California Plastics uses crude oil as one of its major raw material inputs. The current price of crude oil is $35 per barrel. The company is concerned that significant increases in the price of crude oil could jeopardize its profits.
Each $1 increase in the price of crude oil reduces the company's earnings per share by about $0.02.
How can California Plastics use futures contracts and/or options to protect itself against unfavorable price movements?