Analysis Of The Fall Of Amaranth Advisors Llc

3092 words - 13 pages

I. Dennis Heinz, Christian Lyles, Muhammad Williams
II. FIN 4533 Derivatives, Dr. Parvez Ahmed
III. Fall 2011
IV. Case #9. Amaranth Advisors LLC: Using Natural Gas Derivatives to Bet on the Weather
V. Relation to Course Topics
a. Futures, Forwards, Swaps and Options
b. Price Spreads
c. Derivative Trading Strategies
d. Arbitrage
VI. In studying this case we will attempt to describe a brief overview of Amaranth Advisors LLC, some information about the major players within this company, the causes of their collapse and the effects that were felt in the aftermath. This paper includes our opinion about what happened at Amaranth in 2006 as well as ...view middle of the document...

5% fee and a 20% incentive on gains above an investor’s high-water mark (Marthinsen, 272).
Early Years of Amaranth
During the years of 2001-2003 Amaranth had done quite well and earned returns of 29%, 15% and 21%, respectively. In 2002 they expanded into the energy sector by hiring former Enron trader Harry Arora, and allocated 2% of the fund’s assets into these new investments. About halfway through 2004, returns were lackluster at less than 4%. Not thrilled with the yearly performance they decided to allocate more of the fund’s assets on energy-related investments and hired a somewhat controversial trader by the name of Brian Hunter.
Hunter had built up a reputation as one of the top energy traders in the world. “Mr. Hunter personally generated $17 million in profit in 2001 and $52 million in 2002,” according to a complaint his attorney later brought in New York State Court. “By 2002, he pulled down more than $1.6 million in salary and bonus and began supervising the gas desk in 2003” (Bloomberg). His relationship ended rather abruptly and on a sour note with Deutsche Bank when he was accused of losing over $50 million in one week. Overall, his trades were believed to have generated $100 million dollars over his 3 years there. Nick Maounis had heard of Hunter and was looking to develop his own energy desk at Amaranth so he was hired to head up the new Amaranth venture. There were several funds interested in Hunter’s services at the time. “…Hunter told Maounis about the job offer by Cohen's $8.5-billion, Stamford, Connecticut-based hedge fund, the 23rd-largest by December 2005…Maounis countered by giving Hunter more trading authority”(New York Times).
Superior Success
As Amaranth’s convertible bond positions tumbled and equity positions remained stagnate it was clear that change was needed. Maounis looked to Hunter’s cutting edge techniques to increase returns. Hunter responded by earning over $200 million over his first 6 months on the job. He was a genius and was rewarded with a promotion to co-head of Amaranth’s commodities group.
Through strategies deployed by Hunter, Amaranth profited handsomely during Hurricanes Katrina and Rita. He speculated on the direction of natural gas prices based on weather patterns and bet that natural gas prices would hike at the change of seasons so he took long positions in natural gas futures. In 2005 after Katrina hit and the prices began to rise, Hunter helped Amaranth make a $1 billion gain and more resources and responsibilities were given to Hunter and his team.
As a result of his dramatic success, Maounis became very eager to keep Hunter with Amaranth and offered increases in compensation and trade authority. “By the end of 2005, Hunter was the highest-paid trader at Amaranth, the former employees say. Under his new deal, Hunter earned 15 percent of any profit he made, while most traders made an average of 10 percent” (Bloomberg). Hunter was reported to have made $75 million off the...

Other Essays Like Analysis of the Fall of Amaranth Advisors Llc

The Fall of Chillingworth Essay

1134 words - 5 pages intellectual looking. Instead he appears fierce and eager. "This unhappy person had effected such a transformation by devoting himself, for seven years, to the constant analysis of a heart full of torture." (166) Hester meets with Chillingworth to ask to reveal his true identity to Dimsdale. While Chillingworth is reciting his plans for revenge on Dimsdale he is overcome with the level of evil he has discovered in himself. "A mortal man, with

The Fall of the House of Usher

758 words - 4 pages The Fall of the House of Usher “ With an utter depression of soul which I can compare to no earthly sensation more properly than to the after-dream of the reveller upon opium- the bitter lapse into every day life- the hideous dropping off of the veil.” The story starts in a frightening and scary ambiance, as described in the quote mentioned above. The narrator talks about an environment, which is hard to distinguish if it is a reality or a

The Fall Of The House Of Usher

685 words - 3 pages In "The Fall of the House of Usher", Poe uses the life-like characteristics of the decaying house of Usher as a device for giving the house a supernatural atmosphere. This not only makes the story act upon the reader in a grabbing way, but it also creates an impression of fear, mystery and horror, typical for Poe’s literary works. For example, from the very beginning of the story, the reader can tell that there is something unusual

The Fall Of The Roman Empire

1301 words - 6 pages Several factors that contributed to the fall of Rome are the spread of Christianity, military decay, and economic factors. There was not one main event that occurred, and resulted with the collapse. There was a combination of many small issues that led up to this big event. There are numerous opinions on what actually caused the fall of Rome. Many people say that it was natural or inevitable. Others say that they are astounded that it lasted so

The Rise and Fall of Equality

1038 words - 5 pages THE RISE AND FALL OF EQUALITY December 9th, 1989 10:45 pm was a definitive moment in the course of modern politics, not just because it marks the dissolution of some wall, but because it marks the collapse of a political system which had dominated the better part of the 20th century. It marks the collapse of a philosophy which promised universal liberation, but soon turned into a doctrine of oppression. It marks the collapse of communism

The Rise and Fall of Structured Finance

3804 words - 16 pages accordingly when it comes to risk exposure. Securities that arise from pooling are severely affected by the economic status and face serious catastrophe when economy faces recession. References Barth, J. R. (2009). The rise and fall of the U.S. mortgage and credit markets: A comprehensive analysis of the market meltdown. Hoboken, N.J: Wiley. Bodenstedt, M., R, D., & Scheule, H. (2012). The path to impairment: do credit-rating agencies anticipate

Rise And Fall Of The Roman Empire

1300 words - 6 pages Everything is nothing in the End:Why Rome FellRome was a great empire at one time. It stretched across the world, and has no doubtShaped the world as we see it now. However, it eventually started to weaken and fall. There wasnot one sole reason that Rome to fall, but rather many varied ones. These reasonsincluded financial reason, loss of public support and outside invasions.At its height, Rome was a shining example for the whole world to follow

Rise and Fall of the Great Powers

3601 words - 15 pages best only a military superpower with a struggling economy. Unfortunately, all good things must come to an end, and this is no different for the United States of America. Due to a few main points, the United States had begun to fall from the world’s lone superpower, to a powerful nation in a relative decline. One main reason for America’s decline was the outcome of World War II. By being on the winning Allied Side and being the strongest

The Rise and Fall of Napoleon Bonaparte

2091 words - 9 pages The Rise and Fall of Napoleon Bonaparte The great French military leader Napoleon Bonaparte had initially capitalized on the changes of the French Revolution to improve the lives of French citizens. But over time, Napoleon's lust for power overcame his good economic, political and military accomplishments, and his transformation into a selfish dictator led to his fall. Napoleon was born on 15th August 1769 at

The Rise and Fall of Civilization

912 words - 4 pages that | | |might have alternative meanings. More importantly, you need to determine whether the author explicitly uses one of | | |those definitions. If she does not, and if one of those meanings alters your acceptance of the conclusion, you have | | |indentified an important ambiguity. Identifying ambiguous

Boys of Fall

579 words - 3 pages Boys of Fall All my life I have never considered fall a legit season. I have always thought we could jump from summer to winter, and skip the middle man. Now I see fall for what it truly is. Fall is a season of unpredictable changes and surprises. Fall tries to creep up on you. It catches you coming off the highs of summer unsuspecting and unaware. Sometimes the change is a hindered and smooth process. Other times it attacks with the

Related Papers

Advantages Of An Llc Essay

536 words - 3 pages Advantages of an LLC LLC AdvantagesA limited liability company (LLC) has many advantages as a form of business entity: * Pass through taxation - under the default tax classification, profits taxed at the member level, not at the LLC level nodouble | taxation. * Limited liability - the members (owners) of the LLC, are protected from liability for acts and debts of the LLC. * An LLC can elect to be taxed as a sole proprietor

Oeuf Llc, Of Brooklyn, N.Y. Company Crisis

603 words - 3 pages Oeuf LLC, of Brooklyn, N.Y. Company Crisis Rebecca A. Miller Instructor: Rhonda Tenenbaum Everest University Online January 11, 2015 Identify the organization and situation you are imagining. Describe who the stakeholders are in the organization. Explain in detail how you will show sensitivity to the needs of all stakeholders. Why is sensitivity to the needs of all stakeholders key? The organization that I chose to talk about is

Somery Of The Fall Essay

4490 words - 18 pages , LLC. CompTIA is a registered trademark of CompTIA Properties, LLC in the U.S. and internationally. Other brands and company names mentioned herein may be trademarks or service marks of CompTIA Properties, LLC or of their respective owners. Reproduction or dissemination prohibited without written consent of CompTIA Properties, LLC. Printed in the U.S. 02082-Dec2015

The Fall Of Constantinople Essay

1288 words - 6 pages The Fall of Constantinople was the capture of the capital of the Byzantine Empire, which occurred after a siege by the Ottoman Empire, under the command of Sultan Mehmed II, against the defending army commanded by Emperor Constantine XI. The siege lasted from Friday, 6 April 1453 until Tuesday, 29 May 1453 (according to the Julian Calendar), when the city was conquered by the Ottomans. The Fall of Constantinople marked the end of the Roman