Quote from Comanche:
Hearing a rumor from several sources that another large hedge fund made the wrong bet in natty. These guys piled on length from a much higher price (>8.30 avg jan) and have ridden the position down and are now piling on more to avg down. This explains the strength of the last 2 sessions and the whole position is now rumored to hinge on tomorrows eia storage report and a return of cold forecasts. If the report is anything but above expectations, this thing may drop hard on the large liquidation.
this is the deja vu of the amaranth strategy, buy it well over fair value and hold it against bearish fundamentals, defend it by adding more and pray to the weather gods. as they say in vegas, good luck!
Quote from Copernicus:
where is the hedge in these positions, these guys are hiding under "hedge fund" name umbrella while pilling on huge one way positions cowboy style..
Quote from eugenie98:
I do read the free stuff on NGI and the ticker on Bentek, and I have tried the NGI free subscription, it's decent but I don't trade enough to pay the thousands of dollars per year to subscribe in full.
Do you have the "Energy" Trade the News subscription or the regular TTN subscription?
Quote from eugenie98:
I think the hedge lies in that if the fund explodes the partners can bailout and join another fund.
Actually I always thought the hedge referred to the fact that the first hedge funds took inflationary hedging trading strategies, such as buying gold/silver, that mutual funds could not execute, and not that they actually hedged their trades. I'm not sure though.
Quote from eugenie98:
Thinking about the Amaranth spread trade, it's not really any less risky if you use full margin, since spread trades have only a $2300 per NG spread maintenance margin requirement versus $10700 per contract for a one sided trade, so you can increase your exposure five times over with the same amount of capital. So a $1 change in the spread would be equivalent to a $5 change in the underlying (if doing a one sided trade). Additionally, trading the same amount of capital via a spread position would require about 10 times as many contracts as a one sided bet, and if you do that with far out contracts as in Hunter's case you have a big arse liquidity problem.
In Brian Hunter's case I think there was a $1.20 -$2 decrease in the spread between March and April 2007 (March dropped closer to April's price, from March being +$2.40 above April to $1.20), so I guess that highlights how he was screwed, that's like a $6-$10 loss in a straight one sided trade.
March has actually crossed under April now so the spread is going the other way, April is more expensive than March, whereas Hunter was betting March would remain more expensive than April and become even more expensive than April as time wore on.