Oil – Asset-backed trading

Short description

Dynamically hedging of oil refining capacity.

Capacity

You act in the role of a (crude and products) trader at an oil company.
As an asset & portfolio trader you are responsible to hedge the exposure arising from the refinery.
You act in the capacity of aggressor.

Task

Your task is to setup a hedge (sell the crack spread (futures spread) short) at an attractive crack spread level. Thereafter, liquidate the hedge (buy back the crack spread) when the spread has decreased significantly. This way, sequentially, a new hedge can be setup (sell short a crack spread (futures spread)), preferably (again) at an attractive crack spread level. Thereafter the spread can be liquidated. And this process can be repeated over and over.

Note: Ideally, the liquidation of the crack spread position takes place when the spread has gone down to zero, or even negative. This, however, may not happen (soon). Alternatively, Delta-hedging is applied.

Objective

The aim of this simulation is manifold, amongst others to learn about dynamic hedging and to master timing.

Conclusion

At the end of the simulation, analyse your performance. See what you have done, at which price levels, and when you have done this and whether it could have been optimised. This way, you learn and optimise your competences.

 

Our Labels

Entrima and Market Abuse Centre (MAC) are the two labels we operate to provide learning services for professionals in the commodity & energy markets.
 
 


Content & Context

Entrima’s mission is to transfer knowledge regarding the business, controls & operations of parties in (or relating to) the wholesale markets.

www.entrima.org


Conduct & Culture

MAC’s mission is to facilitate the prevention & detection of misconduct and to foster proper behaviour in organisations. This is achieved via training, periodic updates and increased awareness.

www.marketabusecentre.com