What investment strategy did Amaranth utilize that led to significant losses?

Amaranth Advisors, a hedge fund, experienced significant losses due to its calendar spread strategy with natural gas futures. This strategy involved taking offsetting positions in different expiration months for natural gas futures contracts, betting on the price difference between these contracts. The fund's strategy hinged on a belief that the prices of the contracts would converge, but unexpected volatility and sharp price movements in the natural gas market led to catastrophic losses.

The natural gas market is particularly susceptible to weather changes and supply-demand imbalances, which contributed to Amaranth's inability to manage their positions effectively. In September 2006, when natural gas prices spiked unpredictably, Amaranth's large and concentrated positions resulted in over $6 billion in losses, ultimately leading to the fund's collapse.

Other investment strategies listed would not have led to the same level of exposure and risk related to sudden market shifts that Amaranth faced with its natural gas futures trades. Consequently, the calendar spread strategy in this context is rightly identified as the source of significant losses for the firm.