Trading the weather

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Kalshi offers daily weather markets for 4 cities: New York City, Chicago, Miami, and Austin. These markets are very straightforward: predict what the high temperature will be according to the National Weather Service in each of these cities. The goal of this guide is to demonstrate a possible strategy to earn money in these markets without needing to know much about predicting the weather at all.

The markets are structured across 6 brackets. The middle 4 brackets are 2 degrees wide and the 2 edge brackets contain everything under or everything over the listed temperatures. You can see the structure in the example below. These markets are launched at 10 AM the previous day (ie, if today is June 19th, the June 20th markets will launch at 10 AM on June 19th).

Where would you start if you wanted to know what high temperature was going to be today? Look at some weather forecasts! I like to look at the hourly forecasts from the National Weather Service, Weather dot com, and Apple Weather (whatever my iPhone says). I would just recommend finding a few that work for you and seem to frequently match the high temperature for the day. The markets are usually (but absolutely not always) structured so that the predicted high is in one of the center brackets. Additionally, as you might expect, the market pricing usually favors the forecasted high temperature for the day.

Believe it or not, the forecasts are not always right. How can you figure out when they’re wrong? Bring in the weather models. There are several weather models running that model the temperature across the United States every day. These models frequently diverge from the forecasts. I personally use Ventusky dot com (see image below) to access all of the weather models in one module, but I’m sure there are many other websites for this. I would recommend doing some trial and error and seeing which weather models are most frequently predicting the high temperature. Once you get this down, you can start making some bolder predictions that diverge from the weather forecasts, which is the key to winning more money.

Try to pick up on the trends. For example, recently in New York, there were hazy conditions caused by the wildfires in Canada. Since those conditions showed up, the high temperature has frequently come in under what the forecasts and the models have been predicting. That’s the type of trend where if you pick up on it early, you can do very well before other traders catch on. Also, many traders may disagree with this, but if you can observe the temperature throughout the day, there is a lot of gut feeling involved. If we’re running hotter than the forecast, it’s perfectly sunny out, and you can cheaply buy shares in the higher brackets, go for it. Finally, don’t be afraid to take swings. For me personally, if there are a lot of cheap shares available in a bracket that I can legitimately justify as a possible winner, I’m buying them every time. In basically every market (not just weather), traders tend to value certainty before they should. If you have a chance at a big win in a daily market predicting...checks notes...the weather in Central Park, you absolutely should take it.

Be very sure you know what you’re betting on. This is predicting the weather in Central Park, Chicago Midway Airport, Miami International Airport, and Austin-Bergstrom International Airport. You need to know what the resolution sources are for these markets. You should know where the high temperature for the day appears first. You should know how Daylights Savings Time applies to these markets. All of this is public and it is on you to find it. If you can’t find everything, just know that if a bracket all drops to 1 cent, it very likely is a trader telling you that it’s dead.

These markets give traders the opportunity to predict something fun every day and make a solid return while doing so. You don’t need a meteorology degree for this. If you learn the rules, spend some time understanding how the markets work, and learn how the weather tends to progress throughout the day in the 4 cities, you can do very well!