Spartacus Inc is a US based oil explorer and refiner. The risk manager has studied forecasts for the next financial year and has concluded that a fall in the oil price below USD 40 per barrel would have an unacceptable impact on their profitability and the viability of certain oil fields.

In order to manage the exposure to oil price changes, Spartacus has approached its bank to put in place a structured hedge. Spartacus wants to protect itself from a fall in the oil price whilst still achieving some upward exposure to rising oil prices. The company wishes to apply this at the minimum cost possible and has set aside a maximum cost of USD 4 per barrel of oil for option premiums. The bank has provided the following quotes, noting that the strike prices are per barrel (WTI Crude):

Zero premium collar: Call USD 70, Put USD 45

Standalone bought Call USD 75 at a premium of USD 3

Standalone bought Put USD 40 at a premium of USD 2

Required:

Using the information above construct a position using derivatives to enable Spartacus to protect itself from a fall in oil price whilst still retaining some upside potential, noting the hedging budget of USD 4. Then calculate the net revenue per barrel for Spartacus (derivatives and underlying) under the following spot oil price at expiry scenarios.

i.USD 15 per barrel

ii.USD 30 per barrel

iii.USD 45 per barrel

iv.USD 75 per barrel

v. USD 80 per barrel