Thursday, June 25, 2020

Commodities The Goldman Sachs Way

This piece is a bit of a mess as it appears to have started life at ValueWalk and got picked up by ZeroHedge without much editing but our readers are probably accustomed to rambling and in this case the persistent will be rewarded.
From ZeroHedge: 

Goldman FICC Short Gamma Re-Loads Energy Trading: Part II
One firm rakes more money trading energy in three-months then this entire industry 90th percentile in one year, it’s Goldman Sachs. For us Goldman FICC unmitigated success in the energy is the ultimate expression of the systemic dollar-at-risk entrenched in the long-gamma commodity firms and trade finance world. 

Q1 2020 hedge fund letters, conferences and more
short gamma
Goldman FICC
Goldman's Model

Goldman banks/deals with the solid counterparty, manage their risks, and then trade the insights 1/4 sec ahead of the earnings or physical in the finish line. Goldman uses few or no working-capital. Goldman commodity traders raked in $1 billion after positioning for april's oil market collapse from Simon Jacques What’s the DV01(dollar value of one basis point value (BPV) specific to the instrument or position) on the losers… This is what David Solomon wants to know when he calls. Maybe he will trade against you in a Golmanesque way on the Paper, Credit or a Physical risk print. The Brent did at more than six 3σ events in Q1-2020 according to Morgan Stanley Research (one-day move relative to 3m implied vol of the previous day) that’s more than FY16 to 2019 combined. Level 3 assets grew by 36% during Q1 at Goldman, while volatility increased, total FICC trading activity performed at +$2.97B. Goldman FICC has reloaded energy trading short-gamma realizing a $1B P&L.
In Natural Gas GS is acting in total symbiosis with the counterparty, manage the risk locking steadier revenues through swaps and other contracts for X, Finally, LNG trading market-making overlaps into Goldman’s traditional FICC <–Sales–> Clients loop, J Aron already warehouses the basis exposure meaning that the bank already takes the risk in-house (some of), continuing to let it grow as opposed to laying off the ‘all-in’ risk. Goldman trades this risk.
 Other Trade Models
Trade finance/CTF...

You really do have to click through to either ZH or ValueWalk to get the whole thing. There are a half-dozen slides that tell parts of the story as well as more narrative.