Options market allows bets on where hurricanes hit

[HurricaneJoe22]

http://www.palmbeachpost.com/localnews/ ... tions.html


By JEFF OSTROWSKI
Palm Beach Post Staff Writer

PALM BEACH — As the owner of a 25,000-square-foot manse, Ken Horowitz has run up a hefty tab for windstorm insurance premiums, deductibles and repairs.

His financial pain led him to launch a business, Weather Risk Solutions, a newly created options market that lets property owners and businesses hedge their storm risk.

"Hurricanes were causing me more and more economic damage," said Horowitz, who made his money in the cellphone industry and once owned Major League Soccer's Miami Fusion.

Horowitz's brainstorm is an online trading tool that gives traders the place to make a bet on a storm hitting any of dozens of areas along the Atlantic and Gulf coasts.

As of Tuesday, you could pay $18.03 for a contract that pays $844.09 if the first storm to make landfall hits Palm Beach County. The contract price will rise if Hurricane Bill draws closer.

While Horowitz stresses that his product is no substitute for homeowners insurance, he suggests playing it this way: Say your windstorm deductible is $10,000. To cover that amount, you could buy 12 options for $216 that would pay $10,129 if a storm hits here.

While the prices appear on Weather Risk Solutions' Web site, the trades are handled by options brokers and the money is held by the Chicago Mercantile Exchange.

Weather Risk Solutions isn't the first to sell hurricane hedges.

Another firm, HedgeStreet, entered and left the niche a few years ago, but Horowitz said his offering will be more user-friendly.

"We tried to design a very easy-to-use method for people to hedge against hurricane risk," Horowitz said.

Horowitz said he has invested millions to build Weather Risk Solutions. He works from his home, but his 16 employees are in New York, safely out of Hurricane Alley.

So far, only the wealthy can trade.

Weather Risk Solutions can do business only with businesses worth $1 million and individuals worth $5 million. But Horowitz is seeking regulatory approval from the federal Commodity Futures Trading Commission to open his offering to the masses.

For the average homeowner, Horowitz said, buying hurricane options is "a no-brainer."

Financial planners aren't so certain that options are a good option for the unsophisticated.

"Eighty to 90 percent of options expire worthless," said Barry Rabinowitz, a certified financial planner in West Palm Beach.

But Dr. Ken Beer, a dermatologist in West Palm Beach, said he has ponied up "a few thousand dollars" for options through Weather Risk Solutions.

After his medical office was closed for a week during the hectic 2004 storm season, Beer expected his business interruption insurance to cover his losses. No such luck.

"After spending a fortune with insurance companies, I was really unimpressed," Beer said. "Business interruption insurance was absolutely worthless."

Horowitz hopes there are plenty of others like him.

[Frank2]

Incredible - they'd have a hedge market on their grandmother's passing, if they could...

If all they want out of life is money, then that's all they'll have - fools...

[Lurker]

Options do a great job in hedging risk. People and institutions get in trouble when they use options for speculation. Options are another way to insure yourself against potential losses as you get incredible leverage for a tiny investment. I think this is a great idea.

Incredible - they'd have a hedge market on their grandmother's passing, if they could...

If all they want out of life is money, then that's all they'll have - fools...

[SEASON_CANCELED]

Incredible - they'd have a hedge market on their grandmother's passing, if they could...

If all they want out of life is money, then that's all they'll have - fools...

http://www.intrade.com

They have a predictions market. Predicts all kinds of things. Collapse, Asssassinations, Nukes, Terrorist attacks. Good money to made

[somethingfunny]

So the payout is greatest if the first hurricane landfall is the one hitting PBC? I must not be reading it right. Then again hedge and commodity traders have always been irrational. I'm expecting commodity trading in rainfall soon.