Scribd Logo
Upload

Welcome to Scribd!

  • 293 views

    Amaranth Advisors

    Uploaded by

    Rani Zahr
    Amaranth Advisors was a multi-strategy hedge fund that grew to $9.2 billion by focusing on natural gas futures trading under trader Brian Hunter. In September 2006, Amaranth collapsed after losing over $6 billion in a month from large bets on the natural gas futures spread that moved against them due to unseasonably warm weather. The losses resulted in Amaranth liquidating over half its assets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd

    Amaranth Advisors

    Uploaded by

    Rani Zahr
    293 views15 pages
    Amaranth Advisors was a multi-strategy hedge fund that grew to $9.2 billion by focusing on natural gas futures trading under trader Brian Hunter. In September 2006, Amaranth collapsed after losing over $6 billion in a month from large bets on the natural gas futures spread that moved against them due to unseasonably warm weather. The losses resulted in Amaranth liquidating over half its assets.

    Original Title

    Amaranth Advisors(1)

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Amaranth Advisors was a multi-strategy hedge fund that grew to $9.2 billion by focusing on natural gas futures trading under trader Brian Hunter. In September 2006, Amaranth collapsed after losing over $6 billion in a month from large bets on the natural gas futures spread that moved against them due to unseasonably warm weather. The losses resulted in Amaranth liquidating over half its assets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    293 views15 pages

    Amaranth Advisors

    Uploaded by

    Rani Zahr
    Amaranth Advisors was a multi-strategy hedge fund that grew to $9.2 billion by focusing on natural gas futures trading under trader Brian Hunter. In September 2006, Amaranth collapsed after losing over $6 billion in a month from large bets on the natural gas futures spread that moved against them due to unseasonably warm weather. The losses resulted in Amaranth liquidating over half its assets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15
    At a glance
    Powered by AI
    Amaranth Advisors was a multi-strategy hedge fund that collapsed in September 2006 after losing over $6 billion due to risky bets on natural gas futures by head trader Brian Hunter.

    Amaranth Advisors collapsed due to risky bets on natural gas futures by head trader Brian Hunter. He took on large concentrated positions in natural gas and suffered major losses when natural gas prices moved against his positions.

    Amaranth Advisors used a spread trading strategy where they took long positions in winter natural gas futures and short positions in summer futures, betting that the price difference (spread) between the two contracts would remain steady. However, the spread moved significantly against their positions.

    Amaranth Advisors: Burning Six

    Billion in Thirty Days


    By
    Nadine Mohanna
    Rani Zahr

    Amaranth Advisors

    Multi-strategy hedge fund


    Founded in 2000 with $600 million under management
    Grew to over $9.2 billion by mid 2006
    Annualized return of 15%
    September collapse:
    Lost more than 50% of assets under management totaling $6.6
    billion

    Brian Hunter
    Young natural gas speculator
    Former head of Deutsche Banks natural gas desk.
    Fired after losing $50 million one month loss

    Made $75 million in 2005


    Named co-head of the energy trading desk at
    Amaranth.
    Took Amaranth from a multi-strategy fund to a heavy
    concentration on natural gas feature market (30%
    through 2005)
    Controlled more than 60% of their assets on natural
    gas in 2006

    Natural Gas
    Steady continuous production
    Seasonal Demand
    Long-short spread

    3/30/07

    3/29/07

    3/28/07

    3/27/07

    3/26/07

    3/25/07

    3/24/07

    3/23/07

    3/22/07

    3/21/07

    3/20/07

    3/19/07

    3/18/07

    3/17/07

    3/16/07

    3/15/07

    3/14/07

    3/13/07

    3/12/07

    3/11/07

    3/10/07

    3/9/07

    3/8/07

    3/7/07

    3/6/07

    3/5/07

    3/4/07

    3/3/07

    3/2/07

    3/1/07

    Betting the spread


    Betting the Spread

    $13

    $12

    $11

    $10

    $9
    Spot Price Winter Long

    $8
    Spot Price Summer Short

    $7

    $6

    $5

    3/30/07

    3/29/07

    3/28/07

    3/27/07

    3/26/07

    3/25/07

    3/24/07

    3/23/07

    3/22/07

    3/21/07

    3/20/07

    3/19/07

    3/18/07

    3/17/07

    3/16/07

    3/15/07

    3/14/07

    3/13/07

    3/12/07

    3/11/07

    3/10/07

    3/9/07

    3/8/07

    3/7/07

    3/6/07

    3/5/07

    3/4/07

    3/3/07

    3/2/07

    3/1/07

    Long-Short Gain 2

    13

    12

    11

    10

    9
    Spot Price Winter Long

    Spot Price Summer Short

    3/30/07

    3/29/07

    3/28/07

    3/27/07

    3/26/07

    3/25/07

    3/24/07

    3/23/07

    3/22/07

    3/21/07

    3/20/07

    3/19/07

    3/18/07

    3/17/07

    3/16/07

    3/15/07

    3/14/07

    3/13/07

    3/12/07

    3/11/07

    3/10/07

    3/9/07

    3/8/07

    3/7/07

    3/6/07

    3/5/07

    3/4/07

    3/3/07

    3/2/07

    3/1/07

    Long-Short Gain 3

    $11

    $10

    $9

    $8
    Spot Price Winter Long

    Spot Price Summer Short

    $7

    $6

    $5

    3/30/07

    3/29/07

    3/28/07

    3/27/07

    3/26/07

    3/25/07

    3/24/07

    3/23/07

    3/22/07

    3/21/07

    3/20/07

    3/19/07

    3/18/07

    3/17/07

    3/16/07

    3/15/07

    3/14/07

    3/13/07

    3/12/07

    3/11/07

    3/10/07

    3/9/07

    3/8/07

    3/7/07

    3/6/07

    3/5/07

    3/4/07

    3/3/07

    3/2/07

    3/1/07

    Long-Short Gain 4

    $11

    $10

    $9

    $8

    $7

    $6
    Spot Price Winter Long

    Spot Price Summer Short

    $5

    $4

    $3

    $2

    3/30/07

    3/29/07

    3/28/07

    3/27/07

    3/26/07

    3/25/07

    3/24/07

    3/23/07

    3/22/07

    3/21/07

    3/20/07

    3/19/07

    3/18/07

    3/17/07

    3/16/07

    3/15/07

    3/14/07

    3/13/07

    3/12/07

    3/11/07

    3/10/07

    3/9/07

    3/8/07

    3/7/07

    3/6/07

    3/5/07

    3/4/07

    3/3/07

    3/2/07

    3/1/07

    Amaranth Disaster
    Amaranth Disaster

    $11

    $11

    $10

    $10
    Spot Price Winter Long

    Spot Price Summer Short

    $9

    $9

    $8

    Amaranth Natural Gas Strategy


    Date

    Spread Change Loss/Contract Total Contracts

    Daily Loss

    9/8/06

    0.179

    17900

    68,400 $1,224,360,000

    9/11/06

    0.076

    7600

    35000

    $266,000,000

    9/12/06

    0.046

    4600

    28000

    $128,800,000

    9/13/06

    0.059

    5900

    30000

    $177,000,000

    9/14/06

    0.135

    13500

    41,400

    $558,900,000

    9/15/06

    0.381

    38100

    15000

    $571,500,000

    9/18/06

    0.392

    39200

    22000

    $862,400,000

    9/19/06

    0.057

    5700

    17500

    $99,750,000

    9/20/06

    0.122

    12200

    8000

    $97,600,000

    Trading Loss

    $3,986,310,000

    Liquidation to JPM, Citadel, & ML

    $2,400,000,000

    Total Losses

    $6,386,310,000

    Calculation:
    Calculate the spread loss (Today's close - Previous days close)
    This is the spread loss per 1 million BTU's
    Multiply the spread loss by 10,000
    Each contract is for 10,000 mmBTU's

    Assume the spread Bet Assumption was that a 1 cent change in


    spread would create a loss or gain of $10 depending on the
    direction of movement of the Natural Gas Widow Maker spread
    Calculated September 14 then made projections for the
    remainder months
    ($13,500 loss per contract)*(X Contracts) = $560,000,000
    X = 41,400 contracts assuming each 1 cent change affected the futures
    price

    Notes:

    September 8th has 6 days of losses associated with it


    Naked Shorts Hypothesis: We believe Amaranth was speculating
    on naked shorts and had to find a major player that has access
    to many stocks therefore the liquidation of the energy
    department to JPM, Citadel, & ML

    Early warning signs


    Blackstone group pulled out
    Deutsche bank firing Hunter
    subsequent law suits

    lost 70% of Deutsche natural gas profit

    Conclusion

    Lack of diversification
    High leveraging
    Outlier events
    Liquidity risk
    Naked Shorts cause of liquidation to JPM,
    Citadel, and ML

    Spread position different than arbitrage


    position

    THANK YOU

    You might also like