During the languid summer that swept over natural gas markets last year, investors asked Ron Ozer why he would want to start his hedge fund now. Prices stuck to a tight range, and traders appeared to be overlooking data pointing to healthy supplies for the winter.

“Implied volatility for the winter is stupid cheap,” Ozer recalls thinking. “It’s pretty much free, and I can’t figure out a way that if you buy it you lose money.”

By the end of December, Ozer had made one of the most auspicious debuts for a commodities hedge fund manager in recent memory, gaining 9% in his first four months of trading. Investments pegged to rising volatility in natural gas markets paid off for his hedge fund Statar Capital, which has grown to manage $160 million since opening.

Now Ozer is attempting to take in more money, defying a slump in commodities hedge funds that has cleared out some of the sector’s largest players. The Houston-based natural gas hedge fund Velite Capital, once managing more than $1 billion, joined BBL Commodities and T. Boone Pickens’ BP Capital in shutting funds last year, contributing to a growing hole in the sector.

“The space has just been in a huge exodus of capital, be it banks not taking [proprietary] risk anymore because of Dodd-Frank, be it gas-focused hedge funds [closing],” Ozer says.

In their place have emerged algorithmic strategies, he adds. “For that reason, a lot of the trades that we typically would look at have just a lot more edge in them.”

A math major at the Massachusetts Institute of Technology, Ozer began trading natural gas at D. E. Shaw & Co., where the sector was still managed by humans. In 2015, he moved to Ken Griffin’s Citadel as it expanded its commodities trading operation.

Ozer’s move coincided with growth in the volume of physical natural gas traded by Citadel, an unusual practice among hedge funds that typically stick to futures and options markets. As a portfolio manager and later co-head of natural gas, Ozer was tasked with being what he calls the division’s “9x risk taker” supported by a team of analysts based in Greenwich, Connecticut.

At Statar, Ozer makes use of so-called “relative value” trades that attempt to exploit price differences in related markets. He also considers the activity of other traders, including a handful of fundamental investors, energy companies hedging production, passive funds and systematic strategies.

After beginning to trade in September, Ozer saw an opportunity to wager on rising volatility. He thought natural gas markets, which tend to be quiet in the summer before picking up during cold months, were unnaturally calm, despite the possibility of extreme weather in the future.

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Ron Ozer, chief investment officer of Statar Capital

“The reason that opportunity was there is the market didn’t do anything all summer,” Ozer says. “It literally just traded in a very tight range and you had a lot of flows, just pension funds selling variance swaps and selling volatility, which dampened volatility.”

Initially, Ozer owned call options pegged to rising natural gas prices before converting the position to put options as prices whipsawed in November, causing volatility to rise from about $30 to more than $100. The move famously caused some 290 clients of James Cordier, the founder of OptionSellers.com, to lose all their money in what the fund manager called “a rogue wave” during an emotional video posted to YouTube.

Ozer says the trade had a high chance of paying off because natural gas investors had skewed markets toward “backwardation,” expecting a supply deficit when the opposite was true. “Even if the weather was normal, there would have been a decent move anyway,” he says.

Statar now aims to manage between $350 million and $500 million before capping growth. The fund gained about 0.75% last month, a person familiar with the returns says.

“Barring significant cold weather, this market is going to get pretty boring pretty soon. It’s probably going to be a good time to sell summer [volatility],” Ozer says, adding, “We’re not going to go out there and do it.”

Former Citadel natural gas investor cashed in on volatility on Absolute Return.