Trade hurricanes not gas
Ok hindsight is obviously 20/20 but from reports coming out over the past couple days it would seem that the reason that Amaranth has lost billions of dollars (yes billions) in the natural gas market is because their traders decided to make the same bet that last year made them hundreds of millions. ie That supply disruptions caused by hurricanes in the Gulf of Mexico would cause the price of gas and certain calendar spreads to soar.
Aside from it being a crowded trade – who wanted to be short heading into hurricane season this year? – this would seem to be a good example of bad basis risk. If the goal was to speculate on the number and strength of hurricanes in the Gulf, there should be a better way.
Of course then again if you look at it that way, you might be loathe to pay a manager 2-and-20+ , would be easier and cheaper just to place the bet yourself.
