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

- Is it possible to construct a zero-cost collar (at least within one cent net paid per barrel) on the collar hedging strategy?

- Why do firms use collar hedging strategies?

- If you were a refiner using a collar strategy, how would you hedge to have price protection? Explain the hedging strategy

APPENDIX CRUDE OIL CALL OPTIONS FOR NYMEX WTI CRUDE OIL Prices are for March 17, 2012. The spot price for WTI crude oil was at $107.06 per bbl. OR EXERCISES IN THIS CHAPTER, USE THE PRIOR SETTLE PRICE AS THE OPTION PREMIUM Strike Price Type Last Change Prior Settle High Low Volume 14.33 13.86 13.39 12.92 12.45 11.99 11.52 11.07 10.62 10.17 9.73 9.29 734 100 399 728 434 100 761 347 759 724 217 CALL CALL _ CALL _ 9350 9400 9450 9500 9550 9600 9650 CALL CALL _ CALL- CALL _ CALL CALL- CALL- CALL- CALL- 9800 9850 9900 Continued)