Asked by Olympia Thompson on Jun 29, 2024
Verified
A hedge ratio for a put is always
A) equal to one.
B) greater than one.
C) between zero and one.
D) between negative one and zero.
E) of no restricted value.
Hedge Ratio
A ratio used to measure the amount of exposure reduced in an investment position through the use of a hedging strategy, often involving derivatives such as options or futures contracts.
Put
An options contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a predetermined price within a specified time frame.
- Understand the principle of risk management within options trading, as well as compute the necessary hedge ratios.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
D
Explanation :
The hedge ratio for a put option (also known as the option's delta) measures the rate at which the price of the option changes relative to the price of the underlying asset. For put options, the hedge ratio is between -1 and 0 because the value of the put option increases as the price of the underlying asset decreases, indicating a negative relationship.
Learning Objectives
- Understand the principle of risk management within options trading, as well as compute the necessary hedge ratios.