Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs.

Show how PP can use either options or futures contracts to protect itself against a rise in the price of crude oil.

Show how the payoffs in each case would vary if the oil price were $70, $80, or $90 a barrel.

What are the advantages and disadvantages for PP of using futures rather than options to reduce risk?