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Designed as the ultimate research tools for commodities, futures, and futures options traders. You would sell the December, rather than the November futures contracts, because the November futures contract expires during the production month of October. To compare how your strategy will work if the December Brent crude oil futures contract settles at prices both above and below your price of $66.46, let's examine the following two scenarios.

While there are numerous details that need to be considered before you hedge your crude oil or natural gas production with futures, the basic methodology is rather simple: if you are an oil and gas producer and need or want to hedge your exposure to crude oil or natural gas prices, you can do so by selling a crude oil or natural gas futures contract.
Last but not least, while this example addressed how a crude oil producer can hedge with futures, one can employ similar methodologies to hedge the production of other commodities as well.
However, the December futures contract will expire during the middle of the November production month so to properly hedge November production you would likely utilize a combination of December and January futures contracts.

However, your net price would be $66.46, the price at which you originally sold the futures contracts, excluding the basis differential, gathering and transportation fees, etc.

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Author: admin | 04.03.2015 | Category: Can You Make Money Trading Options

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