NeedOil is a firm that uses oil in its production process. If the price of oil increases, then the firm's cost will increase. We assume that NeedOil cannot pass on all incremental costs to customers and therefore that cost increase will result in lower profits. Suppose that NeedOil does not want to bear the risk that it will have to pay more than $120 a barrel for oil next year, while it does not believe oil prices will rise above $150 a barrel. What option trading strategy would you recommend?

Answer rating: 100% (QA)

Given the desire to limit the risk of paying more than 120 a barrel for oil and the belief that oil ... View the full answer