Suppose that you are a gasoline refiner. You convert crude oil into gasoline and other refined...
Suppose that you are a gasoline refiner. You convert crude oil into gasoline and other refined products.Which option could you trade to hedge your natural position in gasoline if you want to chose to exercise or not?
A) A long put
B) A short put
C) A long call
D) A short call
Homework Answers
As you are a gasoline refiner, you want to hedge your position in gasoline. You want to choose to exercise the position or not. Here, as you will be selling gasoline, you need to buy put or sell call. As you want to have a choice to exercise, you choose Buy Put. Hence, if you are a gasoline refiner, you convert crude oil into gasoline and other refined products. You will choose to -
A) A long put
Do let me know in the comment section in case of any doubt.
Add Answer to:
Suppose that you are a gasoline refiner. You convert crude oil
into gasoline and other refined...
HEDGING (10 Marks) Part A (5 Marks) An oil refiner purchases ·crude oil, which it then...
HEDGING (10 Marks) Part A (5 Marks) An oil refiner purchases ·crude oil, which it then refines (i.e. processes) into finished products like gasoline and diesel. Does the refiner have a long or short exposure to crude oil? How about gasoline (i.e. long or short_ exposure)? What hedging positions would the refiner take with respect to crude oil and gasoline if it wants to increase the certainty of its cash flows? Part B (5 Marks) CanTruck, a Canadian truck manufacturer,...
QUESTION 3 "As an oil refiner, you are able to produce $55 worth of unleaded gasoline...
QUESTION 3 "As an oil refiner, you are able to produce $55 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $43 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 21000 bbl of Alaska North Slope (ANS) crude oil for 18500 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have...
This problem asks you to consider a company refining crude oil into gasoline. The company hires...
This problem asks you to consider a company refining crude oil into gasoline. The company hires workers to process an input (crude oil) into an output (gasoline). You should assume both the (output) market for gasoline and the labor market for workers are perfectly competitive, and that the firm must pay the equilibrium wage set in the labor market and charge the equilibrium price for gas set in the market for gas. You may additionally assume the relevant labor market...
Suppose you are a farmer and you enter a long put position on corns to hedge...
Suppose you are a farmer and you enter a long put position on corns to hedge your risk. Which of the following cannot help to reduce the cost of insurance? A. Long another put option with smaller strike price. B. Choose a smaller strike price instead. C. Short another call option with higher strike price. D. Use a short forward position instead.
13 Suppose you are a crude oil trader working for Trafigura. You have just bought the...
13 Suppose you are a crude oil trader working for Trafigura. You have just bought the entire stock of an oil tanker (2 million barrels of crude oil) at 59.2 dpb (dollars per barrel). To hedge your position you enter into a 3-year forward contract at 53.8 dpb. However, after three weeks the time basis is trading at -4.5 dpb. What are your mark to market profits in USD? (In case it is necessary express losses as a negative profit,...
5. Suppose that you sold an American put option P on the underlying stock ABC. You...
5. Suppose that you sold an American put option P on the underlying stock ABC. You calculated the delta and gamma of the put option and found Ap = -0.4 and Ip= 0.3. Suppose you want a position which is both delta and gamma neutral. Determine the hedge in the following two cases: (a) Use the underlying stock itself and a call option C on the stock (with different strike and maturity as the put), with Ac 0.25 and Io...
Suppose that you will be delivering 150,000 barrels of crude oil in February. Currently the Feburary...
Suppose that you will be delivering 150,000 barrels of crude oil in February. Currently the Feburary WTI contract is at $51.04 per barrel. The oil you will deliver isn't exactly WTI. Based on historical data you estimate that the change in the WTI spot price and the change in the spot price of the grade you will deliver have the same standard deviation but the correlation between these price changes is only 0.95. One WTI futures contract is for 1,000...
1. You want to enter into an agreement to physically sell WTI crude oil at a...
1. You want to enter into an agreement to physically sell WTI crude oil at a set price of 60.00 per barrel today for delivery in 12 months. You want the agreement to be for 400,000 barrels of oil and you are worried about counter party risk. Would you be most likely to use a futures contract or a forward contract? Explain your answer. (5 points) You are bullish on WTI so you are long 100 WTI contracts and also...
The Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at...
The Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point: A, B, C, and D. Product C is fully processed by the splitoff point. Products A, B, and D can individually be further refined into Super A, Super B, and Super D. In the most recent month (December), the output at the splitoff point was: Product A, 300,000 litres. ■ Product B, 100,000 litres. ■ Product C, 50,000 litres. ■ Product...
Now let's say you believe EFG stock will increase in price of $50 share. so you...
Now let's say you believe EFG stock will increase in price of $50 share. so you decide to purchase a lune Call option for 100 shares for a 30 day time limit. Assume that I call option contract equals to 100 shares and the call premium per share is $2/share. (6 points total) a) Are you the long call or short call option? are you the buyer or seller? b) How much will you spend for the entire call option...
QUESTION 3 "As an oil refiner, you are able to produce $55 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $43 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 21000 bbl of Alaska North Slope (ANS) crude oil for 18500 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have...
13 Suppose you are a crude oil trader working for Trafigura. You have just bought the entire stock of an oil tanker (2 million barrels of crude oil) at 59.2 dpb (dollars per barrel). To hedge your position you enter into a 3-year forward contract at 53.8 dpb. However, after three weeks the time basis is trading at -4.5 dpb. What are your mark to market profits in USD? (In case it is necessary express losses as a negative profit,...
5. Suppose that you sold an American put option P on the underlying stock ABC. You calculated the delta and gamma of the put option and found Ap = -0.4 and Ip= 0.3. Suppose you want a position which is both delta and gamma neutral. Determine the hedge in the following two cases: (a) Use the underlying stock itself and a call option C on the stock (with different strike and maturity as the put), with Ac 0.25 and Io...
1. You want to enter into an agreement to physically sell WTI crude oil at a set price of 60.00 per barrel today for delivery in 12 months. You want the agreement to be for 400,000 barrels of oil and you are worried about counter party risk. Would you be most likely to use a futures contract or a forward contract? Explain your answer. (5 points) You are bullish on WTI so you are long 100 WTI contracts and also...
Now let's say you believe EFG stock will increase in price of $50 share. so you decide to purchase a lune Call option for 100 shares for a 30 day time limit. Assume that I call option contract equals to 100 shares and the call premium per share is $2/share. (6 points total) a) Are you the long call or short call option? are you the buyer or seller? b) How much will you spend for the entire call option...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 10 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 10 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 10 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 10 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 10 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 10 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 10 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 10 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 10 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 10 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 10 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 10 months ago