Betting on hurricanes

[trof]

Got this in an e-newsletter this morning.
Might look into it.

"The government defines the Atlantic hurricane season as June 1 through November 30: 97% of all hurricanes occur during these months.

Here's the thing... although the official hurricane season lasts from June through November, the vast majority of hurricanes in the United States occur in a much smaller window.

For example, according to the Atlantic Oceanographic and Meteorological Laboratory, 78% of the tropical storms, 87% of the minor hurricanes, and 96% of the major hurricanes occur between August and October.

And around half of all hurricanes occur in the four weeks from mid-August to mid-September.
To bet on a hurricane, you buy natural gas. Thousands of drilling companies are looking for gas in the Gulf of Mexico... and the world's largest collection of natural gas storage, processing, and transportation infrastructure sits on the Gulf Coast between Texas and Louisiana.

Any time a hurricane forms in the Atlantic, traders get nervous it'll interfere with America's supply of natural gas and they bid its price up. If a hurricane actually strikes the Gulf Coast, gas prices could soar 50% or a 100% in a month.

Hurricane Andrew, for example, formed off the coast of Africa on August 14, 1992. It pushed gas prices from $1.85 to $2.80 by the end of September... a 51% gain.

Hurricane Katrina formed over the Bahamas on August 23, 2005. Hurricane Rita formed two weeks later. Together, they sent gas prices from $7.50 to over $15 by October...

Right now, there's a glut of natural gas. A string of huge discoveries collided with a collapse in demand. A surplus resulted. According to the most recent inventory report, storage supplies are close to their all-time highs.

The glut has forced the price of natural gas below $4, close to seven-year lows. With the current low prices, you're unlikely to lose money buying natural gas... especially if you use a stop loss.

But if a hurricane should smack the Gulf Coast with a direct hit, for example, you could make 50% or 100% on your money in a matter of weeks.

It's time to play the natural gas lottery. The "one click" way to buy natural gas is through the United States Natural Gas Fund (UNG). Having fallen 75% in the last 12 months, it made a bottom four weeks ago and has just started rising. For even greater leverage, you can buy out-of-the-money UNG call options."

[vincna]

1. In principle, it sounds good, but...

... with so much gas in storage (last week, a pipeline company with which I am familiar would not accept gas for temporary storage - they had no room), the stored gas would likely come out and keep the price rise to modest levels. Even after Rita and Katrina, the disruption was only temporary and you would have had to time the market perfectly to realize those gains. In any case, there has not been much hurricane activity to date

I do agree with you that gas is probably near the bottom. You will likely see some pickup when we get closer to winter and heating demand starts. I don't think you would get hurt, but I think a killing is a long shot.

[trof]

2. Thanks for your comments and...

Welcome to DU.
:hi: