Possible Swine Flu Profit Trades

by: Option Maestro

Looking at the U.S. stock market futures we seem to be down quite a bit. The Dow is down 152, S&P 500 down 19, and the Nasdaq is down 23.75. Looks like Monday could be a rough day, with the likelihood of some depressing earnings reports as well as people worrying about the Swine flu, we could be down significantly.

Speaking of the swine flu, that story may actually shine some light on the Pharma sector Monday. A way to profit off of this highly talked about illness may be to flip some med stocks. I remember when Severe acute respiratory syndrome (SARS) was highly covered I was able to make some profits. One of the drugs given to patients that for SARS was Ribavirin. Two publicly traded companies which distribute popular forms of this drug are Roche (OTCQX:RHHBY) (OTC) and Valeant (VRX). As one can see from the Google News Timeline below, the media heavily covered SARS in March-June and peaking in April.

Now if we look at the Google Stocks charts for both Roche and Valeant, as well as other major drug stocks such as Wyeth (WYE) , Pfizer (NYSE:PFE), and AstraZeneca (NYSE:AZN) we notice an uptrend in these stocks.

The overall trend looks to be an initial pop as the possible first stories were reported of SARS in January, then a minor dip through February for both Roche and Valeant, but more or less a sideways move for the three giants. However, as the story gained more coverage the stocks rose very sharply, riding the wave until about mid-June. There is certainly a correlation here between the coverage of SARS in the media and the stock prices of these drug makers.

For Monday I would watch Roche very closely as they make Tamiflu which is a popular flu treatment and prevention drug. Also watch for large drugstores to move such as CVS (NYSE:CVS) and Walgreen (WAG). Depending on how long this is HOT news in the media will certainly impact the stock prices for these companies. Just don't get burned by holding anything too long!

I am hoping they find a treatment quickly, and can contain this ASAP. My heart goes out to everyone affected, and I am hoping for the best.

Disclosure: Long PFE