A weather derivative that involves the purchase or sale of the right to trade the financial effects of weather changes. A weather option, an index-based product that provides a means of transferring risk associated with adverse weather events, is typically written on the cumulative cooling degree day (CDD) or heating degree day (HDD) over a certain period. Standard contracts are based on the total number of HDDs or CDDs in the month. Businesses and utilities with weather exposure may choose to buy or sell weather options to hedge their operations against climate’s unfavorable changes. For example, a heating oil retailer may expect high revenues if the winter proves to be very cold, and therefore, the retailer may sell an HDD call option. Hence, if the winter turned out to be mildly cold, the option holder will not exercise, and the heating oil retailer will gain the premium without having to pay out anything. And in contrast, that is if the winter was found to be extraordinarily cold, the retailer can make the option payout from its higher-than-normal revenues.