Collar hedge: Using the NYMEX Crude Oil Call and Put information in the Appendix, answer the questions below.

Lauren Simkins E&P wishes to construct a collar hedging strategy. Lauren Simkins, the CEO, tells you she wants you to construct a hedge to protect the firm from declining crude oil prices for upcoming production. The CEO states that you are to buy a put option that gives crude oil price protection for a minimum of $100 per barrel. She tells you to sell an offsetting call so that your total hedging strategy costs no more than 50 cents total per barrel (i.e., total premium paid on the put minus the premium received on the call is no more than 50 cents net paid per collar). Which call and which put did you select? Pick the best collar. List the collar below and tell the total cost of the collar strategy

APPENDIX IDE OIL CALL OPTIONS FOR NYMEX WTI CRUDE OIL per bbl OPTION PREMIUM. Strike Price Type Last Change Prior Settle High Low Volume Prices are for March 17, 2012. The spot price for WTI crude oil was at $107.06 OR EERCISESIN THIS CHAPTER, USE THE PRIOR SETTLE PRICE AS THE CALL _ CALL _ CALL _ CALL - CALL _ CALL _ CALL- CALL _ CALL _ CALL _ CALL CALL _ 9350 9400 9450 9500 14.33 13.86 13.39 12.92 12.45 11.99 11.52 11.07 10.62 10.17 9.73 9.29 734 100 399 9600 9650 9700 9750 9800 9850 9900 100 761 347 759 724 217 485 Continued)