My prayers are that Hurricane Irma does not cause much destruction.
But, unfortunately, it looks as if it will. For investors, there may be trading opportunities, as shares of some companies may be punished more than they should be. For them, it is important to consider the following three scenarios:
• Damage is less than expected
• Damage is in line with expectations
• Damage is worse than expectations
To understand the trading setups, let us start with a chart.
Please click here for the chart of Universal Insurance Holdings UVE, an insurance company that does a lot of business in Florida.
The chart shows that the stock has fallen to the first support zone in anticipation of large damages from Hurricane Irma. It also shows the second support zone.
It appears that investors are anticipating about $40 billion-$50 billion of insured losses in Florida. As a reference, Hurricane Andrew, which was somewhat similar to Hurricane Irma, caused $15.5 billion of insured losses in 1992. Since 1992, the value of the dollar has fallen and there has been more construction. According to some estimates, if Hurricane Andrew were to hit today, the insured losses would be about $50 billion.
From a trading perspective, if the damage is significantly less than anticipated, the stock may not only recover the entire loss, but may go even higher to the zone shown on the chart. The reason is that after the hurricane, insurance companies may be able to raise rates…Read more at MarketWatch
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