An airline expects to purchase 10 million gallons of jet fuel in 3-months and decides to use gasoline futures to hedge as gasoline returns appear to have the highest correlation to jet fuel and no jet fuel futures exist.

The historical correlation of daily returns between gasoline futures and spot jet fuel over the data we could find is .88. The historical standard deviation of spot jet fuel is 5.6% per day. The historical standard deviation of gasoline futures is 3.2% per day.

Each gasoline futures contract is for 42,000 gallons of gasoline. What trade should the airline put on in the gasoline futures market to hedge the risk that jet fuel rises in price over the next 3-months?

Group of answer choices

Long 120 gasoline futures

Long 367 gasoline futures

Long 1,540 gasoline futures

Short 120 gasoline futures

Short 367 gasoline futures

Short 1,540 gasoline futures