Question

13. 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:

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

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

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

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

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