Assume that you will need 1,000 Barrels of oil (you are a finance manager at delta, one month from today. The current price of oil is $40.00 / barrel. You expect that the future spot price/barrel could be either, $35.00, $45.00, or $55.00 with equal probability. The 1 month forward rate oil is $48.00 / Barrel. The cost on an at-the-money Call option on oil is $4.00 per barrel. The cost on an at-the-money Put option on oil is $3.00 per barrel. Compute the Net cost of oil under each of the following scenarios.

Net Final Cost /barrel of oil if you used a Forward contract

Net Final Cost /barrel of oil if you used Call options to hedge

Net Final Cost /barrel of oil if you used Put options to hedge

Net Final Cost /barrel of oil if you did not hedge, i.e. buy in open market after 1 month.

What should your optimal strategy should be and why.

Summarize your answers in the table below;

Strategy	Spot Price in 1 month = $35.00	Spot Price in 1 month = $45.00	Spot Price in 1 month = $55.00
a) Using Forward Contract (Specify one) Long or Short
(i) Cost from Oil
(ii) Profit /Loss on Forward
(iii = i + ii) Net Cost (with Forward hedging)
b) Using Call options Contract (Specify) Long or Short
(i) Cost from Oil
(ii) Profit /Loss on Options
(iii = i + ii) Net Cost (with Options hedging)
c) Using Put options Contract (Specify) Long or Short
(i) Cost from Oil
(ii) Profit /Loss on Options
(iii = i + ii) Net Cost (with Options hedging)
d) No Hedge