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

Answer rating: 100% (QA)

To stack and roll the company will sell oil in June 2017 and will use the futures market to hedge it... View the full answer