Trading Tips

Profit From Weathering a Storm

September 03, 2019 Trading Tips
Trading Tips
Profit From Weathering a Storm
Show Notes

Hurricane season is in full swing this time of year, and once again the east coast is in the crosshairs.

It’s something that’s happened before, and will happen again. While the unpredictable weather can sometimes cause billions of dollars in damages in a few short days, astute traders can take advantage of these developments to make an extra profit from it as well—as long as they’ve planned ahead carefully and are prepared.

For instance, it’s easy to see long lines at gas stations and grocery stores ahead of storms. And companies that sell electric generators, storm shutters, and other supplies tend to likewise see their shares advance more than the general stock market ahead of a big storm.

And companies with risk exposure to an affected area, like a home insurance company, will see its shares drop. How far that happens depends on the likely impact and the value of all the properties in the area. But markets tend to price it in quickly.

Investors looking for a short trade during hurricane season should buy put options on certain insurers as soon as it looks like a storm may hit—chances are it will drop substantially. However, shares will rally somewhat after a storm when the damage assessment is done.

Adding some of these trades to your portfolio during a storm will give you some small, but predictable gains. And with the use of the options market, you can leverage those gains for the best results. Understanding what moves—and when—during a pending disaster can give you an investment edge and a trading strategy that comes up during the summer months.

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