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Hurricane Seasonal 
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Hurricane Seasonal Accumulated futures and options are financial tools designed to offset hurricane-related risk by offering a means of transferring that risk to the capital markets.

Hurricane Seasonal Accumulated futures and options are one of three categories of Hurricane futures and options offered at CME Group. They focus on the total number of hurricanes that make landfall within one of six specific locations or geographic regions between January 1 and Decmeber 31:

  • Florida Gold Coast (Card Sound Bridge, FL to Jupiter Inlet, FL)
  • Gulf Coast, from Brownsville, Texas to Alabama/Florida border
  • Florida, from the Alabama/Florida border to the Fernandina Beach, Fla.
  • Southern Atlantic Coast, from Fernandina Beach, Fla., to the North Carolina/Virginia border
  • Northern Atlantic Coast, from the North Carolina/Virginia border to Eastport, Maine
  • Eastern U.S., from Brownsville, Texas to Eastport, Maine
  • Cat-in-a-Box – a term used to describe the Galveston-Mobile region, a coastal region possessing the largest oil refineries on the Gulf Coast

About the Index
Hurricane Seasonal Accumulated futures and options are settled to the CME Hurricane Index which provides a numerical measure of the destructive potential of a hurricane. The CME Hurricane Index is calculated using maximum sustained wind speed of a hurricane in miles per hour and the radius to hurricane force winds of a hurricane in miles (i.e. how far from the center of the hurricane winds of 74mph or greater are experienced). 

The higher the CHI number, the more potentially damaging the hurricane. For example, when Hurricane Katrina made landfall in Louisiana in 2005, it had a CHI value of 19.0. In contrast, Florida’s Hurricane Dennis that same year had a CHI value of only 6.9.

How the Futures Work
Hurricane Seasonal Accumulated futures represent the sum total of CHI values of hurricanes that make landfall in a specified region throughout the hurricane season.

Customers wishing to hedge against the potential damage of an entire hurricane season would assess their risks and then buy Hurricane Seasonal Accumulated futures at a specific CHI level for a specific region, such as 25, a level at which they decide they would need protection from financial loss.

Hurricane Seasonal Accumulated futures are cash-settled at the end of the hurricane season at the total CHI value of the specified region. That number is multiplied by a cash multiplier of $1,000 per 1 CHI point. Thus, a futures contract that settles to a CHI of 25 has a value of $25,000.  If no hurricanes make landfall in the specified region of the contract, then the contract settles to 0. 

How the Options Work
Two types of options are offered on Hurricane Seasonal Accumulated futures.

Standard/Vanilla Options
Customers wishing to hedge against the potential damage of an entire hurricane season would assess their risks and then buy Hurricane Seasonal Accumulated options at a specific strike price, such as 15 CHI, a level at which they decide they would need protection from financial loss.

Hurricane Seasonal Accumulated options are cash-settled at the end of the hurricane season at the total CHI value of the specified region. That number is multiplied by a cash multiplier of $1,000 per 1 CHI point. Thus, a call option contract with a strike price of 15 CHI, that settles to a CHI value of 25, has a value of $10,000.  If no hurricanes make landfall in the specified region of the contract, then the contract settles to 0.  In this case, the buyer of the option would choose not to exercise his call.

Binary Options
Binary options on Hurricane Seasonal Accumulated futures pay a fixed dollar amount if the option is either “at,” or “in the money.”   This distinguishes them from standard/vanilla options as the value of standard/vanilla options vary depending on the difference between the strike price and the settle price. 

If the respective CHI seasonal value is equal to or greater than the strike price, the buyer receives $10,000.  If the respective CHI seasonal value is less than the strike price, the buyer receives nothing.  Only binary call options (options to buy) are available.  Contracts are automatically exercised at the end of the season, or can be exercised at any point during the season once the contract is “in,” or “at the money.”