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neutral hedge ratio

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Financial Dictionary

neutral hedge ratio

The number of options contracts necessary to offset exactly any changes in the price of a contract's underlying asset. This ratio varies depending on the time to expiration and the difference between the asset's market price and the option's strike price. It approaches one when the option is near maturity and is in-the-money.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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