Brewery Beer Volume Hedge
TemperatureHedge
Breweries long CDD; hot weather drives beer sales; hedge volume risk against cool summer
Source: cmegroup.com
Burn-Rate Pricing
PricingLong
Burn-rate pricing: average historical 10-year HDD/CDD; benchmark for fair value; baseline pricing model
Source: cmegroup.com
CAT Cumulative Avg Temp
TemperatureLong Or Short
Cumulative Average Temperature futures (Europe Tokyo); cumulative daily avg temps; alternative to HDD/CDD; €20/index point
Source: cmegroup.com
CDD Call Option Speculation
TemperatureLong
Buy CDD calls into hot-summer forecast; pays $20/index point per US contract; capped strike structure
Source: cmegroup.com
CDD Long Hedge
TemperatureHedge
Cooling Degree Day futures; power generators/utilities hedge mild-summer risk; long CDD = bullish AC demand
Source: cmegroup.com
CDD Put Option Mild-Summer
TemperatureLong
Buy CDD puts into mild-summer forecast; popular for utility hedging revenue against cool-weather demand
Source: cmegroup.com
CME Hurricane Future
HurricaneLong Or Short
CME hurricane futures contracts; settle on Carvill Hurricane Index; institutional weather hedging product
Source: cmegroup.com
Climatology Mean-Reversion
TemperatureMean Rev
Trade extreme HDD/CDD readings reverting to 10-year climatological average; statistical edge
Source: cmegroup.com
Climatology Skewness Trade
StrategyLong
Northern winters skewed left (cold tails); HDD distributions show fat-tail upside; long deep OTM HDD calls
Source: cmegroup.com
Construction Project Weather Hedge
HedgingHedge
Construction projects hedge bad-weather workdays via insurance-style OTC weather derivatives
Source: wikipedia.org
Crop Yield Temperature Hedge
TemperatureHedge
Farmers hedge growing-season temperature; cross-hedge with HDD/CDD futures vs corn/soy yield
Source: wikipedia.org
Cross-Asset Weather Trade
StrategyLong Or Short
Trade temperature-derivative joint with energy; e.g. cold + low natgas = mispriced; relative-value
Source: cmegroup.com
Equivalent Martingale Measure
PricingLong
Risk-neutral pricing under equivalent measure; market price of risk parameterization for non-traded asset
Source: wileyonlinelibrary.com
Forecast vs Climatology Spread
StrategyLong Or Short
Trade weather forecast deviation from climatology; long when forecast extreme; short on convergence
Source: cmegroup.com
Frost Day Insurance Trade
SpecialtyHedge
Citrus/wine farmers hedge frost via OTC frost-day derivatives; pays on frost-temperature days
Source: wikipedia.org
Greenhouse Crop Hedge
TemperatureHedge
Greenhouse heating cost = HDD-linked; long HDD futures hedges heating bill upside
Source: wikipedia.org
HDD Calendar Spread
TemperatureLong Or Short
Trade HDD spreads e.g. Dec vs Jan; relative warmth across heating season months
Source: cmegroup.com
HDD Long Hedge
TemperatureHedge
Heating Degree Day (65F base) futures; gas/heating-oil distributors hedge mild-winter risk; long HDD = bullish demand;13 US cities + 4 European
Source: cmegroup.com
HDD/CDD Cross-City Spread
TemperatureLong Or Short
NY HDD vs Chicago HDD spread; geographic temperature divergence trades; weak correlation captures
Source: cmegroup.com
Heating Oil Distributor Hedge
HedgingHedge
Heating oil distributor double-hedge: HDD futures (volume) + heating oil futures (price)
Source: cmegroup.com
Hurricane Binary Option
HurricaneLong Or Short
Binary option pays fixed amount on hurricane landfall above threshold; clean parametric structure
Source: cmegroup.com
Hurricane Season Tail Hedge
StrategyHedge
Long OTM hurricane calls for tail risk; insurance-like hedge for property exposed companies
Source: cmegroup.com
Hurricane Seasonal Maximum
HurricaneLong Or Short
Seasonal maximum hurricane contract; settles on highest event in Atlantic season; convex payoff
Source: cmegroup.com
Hurricane Second-Event Bond
HurricaneLong Or Short
Hurricane Second Event Seasonal Maximum Binary; specifically prices the second event; tail-risk product
Source: cmegroup.com
Index Modeling CARMA
PricingLong
Continuous-time autoregressive moving-average models; Benth (2024) framework; develops vol term structure
Source: wileyonlinelibrary.com
La Nina Trade
StrategyLong Or Short
La Nina = colder northern winter; trade NY/Chicago HDD long; reverse for El Nino seasons
Source: cmegroup.com
Long-Range Forecast Skill Bet
TemperatureLong Or Short
Long-range forecasts often unreliable; trade against retail-popular forecast crowd; mean-revert to climatology
Source: cmegroup.com
Monte Carlo Temperature Sim
PricingLong
Monte Carlo simulation with seasonal mean-reverting OU temperature model; standard pricing approach
Source: fiu.edu
Polar Vortex Trade
StrategyLong
Polar vortex events drive HDD spikes; OTM HDD calls capture tail; gas spot price correlation
Source: cmegroup.com
Power Plant Gas-Burn Hedge
HedgingHedge
Combined HDD+NatGas hedge protects gas burn margin against weather-price disconnects
Source: cmegroup.com
Rainfall OTC Trade
SpecialtyHedge Or Speculation
Bilateral rainfall index derivatives; agriculture/event venues primary buyers
Source: wikipedia.org
Seasonal Strip Contract
TemperatureLong Or Short
5-month aggregated HDD/CDD/CAT contracts; capture full heating or cooling season in one contract
Source: cmegroup.com
Ski Resort Revenue Hedge
SnowfallHedge
Ski resorts long snowfall futures; mild winters reduce revenue; multi-year structural hedge
Source: cmegroup.com
Snow Removal Cost Hedge
SnowfallHedge
Municipalities short snowfall futures (or buy puts); excessive snow drives plow cost
Source: cmegroup.com
Snowfall Future
SnowfallLong Or Short
CME snowfall monthly and seasonal strip contracts; ski resort/highway dept/insurer hedging
Source: cmegroup.com
Snowfall Liquidity Trade
StrategyLong Or Short
Snowfall futures very thin; trade only with strong views; tight position-sizing limits
Source: cmegroup.com
Sports Event Rainfall Hedge
HedgingHedge
Sports/concert venues hedge ticket-loss on rainout; specific venue rainfall trigger
Source: wikipedia.org
Theme Park Rainout Hedge
TemperatureHedge
Theme parks/sports venues hedge rainfall via OTC rainfall derivatives; pays on rainfall above threshold
Source: wikipedia.org
Utility Revenue Hedge HDD
TemperatureHedge
Gas/electric utility revenue depends on weather; hedge mild winter with HDD strip purchase; smooths earnings
Source: cmegroup.com
Weather Vol Premium Capture
StrategyShort Vol
Weather options trade rich implied vol vs realized; short premium with delta-hedged positions
Source: cmegroup.com
Weekly Temperature Contract
TemperatureLong Or Short
Weekly average temperature contracts; granular hedging horizon; multi-day short-term forecast trades
Source: cmegroup.com
Wind Speed Derivative
SpecialtyLong Or Short
Wind farms hedge low-wind years via wind-speed derivatives; emerging insurance product
Source: wikipedia.org
An encyclopedia of publicly documented strategies for education. YCAI does not recommend, endorse, or trade any of these. Not investment advice.