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Does selling options have a role in commodity risk management? Many commodity risk managers would shy away from even using options in the more traditional risk sense - buying calls to protect against rising prices or buying puts to protect against falling prices. But a recent intriguing article (https://iml.com.au/why-options-arent-as-risky-as-you-might-think/) from an equity fund manager in Australia, made an interesting argument about enhancing returns through intelligent o

Proactive vs reactive risk management: lessons from Barings, Enron and Wizz Air Would you drive your car by only looking in the rear-view mirror? Probably not, but that's how many companies approach risk management - only implementing hedging after being hit by a major adverse price move. Reactive fixes in finance are far too frequent. Consider a few examples: Barings Bank - controls after the collapse Due to weak controls, Nick Leeson built up huge unauthorized derivatives p

Implied vs historical volatility explained: what rising vols mean for your earnings John, our by now well-known Head of Procurement for Fancy Gizmos, was sitting at his desk and working through all the New York Times puzzles. Since he had implemented Forge aHedge and automated his copper hedging and risk management he had freed up a lot of time cleaning data, downloading forecasts, and checking and double checking a sprawl of spreadsheets. I mean he had to use his extra time

Contango vs backwardation: how to read the commodity forward curve John, the head of procurement for Fancy Gizmos, was just settling back in his chair after his sojourn to the coffee machine. He closed his eyes as he savoured the freshly brewed aroma. He had been studying the coffee price chart that morning. “Not only is its flavor Robusta but so is it’s price,” he thought to himself, “and so is my risk management!” he added. He smiled at the thought of the huge pile of pods

What Is a commodity budget rate? How to set a price target for your annual forecast. It was that time of the year again at Fancy Gizmos – budgeting. Sally, the CFO, was wrestling with a tangle of IF statements in her forecast spreadsheet when she was distracted by … music? She got up to investigate the source of the disturbance. She found John, the head of procurement, drumming on his desk to music playing from his computer. Hadn’t she asked him to help her with the copper bu

Using call options and collars to hedge commodity risk in an acquisition By now you should be well acquainted with John, the Head of Procurement for Fancy Gizmos. John has normalized commodity risk management for Fancy Gizmo. He has built commodity risk management into a routine business practice and the benefits are well understood throughout the business from the factory floor to the board. He’s reviewing his daily automated, compliance and risk email from the Forge aHedge