I am studying the commidity forward section for the CFA exam, checking out a short video lecture about natural gas forward curve. The instructor mentioned the Amaranth Advisors natural gas trading failure in September 2006. I typed in the hedge fund name and a power point presentation case study on the hedge fund poped up, done by Ludwig Chincarini, who is a CFA charterholder and has a Ph.D. degree.
According to the case study, Amaranth Advisors's attempted to profit from the long winter, short non-winter natural gas futures contracts trading strategy. This strategy seems to work for years prior to 2006. The energy desk trader took on a bet that's too risky and when the market go south the entire firm was dragged down -- the natural gas bet causes the firm to lose almost 50% of its NAV which is about $5 billion.
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