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 20, 2010

A different approach - what could earnings season bring us? PART 6

Well, so far so good for getting the direction and obviously not for the markets... IBM was down almost 5% in premarket after the results... still it is important to see normal hours trading, but this company will open sharply down. Today we will have Johnson and Johnson and basically the strategy for this market stays the same. Classical lower high and down trend is to resume if support line is broken:


So far none of the companies in DJIA showed positive post earnings performance despite earnings coming in better then expected. Bear market?
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