Gustav. Hanna. Ike. What’s next? Peter? Connor? Maybe Hurricane Gilbert? Definitely maybe a Hurricane Meghan. Whatever the name, let’s take a moment to welcome hurricane season. Such a time that if not before had garnered credibility definitely has after 2005. I mean even our President takes notice now, enough so to notify the FEMA head.

For us in this lovely financial world though, we now see a natural cause for added volatility in our markets stemming from the possibility of even more erratic movement in our commodities markets. We all know that they directly affect our equities markets, among others. I have a certain respect for hurricane season. I had the pleasure of working on the floor of the New York Mercantile Exchange – primarily in the natural gas pit – during the hurricane season of 2005 and all through the aftermath of Ms. Katrina herself (that animal). I was witness to natural gas almost reaching limit during a trading session and moving over $1.50 in the close of one session. For those of you who don’t know, natural gas actively trades to the tenth of a penny.

So as Gustav was reduced a few notches in category strength before it touched down earlier this morning, realize the effect that all of these factors about the hurricane have on commodities. It is easy to expect the price of crude oil at least $3.00 higher or lower when electronic trading opens. That can easily be followed by a steep spike in either direction during pre-market (respective to the pre-market direction higher or lower) until a safe level is reached that factor in potential damage to Gulf operation. Next as damage is reported the spot month price could cool some but the 2 and 3 month spread will fluctuate heavily as reports of the developing hurricanes roll in. Then the inventory numbers reporting together (natural gas and crude oil on the same day because of the shortened trading week) on Thursday leaves the possibility for heavy price action in commodities. This of course will have gas and oil stocks buzzing. Please take my advice and do not underestimate heavy speculation within the volatility that will exist in these stocks. Prices will fluctuate heavily as stops are moved wider with these factors in consideration and traders realize that.

I fully expect our markets to take hurricane season as a shot of an espresso after a quiet August. We as day-traders should look to fully capitalize off of this. But also because of the blow that Hurricane Katrina dealt on commodities, and our current shaky (I dare say?) state of our economy, do not be surprised by anything and be on your toes for most. And let’s do our best to weather these storms with positivity just as those in the southern states must as they leave their homes and such nature’s wrath.

Also, I will check with a weather derivatives trader/friend and report back with his opinion.