Today is February 15. Suppose you are an oil dealer and hold a position of 200,000 barrels of crude oil. You hedge by trading May crude oil futures, each of which is on 10,000 barrels. The hedge will be on until April 15. The current spot price and the May futures price are $20.50 and $20.00 per barrel, respectively. For simplicity, a hedge ratio of 1 is used.

A How many contracts will you use? Long or short? (3 marks)

B What is the basis today? (3 marks)

C If the basis on April 15 is 20% higher than today's basis, what is your gain or loss? (3 marks)

D If the basis on April 15 is 0.05 lower than today's basis, what is your gain or loss? (3 marks)