Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec 2020.
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Question:
Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec 2020. You think that the price of oil in Dec would be in the range of $50 - $55 per barrel. Show how would you use the futures contract to hedge against oil revenue loss (assume each futures contract calls for the delivery of 1,000 oil barrels and the current futures price is $52.5 per barrel) or against a future price reduction (hint: develop a scenario, in a table, where you show the possible future scenarios with respect to the expected oil price range)
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