It is May 15. An oil producer has negotiated a contract to sell 1 million barrels of crude oil. The price in the sales contract is the spot price on August 15. 

Quotes: Spot price of crude oil: $60 per barrel August oil futures price: $59 per barrel 

How does the trader use the future contract to hedge the crude oil price volatility and receive $59 per barrel on August 15? 

Describe the cash inflows and outflows from selling crude oils and future contracts when crude oil price ends with $50 and $70 on August 15, respectively.

Answer rating: 100% (QA)

To hedge the crude oil price volatility and receive 59 per barrel on August 15 the trader can sell A... View the full answer