My name is Kris Woods; some of you might know me as the Director of Customer Success here at Omega Point.
Eastman Kodak: A Mixed Picture
Eastman Kodak (KODK) shares have whipsawed violently since the end of July, with investors making and losing millions in the company within the span of a week. This volatile price action was initially sparked by news that the company was being awarded a $765 million Defense Production Act loan from the US government to produce COVID-related pharmaceutical components. As a result, shares popped from $2 to $60 in a couple of days. The problem is that on July 27, a day before the public announcement, 1.6 million shares traded (~8x the stock’s ADV), and questions arose about potential insider-trading activity. In response, shares have given back a significant amount of those initial gains.
Step 1: Create a Research Topic
First, I select the security that I’d like to create a Smart Trade for, as well as the risk model that I’ll be using for the computation. Then I can name my new topic and write a brief description of what I’m trying to accomplish.
Step 2: Create a Smart Trade Experiment & Trade setup
Click on the Smart Trade option to get started and configure the trade parameters, including trade date (we arbitrarily used 7/1 for this example).
Step 3: Select Universe
Next up, we’ll decide on the universe that we want to pull our hedge constituents from. Using our security screener, we can use various filters to create a custom universe. This can include targeting factor exposures, or filtering names out based on sector or market cap. In this example, we used securities in the Russell 2000 with an ADV greater than $10mm.
When I hit “Next”, the Smart Trade will immediately be created, optimized, and then displayed on screen.
Step 4: Iterate on rules and finalize experiment
In this final step, the reference security (KODK), the constructed basket, and the combined L/S smart trade are displayed side-by-side for quick comparison, including seeing the impact of the basket on the specific risk of this trade. If I wanted to, I could further tweak the constraints - changing the size of the basket, concentration rules, and targeting specific factors.
US & Global Market Summary
US Market: 8/3/20 - 8/7/20
Please let me know if you’d like to schedule a 1x1 call to walk through Smart Trades, or if you have any feedback or suggestions related to this new feature.