Prediction Market: Betting on Gustav

Aug. 27, 2008 2:55 PM ET1 Comment
Bill Luby profile picture
Bill Luby
2.41K Followers

There are several excellent sources which will provide the latest updates on hurricanes and the various potential paths that a number of computer models are projecting. These sites include the National Hurricane Center, Weather Underground, AccuWeather, and others. The most common graphical depiction of these projections come in the form of a probability cone that projects the most likely path of the eye, with an increasingly large cone farther into the future to reflect the increased uncertainty about the forecast.

You can study these probability cones, computer projections and other data and adjust your portfolio accordingly. There is another tool that I don’t believe many know is out there. Intrade, the prediction market site, has recently added a number of contracts covering possible landfall locations for Gustav. The graphic below highlights the current landfall contracts associated with Gustav. These range across the Gulf of Mexico and also include Georgia, South Carolina, and “any other state”. Note that all these contracts stipulate that landfall has to be as a category 2 hurricane (winds 96-110 mph) or higher. Finally, there is also a contract that Gustav does not make first landfall in the U.S. as a category 2 or higher hurricane.

These may not be the ideal trading vehicles for hurricanes, but they can be interesting data sources as volume picks up in these contracts, enhancing the value of their informational content.

This article was written by

Bill Luby profile picture
2.41K Followers
Bill is Chief Investment Officer of Luby Asset Management LLC, an investment management company in Tiburon, California. He also publishes the VIX and More (http://vixandmore.blogspot.com/) blog and an investment newsletter. His research and trading interests focus on volatility, market sentiment, technical analysis, ETPs and options. Bill was previously a business strategy consultant. When not trading or blogging, he can often be found running, hiking, and kayaking in Northern California. Bill has a BA from Stanford University and an MBA from Carnegie-Mellon University. Visit Bill's blog, VIX and More (http://vixandmore.blogspot.com/)

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