A few weeks ago, you realised that you were exposed to movements in the price of oil. At that time, you hedged this exposure by entering a long call option written on oil.

The call option had a strike price of $90 per barrel. At the time of the option expiry, the spot price of oil is $85 per barrel.

Hedging with options gives you a degree of flexibility. What is the rational decision to make at expiry?

a: Exercise your right to buy oil for $90

b: Impossible to say without knowing the option premium paid for the long call

c: Let the call option lapse