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How to Profit From Snowstorms

east_coast_blizzard_2010_5_200.jpg
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Another big snowstorm is predicted for the Northeast this week, so instead of complaining about it, how about profiting from it?

You can, according to Jeff Hodgson, president of Chicago Weather Brokerage, part of the CME Group .

“Like any type of derivative that has an underlying value, snowfall in this case, whenever you’re a buyer, you’re going to profit from some high levels of snowfall,” said Hodgson.

“If you’re short, you’re going to profit from the lack of snowfall. CME has listed six tradable stations that you can track on a monthly or a seasonal basis.”

Hodgson said there are natural players in the arena, such as airlines and snow removal companies, and those related to them, like Walmart, which sell supplies and services to get rid of snow.

As a result of the post-Christmas storm on the East Coast, Delta Air Lines estimated that it had a $50 million impact (negative) on business.

“Most of the activity that we see will be one or two standard deviations from that average,” added Hodgson.

“So that if you look in December at Central Park, the average snowfall there was about 8 inches. Most of the trades you’re going to see may be 2 to 3 inches or less. At 15 inches or more, so that’s where you see significant financial impact.”

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