Currently financial markets allow to speculate virtually on anything, including the weather. The weather derivatives have become a lucrative and exciting relatively new market. Although most people make comments regularly on the state of climate and how it can affect their lives, almost no one stops to think about the possibility to speculate with the weather. This has changed with the introduction of derivatives as binary options on weather by the CME (Chicago Mercantile Exchange).
With the introduction of the range of Futures and Options on the CarvilHurricane index (CHITM)
, traders are now able to speculate about the state of the climate in order to obtain a financial return. Like traditional binary options, binary options on weather allow the trader to get a fixed payment if the option closes In The Money
. And like traditional binary options, these derivatives offer both call options and put options.
Bases of binary options on weather
While traditional binary options based their prices on the price or value of the underlying assets, the price of binary options on climate are based on data obtained from meteorological stations throughout the United States, such as the National Weather Service. For binary options on weather of CME, its values are based on the CHITM index. Developed from the work published by LakshmiKantha, the CHITM seeks to measure the potential damage it can cause a hurricane in the Atlantic. Using the maximum speed and radius of the hurricane, these storms in designated areas are followed from birth to the end. Apart from the storms, some binary options on climate are also trying to track the temperature of the most important cities in the United States.
What are the advantages of binary options on weather?
Although binary options on weather are a relatively recent creation, they have gained relevance in the modern financial world. They were developed as a result of the need for a tool that would allow speculators and investors to limit losses that may occur due to a devastating storm like Hurricane Katrina or Hurricane Sandy. In other words, this type of derivatives offer investors who are exposed in one way or another to losses due to hurricanes, with a simple method to protect against these potential losses. Another reason to trade binary options on climate is for the possibility to speculate on the weather to get benefits. It’s just another way for interested parties to use their intuition about the weather to benefit from their ability.
Brokers that offer binary options on weather
Due to the fact that binary options on weather are a recent introduction to the world of financial markets, currently only a few brokers are offering such options to their customers. One of these brokers is Weathika.com, which specializes in offering its customers the opportunity to profit from their predictions regarding the temperature of the major US cities. With the correct prediction, traders can earn up to 80% of the amount invested. Therefore, it is a new option to make money in financial markets.
For now, the best-known binary options brokers as IQOption
are not offer such options, but as has happened with other instruments (such as Bitcoin), surely soon the offer of binary options on climate will be higher.