Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. If PP could use either options or futures contracts to protect itself against a rise in the price of crude oil, compute the payoffs in each case if the oil price were $82, $92, or $102 a barrel. Assume the current price of oil is $82 per barrel, the futures price is $92, and the option exercise price is $92.

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Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. If PP could use either options or futures contracts to protect itself against a rise in the price of crude oil, compute the payoffs in each case if the oil price were $82, $92, or $102 a barrel. Assume the current price of oil is $82 per barrel, the futures price is $92, and the option exercise price is $92. Oil Price per Barrel Futures- Hedged Expense (10) X $ Options- Hedged Expense $ 82 $ 0 x $ 92 $ 0 X $ 102 $ 10 X $ 10