You are considering purchasing a call option with a strike price of $35. The price of the underlying stock is currently $27. Without any further information, you would expect the hedge ratio for this option to be ________.
A) negative and near 0
B) negative and near −1
C) positive and near 0
D) positive and near 1

Question

Quizplus · Accepted Answer

The hedge ratio, also known as the option's delta, measures the sensitivity of the option's price to a change in the price of the underlying asset. For a call option with a strike price significantly above the current stock price ($35 vs. $27), the option is out of the money, and its delta would be positive (since call options benefit from an increase in the stock price) but near 0, reflecting a very low sensitivity to changes in the stock price at that moment.

You Are Considering Purchasing a Call Option with a Strike