Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

6. On August 31,2022, you would like to hedge a long physical oil position that you plan to sell on November 23, 2022. Rather than

image text in transcribed

6. On August 31,2022, you would like to hedge a long physical oil position that you plan to sell on November 23, 2022. Rather than directly hedge using May Crude Oil futures contracts that have a delivery date close to November 23,2022 , you wish to use a rolling hedge to take advantage of the market liquidity in the short-term Crude Oil futures contracts. On August 31, 2022, you short an October 2022 Crude Oil futures contract. You then roll into the November 2022 futures contract on September 28, 2022 and then roll again into the December 2022 futures contract on October 26, 2022. Your physical oil transaction takes place at the spot price of $75.15 on November 23,2022 . Calculate your gain or loss in the futures market and the net payoff from selling oil after considering both the physical and futures markets. 6. On August 31,2022, you would like to hedge a long physical oil position that you plan to sell on November 23, 2022. Rather than directly hedge using May Crude Oil futures contracts that have a delivery date close to November 23,2022 , you wish to use a rolling hedge to take advantage of the market liquidity in the short-term Crude Oil futures contracts. On August 31, 2022, you short an October 2022 Crude Oil futures contract. You then roll into the November 2022 futures contract on September 28, 2022 and then roll again into the December 2022 futures contract on October 26, 2022. Your physical oil transaction takes place at the spot price of $75.15 on November 23,2022 . Calculate your gain or loss in the futures market and the net payoff from selling oil after considering both the physical and futures markets

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sustainable Finance And Impact Investing

Authors: Alan S. Gutterman

1st Edition

1637423764, 978-1637423769

More Books

Students also viewed these Finance questions

Question

What is internal integration? AppendixLO1

Answered: 1 week ago