In April 2016 a company realizes that it will have oil to sell in June 2017 and
Fantastic news! We've Found the answer you've been seeking!
Question:
In April 2016 a company realizes that it will have oil to sell in June 2017 and decides to hedge its risk with a hedge ratio of 1.0. The current spot price is $68.9. Although futures contracts are traded with maturities stretching several years into the future, we suppose that only the first six delivery months have sufficient liquidity to meet the company's needs.
If the company decides to "stack and roll," what is the sales price (per barrel) of the oil after accounting for the gains/losses on the hedge?
Date | April 2016 | Sept 2016 | Feb 2017 | June 2017 |
Oct 2016 futures price | 67.4 | 67.4 | ||
Mar 2017 futures price | 67.9 | 66.9 | ||
July 2017 futures price | 67 | 66.1 | ||
Spot price | 68.9 | 65.7 |
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Posted Date: