Performance Difference Between Options and Futures Contracts Essay
Here is a little secret… MGRM is back (and has been back for a while…they had reopened the oil hedging program…but with a twist.
They are selling 10 year forward contracts, with quarterly oil delivery…..but hedged the exposure with ATM quarterly options.
Take the following example.
- MGRM sells a 10 year forward at the start of 2012. They delivery the required barrelseach quarter…so on the expiry dates of March, June, Sept, and December.
- Global Shipping Enterprise (GSE) came to them at the start of 2012, wanting to hedge120,000,000 barrels of oil over the 10-year window.
- Explain the performance difference of using options to hedge versus futures contracts over this time period….(qualitative question)
