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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Thursday, July 15, 2010

A different approach - what could earnings season bring us? PART 4

As expected JPMorgan price action had been similar to other DJIA components who published their earnings already - gap higher on the open then trade on the lows of the day. Not to mention that these companies are trading lower then their pre earnings level. This is consistent with the idea of further losses in equity and other risk assets. moreover JPM looks like it will post an outside day bearish formation:


Tomorrow it will be Bank of America before US open... It is reasonable to expect similar price action... Here is the chart:

It is important to mention that momentum for most of the stocks is turning down in the overbought area of stochastic oscillator. Coupled with lower high on most of the charts this is a bearish development...
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