Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?
A . Vega
B . Rho
C . Delta
D . Theta

View Answer

Answer: C

Explanation:

Delta is the most commonly used risk measure to determine the number of options needed to hedge an underlying position. Delta measures the sensitivity of the option’s price to changes in the price of the underlying asset. A delta-neutral portfolio, where the total delta is zero, effectively hedges against small movements in the underlying asset’s price. Thus, risk managers frequently adjust their hedging strategies based on the delta of their positions.