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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Friday, July 16, 2010

A different approach - what could earnings season bring us? PART 5

It looks like I missed GE earnings today, but there was nothing new there:



we have seen lower high and  momentum turns down, so further losses are likely. Same as with every other DJIA component I looked at so far.

IBM is the next one to report next week. Remarkably this must have been the strongest performer in the index as it had been mostly trading sideways for the last 9! months! Here is the chart:


Obviously range trading means price is going nowhere and given the length of range trading, earnings can cause significant moves if range is broken. So this will be an interesting one to see. While momentum suggests we can test 127 area where currently most of the averages are, there is obviously no trend and it will be difficult to speculate on further direction from there. I would prefer to look at the pre earnings day trading to suggest further direction.

Happy weekend everyone!
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