Gas Trade Burns Amaranth

Amaranth is a six-year-old multistrategy fund that specializes in energy trading, merger arbitrage, convertible bond trading and regular long/short trading.

Brian Hunter is the head of energy trading at Amaranth. The fund employs about 21 energy traders. The hedge fund gets its name from the Greek word amarantos, which means unfading.

Even before Amaranth released a copy of its investor letter Monday, Wall Street traders were buzzing that the hedge fund had lost a ton of money on natural gas trades.

The energy markets have been particularly volatile this year. Many funds have made a great deal of money riding the spike in oil prices to new heights this summer. But a number have been caught on the wrong side of trades, especially since energy prices have turned on a dime.

Most notably, MotherRock, a two-year-old fund that once had nearly $450 million in assets, shut its doors in late July after losing nearly half of its value. Led by former New York Mercantile Exchange President J. Robert "Bo" Collins, MotherRock also bet wrong on natural gas prices.

But unlike Amaranth, MotherRock got caught betting that natural gas would fall at a time that the commodity was soaring to new heights. The irony is that if MotherRock could have held on for another few months, it might have recovered much of its losses.

Last week, MotherRock told investors it was unlikely they would get back any money of the fund.