Cruise line operator Carnival Corporation (CCL) has seen shares sink in recent weeks amid fears of an economic slowdown, including on vacations and tourism. One trader sees shares trending lower into the summer.
That’s based on the June $14 puts. With 57 days until expiration, 4,021 contracts traded compared to a prior open interest of 105, for a 38-fold rise in volume on the trade. The buyer of the puts paid $0.36 to make the bearish bet.
Carnival shares recently traded for about $18, so shares would need to drop by $4, or just over 22%, for the option to move in-the-money. The strike price of the option is right near Carnival’s 52-week low of $13.78.
Even with the downturn in recent weeks, Carnival shares are up 16% over the past year. Shares are reasonably priced at about 9 times earnings.
But with a downtrend in place and economic fears rising, shares are likely to keep drifting lower.
Action to take: Interested investors may want to start building a stake here, and use further weakness to add to that position. Once current economic fears wear off, shares could be in for a strong relief rally.
For traders, the June $14 puts play well for the current downtrend. The low cost of the options could result in high double-digit returns or better. Traders will want to close the position if headlines about travel and tourism start to improve.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
