = -300 delta reduction
- Close some long call positions
Often a combination of approaches works best.
Managing Greeks by Time
Greeks change over time, and positions at different expirations have different profiles.
Near-Term Positions
- High gamma (both opportunity and risk)
- Accelerating theta decay
- Lower vega sensitivity
Far-Term Positions
- Low gamma (more stable delta)
- Slower theta decay
- Higher vega sensitivity
Balance your portfolio across expirations to avoid concentrated time-based risks. Be especially careful of having all positions expire in the same week.
Correlation and Beta Considerations
When trading options on multiple stocks, simple Greek addition understates true risk if stocks are correlated.
Beta Weighting
Convert all positions to SPY-equivalent delta using beta. This normalizes exposure across different stocks.
Example: Beta-Weighted Delta
- AAPL position: +500 delta, AAPL beta 1.2
- SPY-equivalent: 500 x 1.2 = 600 SPY delta
- XOM position: +300 delta, XOM beta 0.8
- SPY-equivalent: 300 x 0.8 = 240 SPY delta
- Total SPY-equivalent delta: 840
This gives a better picture of your market exposure than simply adding 500 + 300 = 800.
Sector Concentration
Monitor Greeks by sector. Heavy exposure to one sector creates hidden correlation risk that simple Greek sums miss.
Event-Driven Greek Management
Adjust your Greek management approach around specific events:
Earnings Season
- Review vega exposure on positions with upcoming earnings
- Consider reducing positions if IV crush risk is high
- Be aware of how many positions have earnings in the same week
Fed Meetings
- Review portfolio-wide vega before Fed announcements
- Consider the impact of rate changes on rho for LEAPS positions
Expiration Week
- Monitor gamma carefully as it spikes for expiring options
- Consider rolling or closing positions to avoid gamma risk
- Be aware of pin risk for short options
Tools for Portfolio Greek Management
Effective Greek management requires proper tools:
- Portfolio analytics software: Calculates and displays aggregate Greeks
- Stress testing tools: Models portfolio P&L under different scenarios
- Risk reports: Automated daily or weekly Greek summaries
- Alert systems: Notifications when Greeks exceed limits
Track Your Portfolio Greeks Automatically
Pro Trader Dashboard calculates all your portfolio Greeks in real-time. See aggregate delta, gamma, theta, and vega across all positions, with alerts when limits are exceeded.
Summary
Portfolio Greek management is essential for options traders with multiple positions. By aggregating Greeks, setting appropriate limits, and regularly rebalancing, you can control risk and avoid unexpected losses from concentrated exposure. Remember to consider time-based risk, correlation between positions, and adjust your approach around major events. Start by tracking your portfolio Greeks daily, set conservative limits, and gradually refine your approach as you gain experience.
Learn more about individual Greek management with our guides on delta hedging, vega management, and Greek neutral trading.