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Here's One Unusual Hurricane Trade

Monday, 29 Oct 2012 | 6:44 PM ET
Don Emmert | AFP | Getty Images

Traders at hedge funds frustrated by the lack of access to equities markets in the United States have been combing through the world for proxies, assets they might be able to trade that are so correlated with certain U.S. equity classes that traders can synthetically reproduce the trades they can't make in U.S. markets.

These are few and far between, of course. There's talk about trading the CME's Nifty Fifty index of Indian companies, but few of the traders I spoke to knew enough about it to confidently trade it. (Read more: India Pledges Fiscal Deficit Cut, Short on Specifics)

Other traders are trying to decide how to play Hurricane Sandy itself. The impact on gasoline and oil is unclear, as my colleague Kate Kelly reported on CNBC earlier today. High demand in the lead-up to the storm may mean depressed demand after the storm. When your tank is full, it's full. And the storm could depress actual fuel usage. (Read more: Will the Hurricane Cause Gas a Shortage?)

One trader pointed me to Compass Mineral International. Earlier today (Monday), the company reported earnings that fell well below analyst estimates, with third quarter profits tumbling 73 percent.

So why is he looking to buy Compass when markets eventually re-open?

Compass is a large producer of de-icing salt. You know, the stuff they spread on the streets after snow storms.

Hurricane Sandy is expected to dump a lot of snow in places like West Virginia. An early and unusually heavy snowfall could lead to a boost in demand for salt from companies like Compass. (Read more: 10 Most Expensive Hurricanes...So Far)

The same idea was touted by Larry Oxley, author of Extreme Weather and Financial Markets, in an interview with the New York Observer today.

As for how to trade the Frankenstorm, Mr. Oxley suggested looking beyond storm surges along the Atlantic coast and to forecasts for snowfall in neighboring mountain regions. While oil refineries in the Delaware Bay could be affected by the storm, he said, the concentration isn't great enough to make gas a slam-dunk play. But if early snow this year harkens a wetter winter, a company such as Compass Minerals that derives significant revenue from rock salt might be in line for increased profits.

Of course, this idea is highly speculative. And the hedge-fund trader who mentioned it to me may have already taken a position in the stock. (He declined to say.)

So take it with a grain of salt.

- by CNBC Senior Editor John Carney

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