All else the same, as the delta of a stock index option used to hedge a stock portfolio increases, the number of options needed to hedge the portfolio will __________.
A) Increase
B) Decrease
C) not change
D) increase only if the delta is less than 0.5
E) increase only if the delta is greater than 0.5

Question

Quizplus · Accepted Answer

Delta measures the sensitivity of an option's price to a change in the price of the underlying asset. As the delta of a stock index option increases, it indicates that the option's price moves more in line with the stock index. Therefore, fewer options are needed to hedge the portfolio because each option has a greater effect.

All Else the Same, as the Delta of a Stock