In 2006, ICE and CME natural gas markets imploded when an elephant trader lost $4.4 billion in 3 weeks.
This is the story of Amaranth Advisors
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Amaranth was a large successful multi-strategy hedge fund. In 2005, the fund and star trader Brian Hunter made $1 billion betting on natural gas futures.pic.twitter.com/uPIr6GXGVQ
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In mid-2006, Hunter’s research led him to believe that nat gas prices were set to skyrocket as winter approached:pic.twitter.com/dtLpq3lBl9
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Amaranth built massive long winter positions in nat gas on both ICE and CME. At one point, Amaranth’s net positions represented 50% - 100%+ of the market:pic.twitter.com/uMJSnvlLDf
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CME, seeing the risk, repeatedly told Amaranth to cut their position size – they were just too big. In response, Amaranth moved their positions from CME onto ICE, which at the time was not a regulated exchange, and not under the full purview of the CFTC.
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In September, nat gas prices surprisingly dropped as supply outpaced expectations. Amaranth’s positions were too big to exit, and the fund took a bloodbath:pic.twitter.com/3Si4mbco9w
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In late September after $4 billion+ of losses, Amaranth sold their gas positions to Citadel and JP Morgan and liquidated the fund. The loss remains one of the biggest in history. Full timeline can be seen below:pic.twitter.com/WmEthzG72H
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Sources: https://poseidon01.ssrn.com/delivery.php?ID=235082105031025068098085025027114076015049061009035090102084091090029000121070086022055098003047041017008075098107001075108001119049011087044101069064072101010067028033018101064080030025064075122121095125064003030071079069097121112028105120111013120&EXT=pdf … https://www.hsgac.senate.gov/imo/media/doc/REPORTExcessiveSpeculationintheNaturalGasMarket.pdf …
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