Asked by Everika Martinnez on May 06, 2024
Verified
Hedge ratios for long puts are always ________.
A) between −1 and 0
B) between 0 and 1
C) 1
D) greater than 1
Hedge Ratios
A mathematical approach to minimizing risk by determining the optimal proportion of positions needed to offset potential losses.
Long Puts
An option strategy involving the purchase of put options, with the expectation that the underlying asset will decrease in value, allowing the holder to sell at a higher strike price.
- Acquire the skills to compute the hedge ratio and understand its importance in options trading.
Verified Answer
FA
Faizan AslamMay 12, 2024
Final Answer :
A
Explanation :
Hedge ratios for long puts are always between −1 and 0 because a long put position gains value as the underlying asset's price decreases, indicating a negative correlation between the position value and the asset price movement.
Learning Objectives
- Acquire the skills to compute the hedge ratio and understand its importance in options trading.