It’s been a while since we had a flu scare.
We had avian flu a few years ago and the biotech stocks of companies that made vaccine went nuts for a while and then crashed when it turned out to be much ado about nothing. Of course before that was mad cow and that one devastated the beef and restaurant industry, especially in Europe where steak houses went bankrupt as people refused to eat meat so don’t underestimate how fast panic can spread and habits can change when people start dying. The pigs are getting a bad rap this time as this particular virus is a mix of swine, bird and human strains but logic doesn’t enter into these things and if the press is determined to label it “swine flu” then you bet that’s what the public will fixate on.
HRL is a big seller of pork products and could make a big breakdown if they can’t hold $30 but, rather than short them, I prefer to get in on a dip as these things do tend to pass. GSK makes a vaccine and is an obvious upside choice and they’ve been trading well off their highs so make a nice play either way. The June $30 puts can be sold naked for $2.17 and that’s a nice way to enter the stock (or get paid $2 NOT to buy it). Also buying the stock at $29.34 (which pays a 5.6% dividend) and selling the June $30 calls for $1.10 and the June $27.50 puts for $1.05 drops the net entry to $27.19 and an average entry of $27.35 if put to you, a nice discount to the current price (see “How to Buy a Stock for a 15-20% Discount” for details on this strategy). GSK 2011 $25 calls are also pretty cheap at $6.15 ($2 in premium) and we can sell calls against them on a nice run up, perhaps a 1/2 sale of June $30s at $2+ (now $1.10).
NVAX already got a huge pop on Friday when this story first spread and should continue to fly but that’s one of the ones we’re more likely to short as they get overextended. I think my other favorite upside play is MMM, who don’t make a vaccine but do make those blue masks that governments love to give out to make people feel like they’re doing something. It’s hard to get US…
