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

Friday, July 16, 2010

Follow up on NYMEX gas

Well, last time I spoke about NYMEX gas I speculated whether head and shoulder pattern was to materialise. To my surprise it did and price fell sharply towards long term support line:

I was almost convinced that the fall through this support line and all the moving averages would send the market seeking value at zero, when I got another surprise. this what happens when everyone is short the market. relatively in-line-with-forecast storage build sent prices more then 6% higher on the day. So I will try to make another bullish case for natural gas.

While it is too early to say that new trend is developing as we continue trading in the bearish channel, rally off 4.30 is a supportive one. I give more preference to support/resistance lines that have proven to hold  over time so I think we saw a bottom at 4.29-4.30 for the time being. Ideally I would like to see this market forming a base off the support line, similarly to what it did in March-May this year and then break higher. However in view of recent market volatility in other risk assets I would not be surprised to see some strong short covering rallies as speculators try to fund their other positions.

All in all I still believe we are in for test of channel resistance at $8+ over long term. Risk is that if we see new low market can collapse towards this decade lows at $2.
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)