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Flirting with Models
Hari Krishnan – Hedging a Commodity Bull Market (S7E4)
Jan 8, 2024
Hari Krishnan, Head of Volatility Strategies at SCT Capital, explores developing a low carry hedge for a commodity bull market by understanding market positioning, price impacts, perishability, and seasonality. The podcast discusses depressed commodities, producers' incentives, return skewness, fundamental analysis, liquidity constraints, and low-cost, high-convexity strategies in futures and options markets.
54:28
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Quick takeaways
- Developing a low carry hedge for a commodity bull market by mimicking the business model of grain, metal, and energy companies through financial instruments.
- Overcoming challenges of positioning for a commodity bull market by creating engineering solutions with minimal carry costs while capturing potential gains from cheap commodities.
Deep dives
Developing a Low Carry Hedge for a Commodity Bull Market
Harry Krishnan discusses the genesis of his research, which was prompted by a client's request to develop a low carry hedge for a commodity bull market. By using financial instruments to buy depressed commodities and profit from upside moves, Krishnan aims to mimic the business model of grain, metal, and energy companies. He explores conditional impacts of price on real-world costs, the influence of seasonality, and how understanding the incentives of commodity producers and consumers can provide insights into potential market imbalances. The objective is to develop a strategy that minimizes the impact of market timing while maintaining long-term exposure to a potential commodity super cycle.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode