You're advising a major trucking company whose profits have significant exposure to its input prices. The firm has limited ability to pass higher diesel costs to its customers, so it needs your advice to come up with the best hedging strategy for the firm.

The firm wants to eliminate its exposure as much as possible. While there is not a commodities market for diesel futures, you know that crude oil futures are correlated with diesel prices.

Based on this information, choose the best hedging strategy for the firm. Does the firm face basis risk? A.Sell call options on crude oil futures. There is no basis risk due to the high correlation between diesel and oil prices.

B.Buy forward contracts on oil and accept some basis risk.

C.Sell forward contracts. There is no basis risk due to the high correlation between diesel and oil prices.

D.Buy call options on crude oil futures and accept some basis risk.