Thanks BB.
Framer essentially you hedge to protect yourself against an adverse event. A user of fuel, risks a rise in fuel price - therefore buys something which gains in price, as the price of fuel goes up - your gain on that asset, offsets the extra you pay for fuel.
Futures are attractive for this due to leverage; that is, you don't have to put down the full value of the asset you're buying - however just as the potential gains are magnified, so are the potential losses.
So if your hedge asset falls in price, it's because your fuel cost has gone down.
So unless you use options (as BB has explained), the hedge will lock in your price, meaning you don't benefit from a lower fuel price - but neither do you suffer from a higher fuel price.
I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.
Last edited by Taildragger67; 4th Jul 2011 at 10:47.