4am on a Saturday night a couple weeks ago, a friend in New York texted me this: OMG  I can’t go shopping anymore cuz the streets are flooded WTH!!!!

Manhattan Flooding Source: National Geographic

At the time, I rolled my eyes, told him to get lost, at went back to sleep. Now that I think of this…OMG isn’t this supply chain management outliers threatening the entire retail sector’s revenues for 2012 Q4?!!! How could I have kept sleeping!!

As expected, the option market skewed heavily towards puts during “Sandy times”, and sectors that would typically be expected to fall did so. But… seriously, I can’t understand who would be shorting a put during hurricane times? It’s not like Sandy is the first “girl” that U.S. has encountered! Look at Irene, Katrina, and the entire list here.

After a while, don’t investors catch that the same things happen every time, and begin to expect these downfalls, so that these market changes eventually go away? For example, you’d expect airlines to go down a couple points, so you short it; but shouldn’t the market anticipate that already, and thus work against you? Well, at least that’s how I thought market efficiency worked.

Or, does it work the other way around – that expectations turn into reality? OR – Could it be that investors are just…plain forgetful?