Dynamic hedging is
A)the volatility level for the stock that the option price implies.
B)the continued updating of the hedge ratio as time passes.
C)the percentage change in the stock call option price divided by the percentage change in the stock price.
D)the sensitivity of the delta to the stock price.
E)A and C.

Question

Quizplus · Accepted Answer

Dynamic hedging is the continuous adjustment of a hedging position as time passes and market conditions change. This involves updating the hedge ratio, which is the ratio of the number of options contracts to the number of shares of the underlying asset needed to create a delta-neutral portfolio. Options traders who engage in dynamic hedging are constantly monitoring the options prices and their corresponding deltas, and making adjustments to the hedge as necessary.

Dynamic Hedging Is