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This discussion has also confused me slightly, so I will add something that is possibly clarifying, although most likely will not be. It is also a reminder that I need to stop programming and brush up on options pricing theory. The Black Scholes hedge portfolio is given by:  \Pi_t = \frac{\partial V}{\partial S}(t,S_t)S_t + \left[1 - \frac{\partial V}{\...

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The underlying is clearly the 10-year tenor payer swap. The underlying is - initially - the 10y swap, 5y forward. In a year from now, it will be the 10y swap, 4y forward (etc).

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Let's denote the option you need to hedge by $C_1$, which I am assuming you have sold (if you bought it then just turn the signs around). Under Heston you will need to hedge both its delta and its vega. You can use the underlying $S$ to hedge the delta, but not to hedge vega. The most straightforward way to hedge the vega of $C_1$ is to buy another option in ...

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With TSLA in the 420's, buying 40,000 \$ 40 strike puts that expire in a few days makes no sense at all as a bet on a drop in price or even an expansion of IV. It's wasted money since they're worthless in a few days. It also makes no sense that this position would hedge a long call position effectively (the opinion in the source link). I'd guess that this ...

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This is all speculation but let's assume that someone was bullish and did own long dated calls on Tesla. This may be the primary view of the speculator that the stock would go up. The purchase of the deep out of the money shorter dated puts could just be a crash hedge in the event that the stock crashes from it's already elevated levels. Stocks tend to ...

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