Industry Updates

Hedging: The Price is Right (or is it?)

By Mohit Arora
Industry Updates

Our clients often ask us: how do you know when the price is right to hedge?

Many initial discussions should happen before this question is even asked, such as:

  • What are your strategic goals (for example, is there a cash flow, dividend, or drill plan you must protect)?
  • What problem (or potential problem) is your hedging trying to solve?
  • How will your hedging help you with your capital plan if your hedging is successful?

Answers to these questions drive the hedging or risk management plan. Now we can attempt to answer the initial question of price – is it at an appropriate level to hedge?

However, there are still several questions that need to be answered:

  • Let’s consider different tenors (time periods) on the forward curve. What is the market price of these tenors, and does it meet our goals for each tenor?
  • What hedge instruments should we select in each tenor where the price is acceptable? Swaps may well be sub-optimal!
  • What should we do if the price is unacceptable for certain tenors? Not hedging is not an option, and locking in a loss is decidedly unpalatable.

To make these decisions, we must have some context of value. This is where Mobius excels – data-informed decision-making. Our data, experience, analytics, fundamentals, and strategy combine to structure an optimal and efficient hedge strategy tailored to your goals.  

The basis for this decision-making and the selection of the derivative instruments is clearly articulated based on objective values (market attributes), which represent the quality of the hedge opportunity available to you.  

Hedge strategy recommendations always attempt to raise the expected value of your portfolio and the likelihood of meeting or exceeding your goals (at the strategy's inception) with a high degree of confidence.

In addition, by regularly monitoring your portfolio (including derivatives), we will know which sources of revenue are the riskiest at any point in time and how best to restructure the components – again, with the goal of raising the expected value of your portfolio.

Mohit Arora

Roles and Responsibilities

Mohit leads the Risk Analytics and Decision Sciences group at Mobius. His primary role is to help Mobius’ clients make quicker, data-informed, knowledge-based risk management decisions that have a high probability of success. He works closely with the Strategy team to develop optimal hedge strategies for clients, and to efficiently manage the client portfolio derivative exposure. Mohit developed M-RiskTM, Mobius’ proprietary risk evaluation process, as well as several statistical tools that quantify and rank the factors driving hedge attractiveness. Knowing where the risk sits, where the attractive hedge opportunities lie, coupled with the knowledge of client financial objectives, risk tolerance and capital plans, leads to efficient hedging with the highest probability of success for the client.

Prior Experience

Before joining Mobius in 2018, Mohit was heading the options desk at Koch Supply & Trading, where he was managing a proprietary crude and products option book. He was also responsible for managing the portfolio tail risk for the physical crude, products, fuel, NGL and Ags desks, which he accomplished using options. Prior to Koch, he was a portfolio manager at AAA Capital Management, managing an oil options trading strategy based both on fundamentals and quantitative analysis. He moved to AAA from Entergy Koch/Merrill Lynch Commodities, where he developed and traded proprietary natural gas option strategies. Additionally, he proposed trade structures and enhanced return/index strategies to hedge funds and was the primary hedge structurer for corporate clients (producers, consumers, and refiners).  

Professional Experience

  • Koch Supply and Trading, Head of Proprietary Options Desk
    AAA Capital Management, Portfolio Manager
    Merrill Lynch Commodities, Lead structurer for Producers/Consumers/Refiners and Hedge Funds
    Entergy Koch Trading, Natural Gas Option Trader
    Koch Hydrocarbons, Quantitative Analyst and NGL trader


  • Btech, Indian Institute of Technology, Kanpur
  • MS Aerospace Engineering, University of Michigan Ann Arbor
  • Dual PhD (Aerospace Engineering and Scientific Computing), University of Michigan, Ann Arbor

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