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A trader M&A pays the producer $1.90 fixed price and allow the producer to increase the volume by one contract at $1.90 with five days'
A trader M&A pays the producer $1.90 fixed price and allow the producer to increase the volume by one contract at $1.90 with five days' notice at any time during the month. M&A will have to hedge two contracts of supply. Suppose M&A sells both contracts to one buyer at the month index plus $0.015. To hedge the risk related to the second contract due to the supply uncertainty, M&A plans to use both the swap options and the swing swap. The following swap options are available for MA to choose. Put Put Put Call Strike: $2.08 Strike: $1.90 Strike: $1.82 Strike: $1.90 Put price: $0.23 Put price: $0.11 Put price: $0.04 Call price: $0.06 a. Which swap option should M&A choose? What position should M&A take? b. What positions in the swing swap should M&A use? C. Please list cash flows from all trades if gas price turns out to be $1.70. d. How much is the profit from the second contract (regardless of the first contract)? A trader M&A pays the producer $1.90 fixed price and allow the producer to increase the volume by one contract at $1.90 with five days' notice at any time during the month. M&A will have to hedge two contracts of supply. Suppose M&A sells both contracts to one buyer at the month index plus $0.015. To hedge the risk related to the second contract due to the supply uncertainty, M&A plans to use both the swap options and the swing swap. The following swap options are available for MA to choose. Put Put Put Call Strike: $2.08 Strike: $1.90 Strike: $1.82 Strike: $1.90 Put price: $0.23 Put price: $0.11 Put price: $0.04 Call price: $0.06 a. Which swap option should M&A choose? What position should M&A take? b. What positions in the swing swap should M&A use? C. Please list cash flows from all trades if gas price turns out to be $1.70. d. How much is the profit from the second contract (regardless of the first contract)
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