If the hedge ratio is 0.50,this indicates that the portfolio should hold
A) Two shares of stock for every call option written.
B) One share of stock for every two call options written.
C) Two shares of stock for every call option purchased.
D) One share of stock for every two call options purchased.
E) Two call options for every put option written.

Question

Quizplus · Accepted Answer

A hedge ratio of 0.50 means that for every two call options written, one share of stock should be held in the portfolio. This balances the exposure to the underlying asset, reducing risk and creating a hedge position.

If the Hedge Ratio Is 0