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Question: you are a crude oil dealer you intend to sell...

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You are a crude oil dealer. You intend to sell 40,000 barrels of crude oil in December. Each contract calls for delivery of 1,000 barrels of oil. Current futures price of one barrel of crude oil is $70. You believe that there are only four possible oil prices in December which are $50, $60, $70, and $80.

i. Explain what action you would take to protect from changes in oil prices in December. Provide reasons for your action. 
 
ii. Calculate the total proceeds for each of the possible prices in December

 

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