5. Using the data in Exhibit 4 and an estimate of 17.5 gallons per month, how would you construct a NYMEX heating oil option hedge for the next 12 months (that is, how many contracts would use you for each contract month you choose and which strike price would you use for each contract)? (Note, make sure your hedge covers the twelve months). a. What is the total option cost for each contract positon? b. What is the total cost of the hedge?

Exhibit 4 J\&L Railroad NYMEX Heating Oil Call Option Premiums (in dollars per gallon) April 24, 2009 Source: Main Street Trading data. Exhibit 4 J\&L Railroad NYMEX Heating Oil Call Option Premiums (in dollars per gallon) April 24, 2009 Source: Main Street Trading data