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, August 5, 2010

Is the glass half full or half empty? PART2

Just a follow up on the recent post...

Please keep in mind I will be out the office tomorrow, so in my absence markets are likely to move hard. call it a bad luck, but experience proves it.

Correlations between assets are picking up and feels like we're going to the normal risk on/risk off mode:

Meanwhile, markets are mostly going sideways at the top of their ranges under key levels, S&P stalled just under 100d moving average and 1130-1135 is the level to watch:

Oil is showing signs of trend exhaustion at the conjunction of various resistances and as I mentioned 82-83 level gives a good risk reward for a short position:
NYMEX gas has turned upside down following an outside bearish day reversal. For this market $4.50 has to hold - which is a channel support off august09 lows. If broken, this will be a significant damage to bull scenario I had speculated about since May this year and I would not be surprised to see a test $3:

Overall, there is a risk of significant correction in the short term as not only risk assets, but assets with low correlation show downside possibility. Put this two together and this makes good case for economic situation to worsen in the nearest future.

Have a good weekend
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