way over toward their side, making the price very high. At other times, the consumers won the game and pulled the red line way over to their side, making the price very low. The stakes of this game were almost incomprehensible—the total national market in natural gas was worth several hundred billion dollars a year. When the red line of price went one way or the other, it was the financial equivalent of a tectonic plate shifting in the earth. The rumbling and shaking shook loose billions of dollars in one moment, money that flowed from the pockets of consumers to producers as the price moved positions. And when that money was disgorged, it passed through the hands of traders like O’Neill, who kept a portion of it for themselves. In the final analysis, the people who were buying his derivatives contracts might be a big utility company in Ohio that burns natural gas, or a big company in Oklahoma that drills and sells natural gas. These entities would pay real money for insurance contracts that protected them from shifts in the price. If the price was moving, O’Neill and Koch Industries stood to make millions. Volatility was the trader’s best friend.
O’Neill honed his trading strategies over the year. And he began to make one bet more than any other. He didn’t bet that gas prices were going to rise, and he didn’t bet that they were starting to fall. He just started betting that they would be volatile. He did this by snapping up options and then snapping up their underliers in the futures markets, buying them and selling them in a way that stripped out the price component of the bet. He didn’t want to bet on price. He wanted to bet that the price was going to change and change more than people expected it to. One reason he kept betting this way was because it kept making money. After the natural gas markets were deregulated, volatility started to become the norm. The sleepy days of price controls were over, and now the price could shoot up or down in minutes.
That’s why, when he came into work in the early winter months of 2000, O’Neill started to get excited. He was starting to see a very large play unfolding, one that would dwarf anything he’d attempted at Koch before. All of the data that he’d amassed was pointing in one direction as the weather got colder in January and February. All of the signs were pointing toward unprecedented volatility.
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When O’Neill turned his computer on in the morning, he would find numerous reports available to him that were produced by Koch’s teams of analysts and traders. He was on an e-mail list for an internal report called WinterSkinny, for example, which was sent to a long list of Koch employees both inside and outside the trading unit. The WinterSkinny report had a commentary section that summarized the state of the market in simple language—one e-mail read: “To sum up the commentary section in fewer words, ‘I don’t know where it’s going, and nobody cares anyway.’ ”
Other internal reports, such as the Daily Analysis, were not written in English—or in any language that most people would understand. It was composed of complicated graphs and spreadsheets that showed electricity usage, as well as weather pattern analysis for cities like Denver, Las Vegas, and Eugene, Oregon, that compared “Temps vs. Normal.” One graph even showed detailed water levels for a reservoir above the Grand Coulee Dam in Washington State, which provided hydroelectric power.
These reports were coupled with flash alerts from throughout Koch Industries. Plant managers, refinery operators, and others were encouraged to share any information they learned that might affect markets. The trading unit built an internal instant messaging system called Koch Global Alerts that sent the news to traders in real time—an innovative technology in the late 1990s and early 2000s.
Traders sitting shoulder to shoulder in O’Neill’s office read through these reports and news flashes all morning, synthesizing what they learned into trading strategies. The traders created PowerPoint slideshows outlining their strategies and presented them in conference rooms to their colleagues. The presentations were shared across trading groups—Cris Franklin, who traded interest rate swaps, might find himself sharing a strategy with natural gas and crude oil traders, and vice versa. The traders were encouraged to pick apart each other’s plans, criticizing the strategies and, ideally, making them stronger.
In 2000, two Koch analysts and a reservoir engineer produced a slideshow