Define the “Hedge Ratio” and How It Is Calculated Using Delta

The hedge ratio is the proportion of the underlying asset needed to offset the price risk of an option position. It is numerically equal to the option's Delta.

For example, a call option with a Delta of 0.60 has a hedge ratio of 60percent. This means that for every one call option held, a trader must short 0.60 units of the underlying asset to achieve a Delta-neutral position.