I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

Search This Blog

Saturday, May 8, 2010

2010 May 10 - Note for today

Markets continued to be jittery throughout Friday trading despite some reassurance on recovery in job market in North America. However all things changed on Monday as Europe has created first ever TARP for countries amounting to 600b Euro. This morning I am getting all sorts of emails as banks try to forecast next market move. And the most striking thing is that views on commodities are different to FX. Come on! When will people realise that commodities are no more different from equities and FX? If you say that Euro is going to 1.20 in three month this not a buying opportunity for commodities! Start talking to each other, people! Have a look at the following intra day correlation matrix:




Only Nymex gas stands out from the crowd as it is probably the only market in this matrix that trades according to its own fundamentals. Everything else is trading in tandem.

Time will tell if I was right.

Off the topic idea:

Has anyone tried to build a market indicator using bullish/bearish news ratio published on CNBC website? I did not try to calculate it, but looks like bullish sentiment peaked probably a week before market collapsed. I think quantifying this can be an interesting topic for a research paper? if nobody thought about it before, I want to have it named after my name. In fact I liked this idea so much that I think I would suggest this to them. let's see if they get back to me.

have a good day
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)