DEFINITION
An options strategy that aims to reduce (hedge) the risk associated with price movements in the underlying asset by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock. This strategy is based on the change in premium (price of option) caused by a change in the price of the underlying security. The change in premium for each basispoint change in price of the underlying is the delta and the relationship between the two movements is the hedge ratio.INVESTOPEDIA EXPLAINS
For example, the price of a call option with a hedge ratio of 40 will rise 40% (of the stockprice move) if the price of the underlying stock increases. Typically, options with high hedge ratios are usually more profitable to buy rather than write since the greater the percentage movement  relative to the underlying's price and the corresponding little timevalue erosion  the greater the leverage. The opposite is true for options with a low hedge ratio.RELATED TERMS

Charm
The rate at which the delta of an option or warrant will change over time. Charm ... 
Delta Spread
An options trading strategy where the trader initially establishes a delta neutral ... 
Super Hedging
A strategy that hedges positions with a selffinancing trading strategy. In ... 
Hedge Ratio
1. A ratio comparing the value of a position protected via a hedge with the ... 
Greeks
Dimensions of risk involved in taking a position in an option (or other derivative). ... 
Vega
The measurement of an option's sensitivity to changes in the volatility of the ... 
Theta
A measure of the rate of decline in the value of an option due to the passage ... 
Time Decay
The ratio of the change in an option's price to the decrease in time to expiration. ... 
Delta
The ratio comparing the change in the price of the underlying asset to the corresponding ... 
Delta Neutral
A portfolio consisting of positions with offsetting positive and negative deltas ...
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