A hedge ratio of 0.85 implies that a hedged portfolio should consist of
A)long 0.85 calls for each short stock.
B)short 0.85 calls for each long stock.
C)long 0.85 shares for each short call.
D)long 0.85 shares for each long call.

Question

Quizplus · Accepted Answer

A hedge ratio of 0.85 means that for each unit of stock that is shorted, the hedged portfolio should have 0.85 units of long positions. Therefore, the correct choice is C, where the hedged portfolio consists of long 0.85 shares for each short call. The other options involve options contracts, which are not necessary for this particular hedge ratio.

A Hedge Ratio of 0