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How Large Option Traders Are Playing Carnival After CDC Lifted 'No Sail' Order

Wayne Duggan
·3 min read

The cruise industry still has a long way to go to get back in business.

On Monday, Carnival Corp (NYSE: CCL) shares traded lower by another 2% after a new set of CDC guidelines may have bumped a potential cruise industry recovery back another quarter.

A flurry of large Carnival option trades have been mixed in nature on Monday as investors struggle to determine if and when Carnival will get back to its pre-crisis earnings.

The Carnival Trades: On Monday morning, Benzinga Pro subscribers received 14 option alerts related to unusually large trades of Carnival options. Here are a handful of the biggest:

  • At 9:55 a.m., a trader sold 532 Carnival call options with a $15 strike price expiring in January 2022 at the bid price of $4.10. The trade represented a $218,120 bearish bet.

  • At 9:56 a.m., a trader sold 930 Carnival call options with a $15 strike price expiring on Jan. 15 at the bid price of $1.38. The trade represented a $128,340 bearish bet.

  • Less than a minute later, a trader sold 599 Carnival put options with a $25 strike price expiring on Jan. 15 at the bid price of $12.20. The trade represented a $730,780 bullish bet.

  • At 9:58 a.m, a trader bought 532 Carnival put options with a $15 strike price expiring in January 2022 at the ask price of $6. The trade represented a $319,200 bearish bet.

Of the 14 total large Carnival option trades on Monday morning, seven were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Seven trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

Why It's Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Carnival trades, they could potentially represent an institutional hedge.

Related Link: Cruise Stocks Sink After CDC Lifts Ban, Analyst Says New Guidelines Delay Recovery

Cruise Stocks Dead In The Water: The CDC lifted a total ban on cruises on Friday but implemented new measures requiring cruise lines to conduct mock voyages safely prior to gaining approval to take passengers on board. The CDC’s original “No Sail” order was implemented back in March due to the pandemic and was extended several times.

On Monday, Bank of America said the new set of CDC restrictions likely means a long, slow recovery in cruise revenue will now start in the first quarter of 2021 rather than the fourth quarter of 2020. In the meantime, Carnival and other cruise stocks are doing anything they can to stay afloat from a financial standpoint. Last quarter, Carnival reported a 99.5% drop in revenue and a $2.86 billion net loss.

  CCL Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NYSE:CCL", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_a4267" } );

Benzinga’s Take: Carnival’s 12% rally off the March lows is essentially a relief rally that the company appears to have enough liquidity to remain solvent in the near-term. However, additional upside for the stock from here may be limited if a second wave of infections continues to hurt the vacation industry and Carnival struggles to gain back its passengers in a timely manner.

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