Options

Hedge Ratio

The proportion of an existing holding covered by a hedging position — for a protective put, roughly Shares Owned ÷ Lot Size.

The hedge ratio describes how much of an existing holding is covered by a hedging position. For a protective put, it’s roughly calculated as Shares Owned ÷ Lot Size — since options trade in fixed lot sizes, the hedge may only partially or slightly over-cover the actual holding unless the numbers divide evenly.

See a full worked hedge-sizing example in How to Buy a Put Option: Step-by-Step Example.