Coolmist produces high quality juices and competes head-on with the large national brands. Because of this stiff competition, they find it very difficult to raise the price of their juice. Oranges are a key raw material. As a rule the risk managers of Coolmist are NOT interested in designing an expensive risk management insurance strategy aimed at protecting their profit margins against small changes in the price of oranges. However, they are very interested in designing a cheaper risk management strategy that will protect margins against upward price spikes on oranges.
Given this scenario, what financial engineering strategy would be most beneficial to Coolmist?
Buy in-the-money puts on oranges
Buy out-of-the-money calls on oranges
Buy out-of-the-money puts on oranges
Buy in-the-money calls on oranges
Buy out-of-the-money straddles on oranges
Buy in-the-money straddles on oranges