Q29I

Expert-verifiedFound in: Page 555

Book edition
9th

Author(s)
Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus

Pages
748 pages

ISBN
9780078034695

**The hedge ratio of an at-the-money call option on IBM is .4. The hedge ratio of an at-the-money put option is -6. What is the hedge ratio of an at-the-money straddle position on IBM?**

Ratio is -0.2

The hedge ratio is the formula to compare the value of the proportion of the position hedged to the value of the entire position.

The hedge ratio of a straddle is the sum of hedge ratio of two options.

Hedge ratio = hedge ratio at call option+ hedge ratio at put option

= 0.4 + (-0.6)

= - 0.2

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