Baking Operations Hedging

advertisement
LidoIsleAdvisors.com ALL RIGHTS RESERVED | 369 San Miguel Dr., Suite 300,
Newport Beach, CA 92660 | Phone: 949-461-1137
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
FUTURES AND OPTIONS RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU
SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS
SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.
THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN
COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RETURNS.
THE VALUE OF INVESTMENTS MAY GO DOWN AS WELL AS UP.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
2
Lido Isle Advisors is a boutique alternative
investment firm focused on serving the individual
investor in selecting what we believe to be premier
alternative investments.
Our expertise lies in statistical research, extensive
due diligence, elite client service, and a true focus
on serving the unique interests and needs of each
client we have the privilege to serve.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
3
Risk Management for
Baking Operations
By Edgard Cabanillas
Associated Person
Lido Isle Advisors, Newport Beach, CA
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
4
Outline – Baking
Operations Hedging
Introduction to Baking Operations
II) Understanding Wheat Flour Markets
III) Basics of Futures Hedging
IV) Baker’s Pricing Options (HRW)
V) Baker’s Pricing Options (HRS)
VI) Price Forecasting
VII) About Our Company
I)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
5
Part I – Introduction to
Baking Operations
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
6
Baking Operational Costs
 Fixed
Costs
 Equipment (Oven, Mixer, Cutter/ Divider)
 Storage Silos & Bins
 Rent/ Mortgage (Land & Plant)
 Variable
Costs
 Labor, Personnel
 Ingredient (Flour, Sugar, Salt)
 Energy (Natural Gas, Gasoline)
 Distribution Costs
 Transportation (Gasoline)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
7
Primary Ingredient Costs








Baker’s Patent Flour and / or Spring Standard Patent
Flour (95 % of budget)
Yeast
Water
Dough Conditioners
Sugar
Vegetable Oil
Salt
Preservatives
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
8
Part II – Understanding Wheat
Flour Markets
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
9
Baker’s Patent Flour Market

Made from Hard Red Winter Wheat
◦ HRW grown in Kansas, Oklahoma, Texas, Nebraska
Milled in Midwest and in L.A.
Pricing based on Cash Markets & Futures Markets
Cash Markets based on Transport Cost from Growing
areas to Mills & on Local Market Supply and Demand
 Futures Markets in Kansas City Wheat Futures
 Major Suppliers: ADM, Cargill, ConAgra, Cereal Food
 Protein on Flour basis – 11.0 to 12.0 % (12mb)



PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
10
Spring Standard Patent Flour
Made from Hard Red Spring Wheat
 HRS is grown in North Dakota, Minnesota, Montana and
the Canadian Prairies (CWRS)
 Milled in the Northern Plains, Canada and Midwest
 Pricing based on Cash markets & Futures markets
 Cash Markets based on Transport Cost from Growing
areas to Mills & on Local Market Supply and Demand
 Futures Markets in Minneapolis Wheat Futures
 Major Suppliers – ADM, Cargill, ConAgra, General Mills
 Protein on Flour basis – 12.0 to 14.0 % (12mb)

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
11
Flour Prices vs. KC Futures
Price History 1993- 2012
40.00
35.00
14.0000
12.0000
30.00
10.0000
25.00
8.0000
L.A. Flour Prices ($ / cwt)
20.00
K.C. Nearby Futures ($/bu)
6.0000
15.00
4.0000
10.00
5.00
0.00
2.0000
0.0000
9
0
1
2
3
4
5
6
7
8
9
0
1 2
3
4
5
6
7
8
-9
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-1
-1 -1
-9
-9
-9
-9
-9
-9
ep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep SepJan
S
3176532175432- 2003
02
01
06
05
04
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
12
Flour prices vs. Mpls Futures
Price History (1993-2012)
50.00
25.0000
45.00
40.00
20.0000
35.00
30.00
15.0000
Mpls Flour Price ($ / cwt)
Mpls Nearby Futures ($/bu)
25.00
20.00
10.0000
15.00
10.00
5.0000
5.00
0.00
0.0000
93 -94 -95 -96 -97 -98 -99 -00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12
nn
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja -Ja
7
5
4
3
2
7
6
5
4
2
1
7
6
01
07 06
05 03 02
01
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
13
Flour Prices vs. Mpls Wheat (2007)
6.0000
10.00
4.0000
5.00
2.0000
0.00
0.0000
D
ec
-0
7
Flour Prices ($/cwt)
Mpls Nearby Futures ($ / bu)
7-
-0
ov
-0
N
2-
5O
ct
7-
1Ju
n
ay
7
4M
6Ap
r-0
-0
7
ar
M
b0
Fe
2-
-0
7
2-
5Ja
n
7
15.00
7
8.0000
Se
p07
20.00
6Ju
l-0
7
3Au
g07
10.0000
-0
7
25.00
-0
7
12.0000
7
30.00
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
14
Part III – Basics Of Futures
Hedging
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
15
Hedging Flour Price Risk with
Kansas City Wheat Futures
Correlation between L.A. Flour Prices & K.C. Futures
is 99 % (sources KCBOT & Sosland Publications)
 Wheat Millers base local pricing for flour on L.A. cash
HRW market and Kansas City Wheat Futures
 Wheat Millers use Kansas City Wheat Futures to
hedge their input wheat costs as well
 Large Corporations (i.e. Safeway, Kroger, ADM,
ConAgra, Cargill) use hedging programs for
purchasing of many food commodities

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
16
Hedging Flour Price Risk with
Minneapolis Wheat Futures
Correlation between Mpls Spring Flour Prices &
Mpls Futures is 99 % (sources MGE & Sosland
Publications)
 Wheat Millers base local pricing for flour on Mpls
cash HRS market and Minneapolis Wheat Futures
 Wheat Millers use Minneapolis Wheat Futures to
hedge their input wheat costs as well
 Large Corporations (i.e. Safeway, Kroger, ADM,
ConAgra, Cargill) use hedging programs for
purchasing of many food commodities

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
17
Assessing Risk & Reward


Calculate Total Flour Usage per year, month, week
Convert Flour Usage per pound to
Wheat Usage per bushel
◦ Flour (lbs) / 0.76 = Gross Wheat Volume (lbs)
 Then calculate
Gross Wheat Volume (lbs) / 60 = Wheat Volume (bushels)
 Finally calculate
Wheat Volume (bushels) / 5000 = # KC Wheat Contracts

Consider Current Flour Supply Proposals & Prices
vs. Historical Flour Pricing and Wheat Futures
Prices
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
18
Part IV – Baker’s Pricing Options
(Patent Flour – HRW)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
19
Patent Wheat Flour Purchasing
Option 1 – Buy Wheat Flour @ Spot Market
 Option 2 – Buy Wheat Flour for Extended Coverage
 Option 3 – Buy Wheat Futures as Substitute
Purchase/Hedging Strategy for Wheat Flour
 Option 4 – Buy Wheat Futures Options as
Substitute Purchase/ Hedging Strategy for
Wheat Flour
 Option 5 - Combination of Wheat Futures &
Options as Flour Hedging Strategy

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
20
Option 1: Spot Market (2007)
Bakery in L.A. buys Wheat Flour from Miller
Supplier at spot prices every week based on current
market price (based on 250,000 cwts per year)
 Example of this option in 2007 would have been the
most expensive
 Published prices (as in slide # 11) shows an
increasing flour price through the duration of 2007
 Total Costs of Flour Purchases (2007)- $4,787,740.38

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
21
Option 2 : Forward Purchases
Bakery forward contracts flour prices with Miller
Supplier for extended period of time (i.e. 12
months)
 For example, Bakery & Flour Supplier agree to $
14.90/ cwt for daily deliveries for ALL of 2007, as
early January prices started at $ 14.90/ cwt
 In this example, total Flour Purchase Costs for
2007 are $3,725,000.00
 Savings in Flour Purchase Budget : $ 1,062,740.38
 Typically, Suppliers will NOT contract out 6-12
months ahead on sales with their bakery
customers

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
22
Option 3 : Hedging with Futures (a)



Bakery can decide to use KC Wheat Futures as
hedging strategy for flour purchases, while flour
purchases continue weekly as per Option 1
For example, Bakery decides to buy Futures
coverage in January for all of 2007 because of
bullish opinion
Purchases of total 110 ctrs of KC Futures on
1/5/2007
◦ KWH7 $ 4.8125/bu
◦ KWN7 $ 4.8625/bu
◦ KWZ7 $ 4.9950/ bu
KWK7
KWU7
$ 4.9150/ bu
$ 4.9200/bu
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
23
Option 3 : Hedging with Futures (b)




As Bakery makes Flour purchases in spot
market, they lift the KC Wheat Futures
hedge, thus offsetting higher costs in flour
with gain in Futures markets
Total costs for Flour Purchases 2007:
$ 4,787,740.38
Futures Hedge Offset : $ 910,641.24
Net Costs for Flour Purchases
$ 4,787,740.38
- $ 910,641.24
$ 3,877,099.14
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
24
Option 3: Hedging with Futures (c)
Please note that Futures contracts are at a
highly leveraged instrument, approximately
9-10 % of contract value. This margin does
fluctuate based on price volatility and
contract price.
 The benefit of hedging with futures is that
one is only required to deposit a portion of
the contract value.
 In today’s prices, 110 contracts KC futures in
this example is only $ 343,750 based on $ 3125
margin (deposit) per contract vs. total
contract value of
$ 3,833,500.00

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
25
Option 4 – Hedging with Options




An Options contract is one between a buyer and a
seller that gives the buyer of the option the right, but
not the obligation, to buy or to sell futures
Example, Bakery is bullish wheat futures and believes
that KWN futures will rise to $ 7.00/ bu, while
currently KWN is $ 5.19 ½ / bu (3/4/10).
Bakery buys $ 7.00 / bu CALL at $ 0.04/bu, option
If KWN reaches $ 7, Buyer own futures at fraction
of the cost. If KWN does not, then option buyer
forfeits the cost of $ 7 call (i.e. $ 0.04/ bu) and buys
cheaper futures at the market
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
26
Option 5 – Futures & Options
Combined Strategy
Processors & Manufacturers use a combination
of Futures & Options strategies to hedge their
purchases and sales
 For example, Short-term volatility can lead to
the utilization of short-term bearish strategy of
options with long-term bullish futures hedging
strategy or vice versa
 A combination of Futures & Options strategy
allows for the hedging entity to minimize cost
exposure in such volatile commodity markets

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
27
Part V – Baker’s Pricing Options
(Spring Flour – HRS)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
28
Spring Flour Purchasing Program
Option 1 – Buy Wheat Flour @ Spot Market
Option 2 – Buy Wheat Flour for Extended Coverage
Option 3 – Buy Wheat Futures as Substitute
Purchase/Hedging Strategy for Wheat Flour
 Option 4 – Buy Wheat Futures Options as
Substitute Purchase/ Hedging Strategy for
Wheat Flour
 Option 5 - Combination of Wheat Futures &
Options as Flour Hedging Strategy



PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
29
Option 1 – Spot Market (2007)




Bakery in Minneapolis buys Wheat Flour from
Miller Supplier at spot prices every week based on
current market price (based on 250,000 cwts per
year)
Example of this option in 2007 would have been the
most expensive
Published prices (as in slide # 12) shows an
increasing flour price through the duration of 2007
Total Costs of Flour Purchases (2007)- $ 4,154,567.31
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
30
Option 2: Forward Purchases





Bakery forward contracts flour prices with Miller
Supplier for extended period of time (i.e. 12
months)
For example, Bakery & Flour Supplier agree to $
12.05/ cwt for daily deliveries for ALL of 2007, as
early January prices started at $ 12.05/ cwt
In this example, total Flour Purchase Costs for
2007 are $3,012,500.00
Savings in Flour Purchase Budget : $ 1,142,067.31
Typically, Suppliers will NOT contract out 6-12
months ahead on sales with their bakery
customers
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
31
Option 3: Hedging with Futures (a)



Bakery can decide to use Mpls Wheat Futures as
hedging strategy for flour purchases, while flour
purchases continue weekly as per Option 1
For example, Bakery decides to buy Futures
coverage in January for all of 2007 because of
bullish opinion
Purchases of total 110 ctrs of KC Futures on
1/5/2007
◦ MWH7 $ 4.87/bu
◦ MWN7 $ 4.95/bu
◦ MWZ7 $ 5.00/ bu
MWK7
MWU7
$ 5.03/ bu
$ 5.06 ½/ bu
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
32
Option 3: Hedging with Futures (b)
As Bakery makes Flour purchases in spot
market, they lift the Mpls Wheat Futures
hedge, thus offsetting higher costs in flour
with gain in Futures markets
 Total costs for Flour Purchases 2007: $
4,154,567.31
 Futures Hedge Offset : $ 910,641.24
 Net Costs for Flour Purchases

$ 4,787,740.38
- $ 982,229.46
$ 3,805,510.92
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
33
Option 3: Hedging with Futures (c)



Please note that Futures contracts are a
highly leveraged instrument, approximately
9-10 % of contract value. This margin does
fluctuate based on price volatility and
contract price.
The benefit of hedging with futures is that
one is only required to deposit a portion of
the contract value.
In today’s prices, 110 contracts Mpls futures
in this example is only $ 314,600 based on $
2860 margin (deposit) per contract vs. total
contract value of $ 4,504,500.00
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
34
Option 4: Hedging with Options





An Options contract is one between a buyer and a seller
that gives the buyer of the option the right, but not the
obligation, to buy or to sell futures
Since Minneapolis Options market is relatively illiquid,
we like to use either K.C. Wheat options and/ or Chicago
Wheat options.
Example, Bakery is bullish wheat futures and believes that
KWN futures will rise to $ 7.00/ bu, while currently KWN
is $ 5.19 ½ / bu (3/4/10).
Bakery buys $ 7.00 / bu CALL at $ 0.04/bu, option
If KWN reaches $ 7, Buyer own futures at fraction of the
cost. If KWN does not, then option buyer forfeits the cost
of $ 7 call (i.e. $ 0.04/ bu) and buys cheaper futures at the
market
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
35
Option 5: Futures & Options
Combined Strategy
Processors & Manufacturers use a
combination of Futures & Options strategies
to hedge their purchases and sales
 For example, Short-term volatility can lead to
the utilization of short-term bearish strategy
of options with long-term bullish futures
hedging strategy or vice versa
 A combination of Futures & Options strategy
allows for the hedging entity to minimize cost
exposure in such volatile commodity markets

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
36
Part VI – Price Forecasting
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
37
2012 Strategy : Risk Management

As we look at both futures markets below (02/13/2012 closes):
◦
◦
◦
◦
◦
KWH
KWK
KWN
KWU
KWZ
$ 6.84 ¼
$ 6.89 ¾
$ 6.97 ¾
$ 7.10 ¼
$ 7.28 ¾
/bu
/bu
/bu
/bu
/bu
MWH
MWK
MWN
MWU
MWZ
$ 8.15 ½ /bu
$ 8.06 ¾ /bu
$ 7.96 /bu
$ 7.70 /bu
$ 7.74 ½ /bu
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
38
Price Forecasting



Apart from price analysis for HIGH GRAIN costs
such as grains and related products, our job is also to
help with forecasting and hedge analysis for other
food input products, such as soybean oil, sugar,
cocoa.
Also keep in mind HIGH ENERGY cost constraints.
We can help with analysis on non-food products that
affect the bottom line, such as energy lines like
natural gas, gasoline and heating oil (related to
diesel fuel).
We are here to help you to minimize costs and
maximize profits using futures & options as hedging
tools!
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
39
Part VII – About Our Company
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
40
Hedging Program Contacts


Please feel free to ask any questions or
comments at this time.
You can always reach me at the following:
Lido Isle Advisors
369 San Miguel Drive # 300
Newport Beach, 92660
Email: [email protected]
Telephone: 949-461-1139
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
41
CEO Anthony Lazzara
has been featured in...
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
42
The Lido Isle Advisors Advantage
• Proprietary CTA Selection Methodology
• Full Transparency with Daily Position
Statements
• No Lock-Ups of Client Capital
• Managed Futures Experts, Customizing
the Investment To Each Client
• Extensive Industry Network
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
43
About the Presenter
Edgard Cabanillas has been trading futures and commodities
for over 18 years. He is an Associated Person with Lido Isle
Advisors. Starting in 1994, he began his trading career with a
major grain exporting company until 2001.
 Subsequently, he started brokering cash grain and other ag
markets in the U.S. and overseas. At the time, he focused on
cash grain trading in wheat, corn, and soybean complex and
futures spread trading.
 Since his start as a Series 3 broker in January 2010, Mr.
Cabanillas has incorporated his passion for spread trading in
the grain and ag markets into other futures markets such as
financials, currencies, softs, energies and metals. With a view
to risk and diversification, he offers his clients specific spread
trading strategies that help complement their commodity
trading portfolios. He also works closely with producers and
grain related companies on their commodity hedging needs.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
44
Leadership
Anthony Lazzara: Began career on floor of the Chicago Board of Trade in 1990, and spent 10
years as a trader and floor broker for high-profile financial institutions like Merrill Lynch,
Deutsche Bank and Salomon Brothers.During this time he executed as much as $100 billion in
interest rate futures contracts annually.
- Mr. Lazzara is a member of the Chicago Mercantile Exchange.
- Mr. Lazzara brings more than 20 years of trading experience in fixed income, equities, oil
products, energies, and grains markets.
Jason Rotman: Mr. Rotman is a graduate of Princeton University, where he majored in
Psychology and played varsity football for 4 years.
- He began his career in 2002 in Chicago, trading futures on the Eurostoxx index for Resource
Trading Group. He then traded US government bond futures at Refco Trading Services,
becoming one of the largest volume 10yr Note traders of the firm.
- He has created a proprietary measurement formula to evaluate CTAs which is an
additional unique element to working with Lido Isle Advisors.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
45
Types of Accounts We Service
• Individual
• Self-Directed IRAs
• Trusts
• Corporate (LLC, LP)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES
AND OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
46
Contact us to Inquire or
Open Your Account
www.lidoisleadvisors.com
phone: 949-461-1139
email: [email protected]
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS. TRADING COMMODITY FUTURES AND
OPTIONS IS SPECULATIVE, INVOLVES RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS.
47
Download
Related flashcards

Derivatives (finance)

13 cards

Commodity exchanges

14 cards

16th-century merchants

24 cards

18th-century merchants

17 cards

Create Flashcards