Giant Trading Losses – What not to do? Chapter 3 – The widow maker arbitrage on Natural Gas / Amaranth Advisors

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Background: Natural gas is a highly volatile & inflammable fuel. Natural gas futures are even more volatile to trade. It is usual for NG to move 10% in either direction in matter of minutes. You don’t get “widow maker” as a moniker for nothing. However, the higher volatility always provides greater opportunities for making profits. Making it alluring for adventurous traders. Let’s examine the Amaranth disaster. Source: Fundamentally, this trade too was a spread bet like Aas trade we saw in chapter 2. Specifically, called as “calendar spread” i.e. instead of betting against 2 different instruments, one can use…...

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Veerasenthil Athiban Former forecasting & optimization specialist (18 years). Ex Enterprise technology sales (10 years). Founder & MD of Anar Capital specialising in global arbitrage using AI.