Cruising for Profits with Carnival (CCL)

Few industries were hit as hard during the pandemic as cruise lines. But, after bottoming out more than a year ago, CCL has more than tripled in value.  And although its latest earnings report showed the company absorbing a loss, booking volumes were 90% higher than the previous quarter. That, along with accelerating vaccinations and anticipation of strong demand this summer, brought a slew of analyst target price increases.

The shares have pulled back from their 2021 high following earnings, unable to break through triple-top resistance in the 30-31 area. The retreat has nearly reached the ascending 50-day moving average, which sits at the 27 level. The 50-day provided support to previous pullbacks in February and March. With the fundamentals turning favorable, look for support to hold to keep the uptrend intact.

CCL Chart April 2021

If you agree that CCL will continue its uptrend, consider the following trade that relies on the stock remaining above $26 through expiration in six weeks.

Buy to Open CCL 28May21 24 Put (CCL210528P24)
Sell to Open CCL 28May21 26 Put (CCL210528P26) for a credit of $0.65 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when CCL was trading at $27. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $66.70. This trade reduces your buying power by $200 and makes your net investment $133.30 ($200 – $66.70).  If CCL closes above $26 on May 28, both options will expire worthless and your return on the spread would be 50% ($67.70 / $133.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry