Nowadays, many providers of asset-valuation software sell more than thirty different financial models, employing more than one hundred different derivative securities intended to prevent damage from market disasters and enable companies to gain control over future returns.

Yet, firms, as well as whole industry sectors, frequently face severe financial troubles and bankruptcies as markets continue to behave unpredictable and erratically.

In order to sustain a competitive advantage in today’s precarious market environment, risk managers must be adaptive to various risk challenges. This implies a keen awareness of risk exposure and proper managerial oversight to react quickly, configure a hedge portfolio, monitor performance and preserve value.

The focus of Hedging Commodities: A practical guide to hedging strategies with futures and options is on commodity exchanges and in particular on base metals and gold. It is a hub of graphically treated hedging strategies an invaluable resource of hedging case studies and examples.

The straightforward and up-to-date examination cover all aspects of hedging techniques vis-a-vis some of the most widely traded metal contracts—gold and copper within the context of major commodity exchanges—LME and CBOT.

When it comes to hedge strategies specifically, a great effort has been employed in creating new instruments and concepts that will prove to be superior to classic narrative methods and interpretations.

Consequently, Hedging Commodities succeeded in delivering a recognizable structure of breakthrough graphic depictions designed in order to achieve that ultimate goal—to assist business and risk managing teams proper mechanisms in modeling and mapping hedge strategies solutions.

Core Objectives

This book tackles major issues related to financial-risk management challenging the conventional narrative discourse, believing that graphical presentation, handled expertly, can often communicate with greater efficiency and richer meaning than text alone.

Rather than providing isolated aspects of risk management, the author managed to capture an integrated corpus of inter-related conceptions allowing the investors to compare numerous avenues of handling risk exposure and better adapt to ever changing market occurrences.

It’s most pronounced objective is aimed to elucidate the sequence of transactions that constitute hedging strategy and to make it more transparent. Accordingly, every strategy, every conception is elaborated in multiple ways—by means of four different methods: graphically, algebraically, symbolically and numerically.

The book is easy to follow providing very simplified and clear examples of how to identify physical risk exposure and implement hedging concepts and strategies in various market circumstances.

Hedging strategies and instruments may be difficult to apprehend. To attain intuitive inferences into these intricate entries, the author inclines on a new approach and usage of graphic visualization, a concept that will attempt to facilitate an understanding of futures and options features, characteristics and applications.

Favorite tools

Using innovative graphic and tabular depiction methods the author introduces the concept of “hedge patterns.”

The concept of “hedge patterns” (as demonstrated in chapter 5) proves it was possible to tabulate the hedging strategy and interpret each case employed with an aid of a visual recognition. So that each particular case elaborated receives its visual identity and comes forward with radical clarity.

Overall, more than 200 of powerful graphic and tabular illustrations have been designed in order to facilitate an understanding of hedging principles

These visual patterns attached to hedging strategies, provide two dramatic advantages:

• to see how the change in market prices corroborate the portfolio returns, and
• the ability to compare various solutions.

Visualization, underpinned by breakthrough graphic depictions, provides tangible and perceptible quality.

By favoring visualization vs. narrative discourse, and geometric expression vs. algebraic, using unique and innovative figures and tables, this book strives on imbedding hedging conceptions in the minds of risk management executives, to allow better understanding of multiple ways of controlling commodity risk exposure and to implement accordingly, the most appropriate hedging strategies in real-world situations.

Guided with these principles, and dedicated to enclose offering on diverse hedging opportunities, this book is an invaluable resource of hedging case studies and examples, explaining with a clarity and coherence how various instruments are used in different market scenarios to contain, control and eliminate commodity price risk exposure.

Arbitrage trades

A special attention has been devoted to the concept of arbitrage trades and its pragmatic applications.

Efficient market theory has it that investors cannot find securities that are mispriced such as to contract an arbitrage trade.

But if you painstakingly study derivatives markets and futures and options price charts then you will find evidence of price imperfections and distortions (especially if you look down the forward curve line) that actually make it possible to contract an arbitrage trade.

Only you have to know what you are looking for. One of the keys is in creating a position – either long or short – synthetically. That is why the last chapter is devoted to “Synthetic Instrument.”

An arbitrage portfolio in this respect implies:
1. Negligible or no initial investment (cash out-flow)
2. No risk of loss
3. At least at one state there is a positive return.

Sounds like the quest for the Holy Grail; but it is not. Hedging Commodities teaches you how to spot and configure your own “arbitrage portfolio” and secure risk-free returns that all investors are painstakingly searching for.

Arbitrage opportunities exist in every market—because markets are not perfect.

I agree with SW, this is one of the best books around.
The first quarter of the book is about actual hedging (ex. a bakery buying wheat futures to protect its costs.).
The second quarter is an intro to options (but in great detail).
The third quarter is about option pricing (Black-scholes, etc.).
The fourth quarter is a detailed description of almost every option strategy known to man. All the common ones plus strips, straps, collars fences, conversions and many more.
The writing is clear, the charts are clear and detailed, with examples. It is actually about commodity options, unlike some books I could mention. There are interesting insets about related topics. I didn’t find any typos, which seems rare these days. This book is a large paperback, and there is a lot in it.
This is a pretty fabulous book and I would call it a must read for anyone who trades commodity options.

his may possibly be the best book written on the subject. Every strategy explained in a great detail with clarity. I wish this book was around when I studied for my license 7 exam…