MotherRock lost $230M on natural gas when Amaranth moved the market

MotherRock LP was a hedge fund founded in 2004 by Robert 'Bo' Collins, a former president of the New York Mercantile Exchange, that specialized in natural gas trading. In the summer of 2006, the fund had taken a large short position, betting that natural gas prices would fall. Instead, a summer heat wave increased demand for natural gas to power air conditioning, driving prices up.

The situation was made worse by a Senate investigation that later found that aggressive trading by Amaranth Advisors — a much larger hedge fund — caused a 72% jump in the natural gas price spread on July 31, 2006. This directly triggered margin calls that MotherRock could not meet. The fund lost approximately $230 million in June and July 2006 and was forced to close in August 2006.

The collapse of MotherRock was a preview of a larger disaster: Amaranth Advisors itself collapsed a month later in September 2006, losing $6.6 billion on natural gas trades. The back-to-back failures of two natural gas hedge funds in one summer led to a US Senate investigation into excessive speculation in natural gas markets.

Amaranth's aggressive trading caused a 72% price swing on July 31, forcing MotherRock to close after losing $230M in two months.

MotherRock took a large leveraged short position in natural gas. When an unexpected heat wave drove prices up, the fund had no room to absorb the margin call.

Amaranth's aggressive trading caused a 72% price swing on July 31 — a move the Senate attributed to Amaranth alone. MotherRock was collateral damage of a larger fund's market manipulation.

The fund concentrated its entire strategy on a single commodity with no hedge. One wrong directional bet and one heat wave were enough to destroy it.

A concentrated short position in a single commodity is not a hedge — it is a bet. When a larger player moves the same market, you are not wrong; you are just smaller.