Devon Energy, an E&P company has constructed a zero cost collar strategy last summer. They bought a put option on crude oil with a premium of $0.50 per barrel and a strike price of $50 per barrel and sold a call option, strike price of $70 per barrel, with the same premium. If crude oil is $40 per barrel at maturity of the hedge, how much do they make or lose on the option hedge per barrel and per contract? Remember that this is a zero cost collar hedge.

CHOOSE THE BEST ANSWER!

Group of answer choices

They make $10 per barrel on the hedge ($10,000 per contract).

They make $9.50 per barrel on the hedge ($9,500 per contract).

They lose $9.50 per barrel on the hedge ($9,500 per contract loss).

They lose $10 per barrel on the hedge ($10,000 per contract loss).