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.

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Tuesday, July 6, 2010

And let the rally continue!

No, no, not the rally in equities/oil/metals. Any advance for these markets is likely to be choppy with deep pull-backs while we stay under key moving averages. I warned yesterday about possible rally in risk assets, which started with FX last week and today moved onto equities and risk correlated commodities.

I am talking about  NYMEX gas this time. Here is what I am looking at:

We have a failed head and shoulders set up currently developing as price did not have a meaningful follow up through the neckline and recovered above it. Momentum is turning up and rally through 4.85 opens up $5.20 then $6 then $8 upside target. Crazy, right? Well, look what's happening currently in Europe...(this is Dutch TTF front month contract):

Not bad for oversupplied market...
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