Open position : Long VLO 650 shares : price is 28.11 = $2148 (gain on 600 shares) + $327(gain on 50 shares) = $2475 (gain)

Open position : Long 7 VLO Dec 2012 Puts strike $27 : bought $4.11, price is $2.07 = -$1428 (loss)

Total : $1047 (gain)

(* including commissions and assuming worst case option prices)

We have lost the following total on hedges in 2012 : $311 (realised hedge gain) – $1253 (unrealised hedge gain) = -$1117.

However we have gained $2475 on the share position, so we are up $1358.

If we roll up to the Dec 2012 Puts strike $30 for $3.70, our worse case exit would be $26.3.

If we sold all our shares at $26.3, that would equal $1062 (gain on 600 shares) + $236(gain on 50 shares) = $1298.

Since our guarenteed profit is $1298, and we have lost -$1117 hedging, then our guaranteed gain would be $181 no matter whatever happens to Valero share price. We currently have $1358 unrealised profit in the position and we are risking a maximum of $1177 ($1358 minus $181) until Dec 2012. If we do this trade, Whatever happens now we cannot lose.