Question

The spot price for gas today (March 19, 2020) is $1.661 MMBtu. The futures price today for gas to be delivered in June 2021 is $2.245. Your company is a gas purchaser/user and is interested in the hedging process.

Your Company would like to enter into a June 2021 contract for 10,000 MMBtu. Would your Company go short or go long on the June 2021 futures contracts?

Looking into the future, assuming it is June 2021.  If the spot price in June 2021 turned out to be $2.500, how much better off or worse off (in terms of total dollars spent on gas) is your Company as a result of entering into the futures contract?

Your company decides to enter into an option as a hedging tool.  An option for 10,000 MMBtu in June 2020 at a strike price of $2.300 is available today at a price of $0.200.  Would your Company be interested in a call or put option?  

Answer 1