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Suppоse yоu аre the CFO оf аn oil refiner аnd you wish to hedge your future production price risk of crude oil using options. Your company will produce a total of 10.7 million barrels of oil over the next three months. The six-month crude oil futures contract is trading at $41/bbl. The price of the three-month 39 put is $2.35/bbl. The price of the three-month 42 call is $2.81/bbl. Instead of selling futures contracts at $41 to hedge your risk, you decide that you will sell the 42 call options AND purchase the 39 put options to hedge your price risk. a. How many contracts of each option do you need to sell/purchase? (Round answer to zero decimals. Do not round intermediate calculations) [a] b. What is your total cash outlay? (Round answer to zero decimals. Do not round intermediate calculations) [b] c. What is your breakeven point in terms of the oil settlement price? (Round answer to 2 decimal places. Do not round intermediate calculations) [c] d. What is your maximum loss (in $/bbl)? (Round answer to 2 decimal places. Do not round intermediate calculations) [d] e. What is your maximum gain (in $/bbl)? (Round answer to 2 decimal places. Do not round intermediate calculations) [e] f. If the price of oil settles at $47 in four months, what is your net selling price? (Round answer to 2 decimal places. Do not round intermediate calculations) [f] g. If the price of oil settles at $38 in four months, what is your net selling price? (Round answer to 2 decimal places. Do not round intermediate calculations) [g]
Suppоse yоu аre the CFO оf аn oil refiner аnd you wish to hedge your future purchase price risk of crude oil using options. Your company will need to purchase a total of 10.7 million barrels of oil in next four months. The six-month crude oil futures contract is trading at $41/bbl. The price of the four-month 39 put is $2.35/bbl. The price of the four-month 42 call is $2.81/bbl. Instead of buying futures contracts at $41 to hedge your risk, you decide that you will purchase the 42 call options to hedge your price risk. a) How many contracts do you need to purchase? (Round answer to zero decimals. Do not round intermediate calculations) [a] b) What is your total cash outlay? (Round answer to zero decimal places. Do not round intermediate calculations) [b] c) What is your breakeven point in terms of the oil settlement price? (Round answer to 2 decimal places. Do not round intermediate calculations) [c] d) What is your maximum loss (in $/bbl)? (Round answer to 2 decimal places. Do not round intermediate calculations) [d] e) What is your maximum gain (in $/bbl)? (Round answer to 2 decimal places. Do not round intermediate calculations) [e] f) If the price of oil settles at $47 in four months, what is your net purchase price? (Round answer to 2 decimal places. Do not round intermediate calculations) [f] g.) If the price of oil settles at $38 in four months, what is your net purchase price? (Round answer to 2 decimal places. Do not round intermediate calculations) [g]