Hedge ratios for long calls are always ________.
A) between −1 and 0
B) between 0 and 1
C) 1
D) greater than 1

Question

Quizplus · Accepted Answer

Hedge ratio is the ratio of the number of options contracts required for hedging a long position in the underlying market to the number of units of that market. 
The hedge ratio for long calls is always between 0 and 1, indicating that the number of options contracts required will be less than the number of underlying units of that market. This is because, in a long call position, the investor expects the underlying market to rise, and the options contracts will allow them to profit from an upward move while limiting their losses. Hence, option contracts act as a hedge against a potential decline in the underlying market. A hedge ratio of 1 would indicate a complete hedging of the long call position, which may not be desirable as it would eliminate potential profits. A hedge ratio greater than 1 would imply an over-hedging of the position, which could lead to trading losses.

Hedge Ratios for Long Calls Are Always ________