In the coming days, several stocks that are affected by hurricane Sandy will offer trading opportunities both on the long and the short side.

Here is how to play them based on the historical data from previous storms.

Insurance stocks

Insurance stocks such as Travelers TRV, Chubb  CB, and Allstate ALL will be in play.

It is too early to tell, but insured losses are likely to be in the range of $5-$10 billion.

Property and casualty industry in the United States is capitalized at about $500 billion. Insured losses are likely to be under 2% of the capital. Further, some losses will be covered by reinsurance and typically water damage is not covered by insurance.

In the past, every time insurance stocks have been hit in the wake of a storm, it has been a buying opportunity. Typically insurance companies succeed at raising rates after storms.

Hardware stores

Hardware stores such as Home Depot  HD  and Lowe’s  LOW are obvious beneficiaries. In the past, these stocks gap up and overshoot on the upside. The real profitable opportunities have come from shorting the overshoot.

Pumps and generators

The generator company Generac Holdings  GNRC will be in play, as well as pump companies such as Xylem XYL  and Pentair  PNR. Often Briggs & Stratton BGG  also benefits as it makes small engines. These stocks can be played from the long side if a short-squeeze occurs. At the end of the short-squeeze, big profits will be made on the short side…Read more at MarketWatch