Question

A firm which plans to buy oil might anticipate a period of market volatility and wish...

A firm which plans to buy oil might anticipate a period of market volatility and wish to protect its expense against price fluctuations. The firm should:

A. enters a long position in oil futures or purchase a call option on oil.

B. enters a long position in oil futures or purchases a put option on oil.

C. enters a short position in oil futures or purchase a call option on oil.

D. enters a short position in oil futures or purchases a put option on oil.

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Answer #1

The answer is

A. enters a long position in oil futures or purchase a call option on oil.

Long position in futures means the buying position while short position means the selling position.
Call Option is the right to buy the underlying asset at a specified price on a future date

Put Option is the right to sell the underlying asset at a specified price on a future date

Since the firm plans to buy oil.

It should enter into long position in futures or purchase a call option i.e. the right to buy

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