Hedge ratios for long call position are __________ and hedge ratios for long put positions are ____________.
A) negative; negative
B) negative; positive
C) positive; negative
D) positive; positive

Question

Quizplus · Accepted Answer

The hedge ratio for a long call position is positive because the holder of a long call option benefits from an increase in the price of the underlying asset. So, to hedge the risk of the underlying asset moving in the opposite direction, the investor would buy a certain number of shares of the underlying asset, and the hedge ratio would be positive. Conversely, the hedge ratio for a long put position is negative because the holder of a long put option benefits from a decrease in the price of the underlying asset. So, to hedge this risk, the investor would sell a certain number of shares of the underlying asset, and the hedge ratio would be negative. Therefore, option C is correct.

Hedge Ratios for Long Call Position Are __________ and Hedge