The Chicago Mercantile Exchange announced that year-to-date trading of futures and options on futures in its weather derivative contracts already has surpassed the total volume of contracts traded in 2004.
CME Weather traded this year have reached a total of 124,177 contracts as of the close of trading yesterday, April 12, compared with 122,987 in 2004.
The exchange also established a single-day trading record on Monday, April 11, 2005, with 4,850 contracts traded, exceeding the previous record of 4,500 set on April 5, 2005. Average daily volume of CME Weather contracts traded this year is 1,800 compared with an average daily volume of 344 in 2004.
“Even in our advanced, technology-based society, we are still very much influenced by the weather. It affects our daily lives and choices, and also can have an impact on corporate revenues and earnings,” said Rick Redding, managing director, products for CME. “Just as professionals regularly use futures and options to hedge their risk in interest rates, equities, foreign exchange and commodities, now there are tools available for the management of risk from extreme movements of temperature.”
“The combination of weather and related commodity markets is fueling a great surge in activity where the CME platform is excellent for new entrants such as hedge funds and other companies to jump start their business with an exchange-cleared product,” said Brian O’Hearne, president of Guaranteed Weather, a global weather risk management company, and president of the Weather Risk Management Association. “This in turn creates more diversity and depth for established players and improved pricing for companies hedging their weather risk.”