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On December 4 you agree to sell 200,000 barrels of crude oil to a refiner for delivery in May the following year. You are worried
On December 4 you agree to sell 200,000 barrels of crude oil to a refiner for delivery in May the following year. You are worried about the oversupply of crude oil and want to protect yourself against price decreases. A June put option with USD 17.00/barrel strike is trading for USD 1.05/barrel. The June crude oil futures contract is trading at USD 17.05/barrel on December 4. Your delta is 0.58. The expected basis in May is USD -$0.76/barrel. (The crude oil futures contract is for 1000 barrels.)
- How many put options should you buy on December 4?
- What is the expected minimum selling price for your crude oil on December 4 assuming commission is zero?
- On March 3, the June crude oil futures contract is trading at USD 15.83/barrel. The June USD 17.00/barrel put is trading for USD 1.56/barrel, and the delta is now 0.93. How would you update your hedge
- On May 12, the June crude oil futures is trading at USD 15.05/barrel. The June USD 17.00/barrel put is trading at USD 1.95/barrel. You sell your 200,000 barrels of crude oil at USD 14.68/barrel. What was the net price of your 200,000 barrels of crude oil?
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