Return Neutral With Options

[Brennen81]

Hello. I am hoping someone could help me with the scenario proposed.

I would like to Long CELG and Short C, evenly, with options. What I am tying to figure out is how to have them react in the same way. For example. Lets say I thought they were going in their respective way by 10%. CELG up and C down. The direct stock purchase/short way is pretty simple, buy and short the same $ worth of each stock. Now with options it's more difficult. These are the possibilities I am thinking. Starting with delta neutral. (Numbers are as of close today)

CELG - $142.60......C - $47.30

CELG May 23 142 Call....$5.35 (Bid).......0.537 Delta
C May 23 47.5 Put........$1.03 (Bid)......-0.525 Delta

Would either of the following make sense:
Purchase 1 CELG Call then....
1) Purchase 3 C puts because CELG stock is about 3 times the price of C
2) Purchase 5 C Puts because the CELG Call is about 5 times the price of the C Put


Maybe I am way off from the beginning. But if anyone has any more experienced thoughts, I would love to hear.

Thanks
Brandon

 

[Martinghoul]

That's a reasonably tough one. One way would be to ignore the delta and all the other coincident measures and instead look at what you want to achieve at expiry. Assume that both options expire ITM and figure out what terminal quantities of both you want to hold then. Those should be your option quantities.