Weather Derivatives Skew Arbitrage

This strategy, highlighted in the report's 'Weather Edge Bot' article, identifies Polymarket weather contracts where the NO side is overpriced due to bot-driven market sentiment or mispriced public weather forecast data. The bot analyzes historical weather data versus model consensus to detect a divergence where the actual probability of a weather event (e.g., high temperature) is lower than what the market's NO price implies. Entry occurs when the market's implied NO probability exceeds a threshold (e.g., 85%) but model-based probability is below 70%, allowing a buy at a discount. Exit is either at market convergence after new weather data releases or at a fixed profit target of 15-20%, with a stop-loss if the weather outlook unexpectedly worsens. Implementation uses Polymarket's API to monitor price feeds, pulls NOAA and commercial weather models via Python scripts, and executes limit orders when the odds ratio exceeds 1.3. The report notes this bot was found active on 8 instances, but alpha signals were zero, suggesting the edge is narrow but consistent in calm weather weeks.