Weather Future
Categories: Derivatives, Investing
Something your weather app always gets wrong.
It’s also a form of weather derivative: a way to use financial markets to bet for or against certain weather events.
Options are contracts that give the holder the right, but not the obligation, to buy or sell some underlying asset. A future is similar, except that you don’t get a choice. You have to buy or sell the asset for a set price at a set point in the future. You're making a promise to buy or sell the thing down the road, at a pre-set price.
A weather future applies this concept to weather events. It allows companies (like a power company betting against a mild summer) to lock in some revenue, without worrying that the weather will turn against them.