What is a common characteristic of options used in hedging?

The correct characteristic of options used in hedging is that they grant the right but not the obligation to sell an asset. This aspect is crucial because it allows investors or businesses to manage risk without being forced to execute a transaction. For example, if a company is concerned about a potential decline in the price of an asset it holds, it can purchase a put option. This option provides the right to sell the asset at a predetermined price, thus serving as a protective measure against price drops while not obligating the holder to sell if the market moves favorably.

The flexibility offered by options makes them a popular tool in hedging strategies, as they can be used to mitigate potential losses without committing to a transaction until it is deemed necessary. This characteristic is essential in managing risk effectively in various market conditions.

In contrast, options that provide unlimited loss potential are not typically used in hedging, as the purpose of hedging is to minimize risk. Immediate exercise of options would also undermine their flexibility, and the notion that they are only available for stocks is incorrect, since options can be traded on various underlying assets, including commodities and indices.