Amaranth
Introduction
Amaranth Advisors LLC was a hedge-fund established in the year 2000. It was headquartered at Greenwich, Connecticut in the US. It started off as a multi-strategy hedge fund. But, as time went by, it found itself being a natural gas trader as majority of its position was in this commodity only. Nick Maounis was the founder of this hedge-fund. In September 2006, Amaranth made losses of USD 6.6 billion. They were trading in both the regulated NYMEX (New York Mercantile Exchange), which is a commodity exchange and ICE (Inter-continental exchange) which is a unregulated OTC (Over-the-counter) market. They had huge trading positions in Natural gas futures, options and swaps, but primarily they were into contract futures trading …show more content…
There are some interesting trading strategies adopted by Amaranth which needs to be seen. Firstly, they adopted calendar spread strategy, which is buying and selling exchange futures frequently during the month and making a spread on it, i.e. buying and selling of natural gas futures of different maturities. Long winter, short non-winter spread was the basic strategy of Amaranth LLC. Historically, this strategy had been a profitable one according to data between 1995 and 2006. Which means the natural gas prices was predictable and there were profits made consistently. On September 2006, the natural gas prices started behaving differently. The pattern of the prices was such that it did not support Amaranths long winter, short non-winter strategy. And so began Amaranth’s journey of very high losses. At the end of the first week of September itself Amaranth was USD 696.9 million in the …show more content…
Natural gas happens to meet almost one fourth of the energy needs of the whole of US. It is therefore a very important source of energy for the US. The main use of Natural gas is for heating during the winter season. It is also widely used in air-conditioners in the summer season. The main consumption though is for powering the heating equipment to beat the winter of northern part of US. There has always been a shortage of supply of natural gas in the US market. The demand has always overshot available supply which affects prices directly. Also there has been a shortage of Storage space for natural gas. Which means the suppliers who had storage capacity used it to hedge by going short winter and going long summer and make profits from the difference. This was like a storage fees for
Introduction
Amaranth Advisors LLC was a hedge-fund established in the year 2000. It was headquartered at Greenwich, Connecticut in the US. It started off as a multi-strategy hedge fund. But, as time went by, it found itself being a natural gas trader as majority of its position was in this commodity only. Nick Maounis was the founder of this hedge-fund. In September 2006, Amaranth made losses of USD 6.6 billion. They were trading in both the regulated NYMEX (New York Mercantile Exchange), which is a commodity exchange and ICE (Inter-continental exchange) which is a unregulated OTC (Over-the-counter) market. They had huge trading positions in Natural gas futures, options and swaps, but primarily they were into contract futures trading …show more content…
There are some interesting trading strategies adopted by Amaranth which needs to be seen. Firstly, they adopted calendar spread strategy, which is buying and selling exchange futures frequently during the month and making a spread on it, i.e. buying and selling of natural gas futures of different maturities. Long winter, short non-winter spread was the basic strategy of Amaranth LLC. Historically, this strategy had been a profitable one according to data between 1995 and 2006. Which means the natural gas prices was predictable and there were profits made consistently. On September 2006, the natural gas prices started behaving differently. The pattern of the prices was such that it did not support Amaranths long winter, short non-winter strategy. And so began Amaranth’s journey of very high losses. At the end of the first week of September itself Amaranth was USD 696.9 million in the …show more content…
Natural gas happens to meet almost one fourth of the energy needs of the whole of US. It is therefore a very important source of energy for the US. The main use of Natural gas is for heating during the winter season. It is also widely used in air-conditioners in the summer season. The main consumption though is for powering the heating equipment to beat the winter of northern part of US. There has always been a shortage of supply of natural gas in the US market. The demand has always overshot available supply which affects prices directly. Also there has been a shortage of Storage space for natural gas. Which means the suppliers who had storage capacity used it to hedge by going short winter and going long summer and make profits from the difference. This was like a storage fees for