Gasoline price insurance for retail customers - Financial Literacy

Gasoline price insurance for retail customers

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A start-up company in Houston offers gas price hedging at a year at a time. For a monthly fee, they will pay you when the national average price of gasoline rises above a fixed price. This way, you are protected from a spike in gas prices. You can budget more confidently for the year because you have a cap on your out-of-pocket costs for a rising price of gasoline.

Of course, it would be better if they hedged for a longer time, like two years, but I presume their hedging program is most liquid at a year or less. For a nominal amount of money, you may consider hedging for your personal or small business gasoline usage.

First, do the arithmetic regarding your gasoline usage and match it to the hedges that they offer, and then determine if the cost is worth what they are charging you to hedge that dollar amount.

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