solution

Strike price $50.00 / barrel $55.00 / barrel $60.00 / barrel $65.00 / barrel $70.00 / barrel Call option price $7.47 $4.64 $2.69 $1.46 $0.76 Put option price $1.97 $4.10 $7.10 $10.82 $15.07 a) What is the least cost single option position they should take (which option, how many options, buy or sell) to guarantee cash flow of at least $1.7 billion, before the cost of the hedging program? b) What is the cost of the hedging program in (a)? c) What option positions should they take (which options, how many options, buy or sell) to eliminate all oil price risk and secure a cash flow of $1.7 billion, before the cost of the hedging program? d) What is the cost of the hedging program in (c)? Is it higher or lower than the initial hedging program calculated in part (b)? Why?