A) Sell fixed forward B) Sell index forward | Fix the price of energy in a future month Float the price of energy until delivery month | Eliminates downside price risk and locks in sales price at an approved level Sales price will be “at the market” | Market price may be higher at time of delivery Market price may be lower at time of delivery |
C) Sell fixed forward plus buy call option (or call option spread to reduce net premium) D) Sell index forward plus buy put option (or put option spread to reduce net premium) E) Sell index forward plus buy put option and sell call option | Fix price in future month, protect against downside price risk Float price until delivery month, protect against upside price risk Float price until delivery month, protect against downside price risk at reduced (or zero) premium | Eliminates downside price risk, locks in sales price at approved level, and price won’t be “out of the market” by more than the difference in the sales price less the strike price of the call option Sales price will be “at the market” but won’t be less than the strike price of put option Sales price will be “at the market”, at strike price of put option, or at strike price of call option | Market price may be higher at delivery, up to strike price of call option with loss in call option premium Market price may be lower at delivery, down to strike price of put option with loss in put option premium Market price may be lower down to strike price of put option or market may be higher than strike price of call option |