Answer: Sell two shares of the underlying for each option sold.

## 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.

Author: LeetQuiz .