Explanation

To hedge a short call option position with a delta of 0.5, we need to understand delta hedging principles:

• Delta measures the sensitivity of an option's price to changes in the underlying asset's price
• For a short call option position, the delta is negative (-0.5 in this case)
• This means for every $1 increase in the underlying asset price, the short call position loses $0.50

Hedging Strategy:

• To create a delta-neutral position, we need to offset the negative delta of the short call
• Since the short call has delta = -0.5, we need a position with delta = +0.5 to neutralize it
• Buying shares of the underlying has delta = +1 per share
• Therefore, we need to buy 0.5 shares for each short call option to achieve delta neutrality

However, the question asks about hedging a short call position, and option A states:

• "Sell two shares of the underlying for each option sold"
• Selling shares has delta = -1 per share
• Selling 2 shares gives delta = -2
• Combined with short call delta of -0.5 gives total delta = -2.5
• This actually increases the directional exposure rather than hedging it

Correct Approach:

• To hedge a short call with delta = -0.5, we should buy 0.5 shares of the underlying
• This would create a delta-neutral position: -0.5 (short call) + 0.5 (long shares) = 0

Conclusion: Option A is incorrect as it would not effectively hedge the position. The correct hedge would involve buying (not selling) shares of the underlying asset.