I always thought that in order to find out the number of puts/ calls need to hedge a position, you would multiple the number of underlying shares held by either the put or call delta. However, I just got a problem wrong and the solution said you need to divide 1 by delta and then multiply the number of the underlying held. Can anyone clear this up for me? Whats the logic behind dividing 1 by the hedge ratio and then multiplying?
Number calls short needed to delta hedge: number of shares/call delta
number of long puts to delta hedge: number of shares/put delta
this is a much easier way to do it
Just wait till you get to Level III.