HEDGE RATIO An investor want to better understand how options are priced. She realizes that Options and Stock and a Bond (or Loan) have to match up together and she wants to know how. First Step, let's figure out the Hedge Ratio ("D," for delta) which is computed by taking the ratio of the Spreads of the possible outcomes after one year of the OPTION SPREAD / STOCK SPREAD. Let's say that a stock is currently priced at $100. In one year, the price could go UP to $125 or DOWN to $75. The STRIKE PRICE is $110. What is the value of a PUT OPTION if the Stock Price goes UP (to \$125) after one year? $0 $15 $40