I smell a hedging strategy

How much would you pay for cheap gas?

Posted by Sean Casten (Guest Contributor) at 3:43 PM on 07 May 2008

Read more about: cars | business | oil | Big Auto

Suppose you're a commodity trader. Someone offers you a future contract to buy gasoline at $2.99/gallon for the next three years. If you think that you can sell that gasoline for more than that, you might think this is a license to print money, and would therefore pay for that privilege. Which raises the following questions:

How much would you pay for that future "strip"?
Is the answer to Question 1 more or less than a Chrysler?

For story: I smell a hedging strategy
3 Comments | Post a Comment

Interesting

At the current price of gas here in Indiana ($3.70) and considering I fill up once a week with about 8 gallons of gasoline that puts me at around a $900 savings if price stays constant. More than likely they will continue to rise of course since the prices on the coasts usually make their way inland.

I still don't think that warrants buying a Chrysler. Especially when I could possibly just waste the rebate in the lose of fuel efficiency.

Green and Environmental Website | Almighty Cleanse

by green8659 at 7:33 PM on 07 May 2008

Buy back

Will they agree to buy back the "crapler" when it stops running or after 3 years whichever comes first? That would sweeten the deal somewhat.

Only car worse than a ford? Yep.

Even too-stupid-to-live bush voters buy Toyota trucks and SUVs now. No bailout this time! Crapler, ford, GM...let them die off. Toyota and Honda are building plants here now, and importing workers who know how to read.

Too late to save the original US auto industry. Factories operated by robots and immigrants from countries with real education are the future. Will Canadians cross the border to work here?

We can only hope. Hehey.

http://amazngdrx.blogharbor.com/blog

by amazingdrx at 9:35 PM on 07 May 2008

future contract

The airline industry already participates in such hedging practices, and it can be argued that Southwest Airline's recent success is the result of them signing such an agreement in the past. They are realizing exception savings compared to competitors, and I think the potential for such savings will soon be realized in a variety of industries.

In response to the questions: I am a poor, indebted college student with about $3000 to my name (and 3 times that in outstanding loans). I would instantly hand over all of my cash for the opportunity to purchase gas for $2.99 for the next three years, and will even throw in my 1992 Oldsmobile for good measure (worth approximately 87 cents). I would sell the gas for slightly over my purchase price to low-income families, as they are the ones who are the most affected by gas price increases. In very little time, I will have earned back my investment and created a positive social return, as well.

by hcsteiner at 11:22 AM on 08 May 2008

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