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Commodity Risks: How to Identify and Implement a Corporate Hedging Program

Gain a better understanding of the benefits and potential pitfalls of your hedging strategy.

Commodities have been in a general downtrend since the last financial crisis. With inflation, interest rates and volatility are so low that there was minimal advantage in hedging out commodity risk unless you were a producer. That trend has changed and we expect to see much more volatility in commodity markets for many years to come. How do you identify the risks you are taking? What do you do with that risk once you have it identified? What factors are important when developing a successful hedging strategy? How do you gauge if it is effective? This topic's goal is to give you the tools to understand what your risks are, how to develop a strategy to manage this risk, and the tools to evaluate if it is effective. Lastly, the goal is to increase the understanding of the potential pitfalls of your hedging strategy.

Runtime: 101 minutes
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Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Agenda

Intro

  • Topic
  • Experience
  • Hedging Can Be Psychologically Difficult, Always Too Little or Too Much

Set up

  • Identify Your Risk and How Big It Is
  • Decide If You Want to Hedge This Risk
  • Do the Historical Scenarios Make It a Good Risk/Reward Bet?

Types of Hedges

  • Full - Timing Is More Relevant
  • Partial - Timing Is Still Important
  • Dynamic
    • Hedge Factors for Each Asset
    • Sources of Alpha

Instruments and Where Hedging Is Executed

  • Futures
    • Imbedded Price and Yield for Interest Rates Futures
    • Imbedded Price and Dividend for Equity Futures
    • Calendar Spreads and Carry in Commodity Futures
    • Hedge Ratio
    • Margin
  • Options
    • Long and Short of It
    • Delta Hedged

How to Gauge Effectiveness

  • Information Ratio
  • Correlation
  • Upside and Downside Capture
  • Volatility
  • Cost of Hedging

What Can Go Wrong?

Conclusion

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Why Lorman?

Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Credits

OnDemand Course

This course was last revised on November 29, 2018.

Call 1-866-352-9540 for further credit information.

This program does NOT qualify, nor meet the National Standard for NASBA accreditation.

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Why Lorman?

Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Faculty

Bradley J. Rathe

Bradley J. Rathe

Strategic Financial Group, LLC

  • Chief Investment Officer (CIO) of Strategic Financial Group, LLC (dba SFGI, LLC in Illinois), a Registered Investment Advisor (“SFG”), and a member of Strategic Financial Group Holdings, LLC (the owner of the equity of SFG)
  • As CIO, he manages a group of professionals that advise more than 800 clients and more than 750 million dollars in all aspects of their investment portfolios including equity, fixed income, and alternative investments
  • Owner of Astor Janssen Holdings (AJH), an NFA registered hedging company
  • At AJH, they advise clients on developing financial modeling for investing and they implement and trade those strategies. Asset classes on which they have implemented effective technical strategies include interest rates, domestic equity markets, emerging equity markets, MLP, commodity, and foreign exchange
  • Regular speaker at conferences on risk management, financial modeling, hedge funds and hedging
  • More than 25 years in the hedge fund business
  • Managed some of the largest hedge funds in the early 90’s, when hedge funds actually hedged instead of current practice of hedge funds being just highly correlated levered long equity funds
  • Graduate, Iowa State University
  • Can be contacted at 773-917-6500 x244 or [email protected]
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Product ID: 405259
Published 2018
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