Question
A customer for a large corporation is active in the market for crude oil. They ask you to propose some strategies that give particular exposures
A customer for a large corporation is active in the market for crude oil. They ask you to propose some strategies that give particular exposures to crude oil prices. They are unaware of how to structure the exposures. For each situation, please describe the type of contract (or combination of contracts) that would satisfy the customer's need: i. No matter what the price of oil is, I want a positive exposure, i.e. if the price goes up, I gain on the derivative. ii. No matter what the price of oil is, I want a negative exposure, i.e. if the price goes up, I lose on the derivative. iii. I want a positive exposure if the price is above K and no exposure otherwise iv. I want a negative exposure if the price is above K and no exposure otherwise v. I want positive exposure between prices K1 and K2 and no exposure otherwise. vi. I want positive exposure to volatility in the price of oil.
Give the correct answer with explaination
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