HEDGE RATIO

The ratio of volatility of the portfolio to be hedged and the return of the volatility of the hedging instrument . For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2.0 common shares, a 75% hedge ratio would be short ( long ) 1500 common for every 1000 preferred long (short). For options , ratio between the change in an option's theoretical value and the change in price of the underlying stock at a given point in time. See: Delta