Consider a call option. If, in a two-state model, a stock can take a price of $300 or $200, what would be the hedge ratio for each of the following exercise prices: $280, $270, $240, $200?

b. What do you conclude about the hedge ratio as the option strike price becomes progressively higher?

- Increases to a maximum of 1.0

- Decreases to a minimum of 1.0

- Increases to a maximum of 0

- Decreases to a minimum of 0

- Increases to a maximum of -1.0

- Decreases to a minimum of -1.0