# Amaranth Advisors

> In September 2006, hedge fund Amaranth Advisors lost about $6 billion on natural gas futures spreads. Learn the trades, why they failed and the risk lessons.

Source: https://learn.tradelabsai.com/history/amaranth-advisors/  
Track: Market History · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Amaranth Advisors", https://learn.tradelabsai.com/history/amaranth-advisors/

Amaranth Advisors was a multi strategy hedge fund that, by 2006, managed about $9 billion. Much of its profit came from energy trading led by Brian Hunter, a natural gas trader based in Calgary. In September 2006, natural gas spreads moved sharply against his enormous positions, and Amaranth lost roughly $6 billion within weeks, one of the largest hedge fund collapses in history. Unlike LTCM, the failure did not threaten the wider system, but it remains a classic case study in concentration, liquidity and the danger of a single trader dominating a firm's risk.

## The trades

Hunter's main positions were calendar spreads in natural gas futures, bets on the price difference between contracts expiring in different months. See [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/).

| Position | Bet |
|---|---|
| Long winter contracts (such as March 2007) | Winter gas would stay expensive due to heating demand |
| Short spring contracts (such as April 2007) | Spring gas would be cheaper as demand falls |
| Net effect | The March to April spread would stay wide or widen |

Spreads like this widened sharply in 2005 after Hurricanes Katrina and Rita disrupted supply, and Hunter's similar bets had produced large profits. In 2006, he expected another tight winter.

## What went wrong

| Factor | Explanation |
|---|---|
| Mild conditions | No major hurricane disruptions and high storage levels reduced fears of winter shortages. See [Storage and Inventories](https://learn.tradelabsai.com/commodities/storage-and-inventories/) |
| Spread collapse | The winter to spring spreads narrowed sharply |
| Concentration | Energy positions dominated the fund's risk. See [Concentration Risk](https://learn.tradelabsai.com/risk/concentration-risk/) |
| Size | Amaranth held a very large share of open interest in some contracts, making exit difficult. See [Open Interest](https://learn.tradelabsai.com/markets/open-interest/) |
| Liquidity | Selling such large positions pushed prices further against the fund. See [Liquidity Risk](https://learn.tradelabsai.com/portfolio/liquidity-risk/) |
| Leverage | Futures margin allowed huge exposure relative to capital |

**Example: How a spread trade loses billions**
Suppose a fund is long 50,000 March contracts and short 50,000 April contracts. Each natural gas futures contract covers 10,000 million British thermal units, so a $1 change in the spread per mmBtu is worth $10,000 per contract pair. If the March to April spread narrows from $2.50 to $0.60, a fall of $1.90, the loss is $1.90 times $10,000 times 50,000, or $950 million. Amaranth's actual positions were spread across many months and instruments, but this shows how spread trades, often thought of as lower risk than outright bets, can produce enormous losses at scale. See [Futures Spreads Explained](https://learn.tradelabsai.com/futures/futures-spreads-explained/).

## The collapse

By mid September 2006, losses had reached several billion dollars. Amaranth sold its energy portfolio to JPMorgan and the hedge fund Citadel at a steep discount, and the fund began winding down. Investors, including pension funds, lost heavily.

## Regulatory aftermath

The CFTC and the Federal Energy Regulatory Commission later brought cases related to Amaranth's trading, alleging attempted manipulation of natural gas settlement prices. A US Senate investigation concluded that Amaranth's positions were so large they had influenced prices and that trading on less regulated electronic venues allowed it to avoid exchange position limits. The case contributed to calls for stronger position limits in energy markets. See [Position Limits and Regulatory Reporting](https://learn.tradelabsai.com/industry/position-limits/).

## Lessons

1. **Spread trades are not automatically safe;** size and leverage matter.
2. **One trader or strategy dominating risk** is a concentration problem for any firm.
3. **Being a large share of a market** means you cannot exit quickly.
4. **Past success can lead to larger bets** just before conditions change. See [Overconfidence](https://learn.tradelabsai.com/psychology/overconfidence/).
5. **Risk limits must apply to star performers too.** See [Risk, Position, Loss and Drawdown Limits](https://learn.tradelabsai.com/portfolio/risk-limits/).

## Frequently asked questions

### What happened to Amaranth Advisors?

The hedge fund lost about $6 billion in September 2006 on natural gas futures spreads and was wound down.

### Who was Brian Hunter?

Amaranth's lead natural gas trader, whose large calendar spread positions produced big profits in 2005 and the fund's collapse in 2006.

### Why did Amaranth's trades fail?

Winter to spring natural gas spreads narrowed sharply amid high storage and calm weather, and the fund's huge positions could not be exited without large losses.

Next, learn about a more recent leverage blowup in [Archegos Capital](https://learn.tradelabsai.com/history/archegos-capital/).

## Continue learning

- Next lesson: [Archegos Capital](https://learn.tradelabsai.com/history/archegos-capital/)
- Previous lesson: [The Fall of Barings Bank](https://learn.tradelabsai.com/history/the-fall-of-barings-bank/)
- Related: [The Fall of Barings Bank](https://learn.tradelabsai.com/history/the-fall-of-barings-bank/): In 1995 Nick Leeson's hidden losses of £827 million destroyed Barings, Britain's oldest merchant bank. Learn how it happened and the control failures behind it.
- Related: [Natural Gas](https://learn.tradelabsai.com/commodities/natural-gas/): Natural gas prices are driven by weather, storage, production and LNG exports. Learn Henry Hub futures, the storage report, seasonality and why gas is so volatile.
- Related: [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/): A futures calendar spread buys one contract month and sells another. Learn bull and bear spreads, what moves them, seasonality and a worked crude oil example.
- Related: [Concentration Risk](https://learn.tradelabsai.com/risk/concentration-risk/): Concentration risk is the danger of having too much exposure to one asset, sector or idea. Learn how it hides in portfolios, how to measure it and how to limit it.
- Related: [Liquidity Risk](https://learn.tradelabsai.com/portfolio/liquidity-risk/): Liquidity risk is the danger of being unable to trade quickly at a fair price, or running short of cash. Learn its two types, how to measure it and controls.
- Related: [Position Limits and Regulatory Reporting](https://learn.tradelabsai.com/industry/position-limits/): Regulators cap some positions and require large holdings to be reported. Learn futures position limits, 13F, 13D and 13G filings and large trader rules.