“Weather is one of the largest variables impacting economic activity and corporate performance across many industries,” said Felix Carabello, associate director at CME for environmental products. “Just as professionals regularly use futures and options to hedge their risk in interest rates, equities, foreign exchange, and commodities, CME weather derivatives are financial tools available for the management of risk from sharp movements of temperature, which may impact deliveries and inventories.”
“The increase in the weather futures volume is driven by increased interest from energy traders, more flexibility in options on CME, increased speculative trading on weather forecasts, and the decision on the part of hedge fund managers and other risk takers to seek out new asset classes,” said Ben Smith, partner at Enercast, a provider of market data to the energy industry.
“The growth in CME weather trading volumes coupled with recent volatility in energy products presents a new angle for futures traders. In the last two months, our Heating Degree Days positions have been optimized by trading in and out of natural gas and heating oil options," says Scott Mathews, president of WeatherEX LLC. "Now that the CME options are trading every day, the tail may even wag the dog before winter is over.”
Since September 2004, 66,242 weather futures contracts have been cleared by CME. Adjusted for the change in contract size and compared to 2003 levels, volume at CME has increased 229 percent against year ago levels. Open interest has climbed to 47,761 for the year, a 299 percent increase over last year’s levels. CME weather contracts are offered for more than 20 cities in the United States, Europe and Japan.
