If the hedge ratio for a call option is 0.5 and you own 100 shares of the underlying stock, which of the following actions would result in a risk-free hedge?

Question

Quizplus · Accepted Answer

To create a risk-free hedge with a hedge ratio of 0.5, you would need to sell 2 calls for every 100 shares owned, because selling 200 calls with a hedge ratio of 0.5 perfectly offsets the risk of the 100 shares.

If the Hedge Ratio for a Call Option Is 0