HOGS Gets Slaughtered Amidst Swine Flu Uncertainty

I am far from being an expert on swine flu, but based on everything I have heard, there is no evidence to support that swine flu can be transmitted through the consumption of pork products. Still, investors did not let this fact stand in the way of selling Zhongpin (HOGS), the $231 million (market cap) Chinese producer of pork and pork products. HOGS fell 6.2% yesterday on the second highest volume session since last July in what was clearly a case of guilt by association.

Options traders, however, reacted in a different fashion. The graphic below, courtesy of WhatsTrading.com, shows that while options activity spiked dramatically, most of the action was in calls, which was running at about twice the rate of put volume yesterday. Also, implied volatility (not shown) more than doubled.

Obviously there is a great deal of uncertainty surrounding swine flu - and a fair amount of misinformation being circulated. There is no doubt that eating pork products is unrelated to the spread of swine flu, but that does not necessarily mean that pork products and stocks such as Zhongpin will be shunned and suffer real declines.

[source: WhatsTrading.com]

Disclosure: Long HOGS at time of writing.

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