The Next Snowpocalypse is Coming

Winter has officially arrived, and just about a week from now, a new opportunity to make money will arrive, too.

My colleague, Chris Orr, a Certified Consulting Meteorologist, has been telling me for about a week now that temperatures from the Rockies to the Northeast will be as much as 20 degrees below normal during the week between Christmas and New Year’s Day. Such a significant drop in temperatures — we’re talking single digits and mid-teens in many places — always translates into a rise in thermostat settings as people crank up the heat to stay warm … which, very often, translates into increased demand for natural gas, leading to a temporary rise in natural gas prices.

That temporary rise in gas prices is Mother Nature’s gift to traders. And that’s the opportunity to make it rain money in your portfolio (sorry for the pun) over the next week.

You will, no doubt, recall that last winter saw a string of so-called polar vortexes that spun across the country with extremely frigid temperatures, leaving in their wake mounds of snow and ice that messed up air and ground transportation and temporarily derailed the U.S. economy.

Until spring arrives, we’re looking at four to six polar events here in the States. The media are likely to play them up, as they did last year, as temperatures across the eastern half of the U.S. fall five degrees to 15 degrees below normal, on average. Some vortexes will be colder.

El Niño, meanwhile, means snow and sleet into the Deep South again — including, Chris says, another Atlanta ice storm like the one that caused a huge headache last year for a local government ill-prepared for what the city faced.

The first of those vortexes should make its appearance early next week, probably around December 29. The cold blast will reach down into Southern California. California’s Central Valley will likely see a freeze between December 30 and January 1. The Central Plains and New England will see temperatures in the single digits and mid-teens, while the Tennessee Valley down to the Gulf Coast will shiver under a blanket of cold air 20 degrees cooler than normal between New Year’s Day and January 6.

Knowing in advance that a pattern of colder-than-normal weather will descend on the country represents potential profits, because the cold temps typically cause a temporary spike in natural-gas prices.

Indeed, I went back to last year and examined each polar vortex between December and April (there were 11). 80% of the time, natural gas prices moved higher, as reflected in the price of the U.S. Natural Gas Fund, an exchange-traded fund. The moves were not necessarily outrageous — the greatest gain was a bit less than 12% over a 10-day span, and most gains were in the mid-single digits.

But in the options market, small gains are amplified into much larger profits.

Investing in call options “at the money” 10 days in advance of a polar vortex’s arrival generated profits typically ranging between 15% and as much as 291%. Most of the gains were in the mid-double digits, with several in the triple digits.

Profiting From the Weather

Weather always creates winners and losers in the financial markets, even if it’s only temporary. It’s the reason Chris and I teamed up on our new service, Precision Profits, to focus on finding trades that exploit the weather and seasonal impacts that routinely weigh upon the stock market (we’ve already closed six trades we placed in the fall for gains of 35%, 85%, 94%, 100% and 100% … and all in just weeks or a couple months, at most).

The vortexes to come over the course of winter, including the one that will arrive between Christmas and New Year, will, as they did last year, underscore the impact that weather has and the opportunity that it represents for traders.

As you hear about these vortexes, pay attention to the natural-gas market and you will see the short-lived price spikes that occur. Those are the manifestations of the opportunity that existed for traders who got into natural gas before those spikes materialize.

Those are opportunities, if you know about them in advance, to turn the cold weather into cold cash.

Until next time, stay Sovereign…

Jeff D. Opdyke
Editor, Profit Seeker

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