Its September 2015 and Apache is about to acquire a natural gas reserve at a price which translates to $1.75 per thousand cubic feet of reserves. It wants to establish a costless collar for January 2016 sales of 500B cubic feet of natural gas, using January put and call options.

One option contract is for 10,000 mmBtus, where mmBtu denotes 1 million British thermal units. Puts with a strike of $2.85/mmBtu have a premium of $0.168/mmBtu, while calls with a strike of $3.25/mmBtu cost almost the same, at $0.181/mmBtu.

1. Translate targeted sales into mmBtus, noting that mmBtu1000 cubic feet.
2. Construct a nearly costless collar with puts and calls. How many of each, long or short?
3. What is the total net cost or net income from this trade?
4. Net of options proceeds (but ignoring part c. cost/income), what price will Apache sell natural gas for in January, per thousand cubic feet? Explain.