At least he has cut the severity of revenue shortfall by hedging. By the time Flash and Storm finish their analyses and complete these first two transactions it is mid-June. In mid-July, Storm telephones with the good news and the bad news. Although he, Storm, does not agree with the new forecast, the market has reacted. It might be a good time to sell.
Flash tries to decide what to do.
If he believes in the forecast, then the downside protection he already has is unnecessary and good times are coming. He will sell another swap in the same amount as the first at USD 5,000 per degree-day, but only if the terms are more favorable than before. He calls the broker and offers the swap. He and Storm go back to the earlier data and construct figure 6. First, they carry over the revenue curve from figure 4 as the upper curve in figure 6.