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An oil producer has an obligation under an agreement to supply 75,000 barrels of oil every month for one year at a fixed price. He wishes to hedge his liability to address the event of an upward surge in oil prices. The producer has opted for a stack and roll hedge rather than a strip hedge. Which of the following two statements are correct?
A
The question appears incomplete as no specific statements A, B, C, D are provided in the text for evaluation.
B
In a stack and roll hedge, the hedger uses nearby futures contracts and rolls them forward periodically.
C
Stack and roll hedges are typically used when longer-dated futures contracts are illiquid or expensive.
D
This strategy creates basis risk due to the rolling process between contract expirations.