Invest In Hurricanes

invest in hurricane contractsIf you had any doubt that you could use your instincts to predict virtually any future event and make money, that doubt should quickly be fading. HedgeStreet, an online futures market which is government regulated has launched “hurricane contracts” to speculate on the damage they will cause.

There are two types of hurricane speculation in which you can participate. One is on whether insurance claims for the 2006 Atlantic hurricane season (through November 30) will exceed a certain amount. For example, investors can speculate whether the hurricane season damages will exceed $100 million, $1 billion or $25 billion.

The second way that investors can speculate is on specific named storms and whether insurance claims will exceed a specific amount for the single storm. The first of these contracts will be launched this morning for tropical storm Debby.

For the vast majority, this type of investment contract is nothing more than pure gambling. Unless you have superior knowledge on how storms work and due to this knowledge feel that the market is misrepresenting the monetary risks from the hurricanes’ potential damage, it’s best to steer clear of these.

Source: usatoday

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2 Responses to Invest In Hurricanes

  1. Mike says:

    It even sounds like gambling — whether the insurance claims will exceed a certain amount? That’s not making money on the movement of underlying stocks/etc. — that is purely, simply “gambling”.

    I see this as just another way for the big-wigs to milk us money-producing cows for even more of our slave wages. Well, this cow will take his milk to Vegas long before I bet on some BS hurricane “hedge investment”!!

  2. Matthew says:

    It’s not gambling. Gambling is subset of risk where the cost of the wager is deliberately set above the expected value of the outcome.

    Futures markets aren’t constructed that way. In fact, given superior actuarial data, it’s perfectly reasonable (in theory) to identify and exploit deficencies in the market assessment of insurance risk.

    I doubt either you or I have access to such data, so it’s a game that we should avoid. Nonetheless, derivatives and options have their place in the market.

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