Prediction Market: Betting on Gustav

Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs ahead of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina. A prediction market site has recently added contracts covering possible landfall locations for Gustav.

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 not 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”. 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.