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Jeremy Frommer, CEO of Hedge Fund LIVE Jeremy Frommer has 20 years of industry experience and is currently responsible for general management and leadership of the General Partner. Previously, Mr. Frommer was a Managing Director and Head of the Global Prime Services Group (“GPS”) at RBC Capital... More
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  • Strategy on Oil  0 comments
    Mar 7, 2011 8:55 AM

    HedgeFundLIVE.com – The recent events in the Middle East and North Africa have had an obvious effect on oil prices. The sudden jump in crude oil to above $100 levels is no surprise then. I was then a bit taken aback when Saudi Arabia said that it would increase its production volume. How is that supposed to ease the situation? From what i understand the quality of oil produced in Libya is way better than the type produced in Saudi. The pertinent question is, will there be more countries following the footsteps of Libya, and Bahrain?

    There are both positive and negative effects of the situations in these countries. The uprising in Libya and Bahrain is predominantly because citizens there want a better life. Could this then be a positive development in these countries? The flip side of the coin is that terrorists could have an opportunity here to abuse the situation and the oil prices could shoot through the roof till a stable government or regime is setup. How did our trading desk react to the volatility in the oil prices? For instance, today (3/4/11) the market should have performed better due to the unemployment rate falling below 9% first time since April 2009 and addition of 192K jobs in February. However, due to oil, the DOW ended lower (by 90 points) and S&P by 10 points.

    We picked a stock that was underperforming in the refinery sector. I had been watching WNR for couple of weeks and had run some simulations on the stock with some basic pairs trading strategy. It seemed to perform well. The problem with the stock was it is extremely volatile. The markets tanked on Tuesday (3/1/11) because of oil (again) and the news about inflation. The MQF desk decided to long this stock. Also the impending Q4 earnings report was only 2 days away. The stock kept going down and voila on March 3rd, (after the earnings announcement), it climbed and we could have made a little more money had we waited. Nevetheless, we did walk away with some gains.

    The lesson we learned from this trade was that we should have stuck to our Bollinger bands, and waited before we sold the stock. I think we could have done much better but our analysis completed later than expected and we lost an opportunity. As we get used to trading and continuously monitoring the markets, we will definitely choiurn up more strategies and try to stay ahead of the market.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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