Explanation:
The question asks for the EXCEPT statement, meaning the one that is not a weakness.
So the exception is C.
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Q-156.5 Rolling the hedge forward
Assume an oil producer employs a stack-and-roll hedge against the anticipated sale of a large quantity of oil in 16 months. At the start of the strategy, the spot price of oil is $105; at the end of the strategy, 16 months later, the spot price is $80. Throughout the hedge, futures prices are greater than spot prices such that contango persists. EACH of the following is a potential weakness (or imperfection) of "rolling forward" near-dated oil futures contract each month EXCEPT for:
A
Daily settlement of futures contracts can cause a timing mismatch between the cash flows of the hedge and the underlying price exposure
B
The stack-and-roll futures trades, by themselves, will not necessarily produce at least a profit to offset the spot price drop
C
If the oil futures curve shifts to backwardation, the futures trades by themselves will necessarily produce a loss
D
It is possible for profits on the future trades to exceed the underlying spot loss of $25; i.e., an “overhedge” gain is possible