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Bears Zero In on Carnival Corporation (CCL) Amid Cruise Ship Woes

Put buyers hope to profit from CCL's Triumph drama

by 2/15/2013 9:22 AM
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Carnival Corporation (NYSE:CCL - 37.35) saw a flood of bearish options activity on Thursday, which was likely triggered by this week's cruise ship chaos. Roughly 13,000 puts changed hands during the course of the session, which was about eight times the equity's average single-session put volume. By comparison, just over 2,800 calls were traded. Most popular proved to be the March 37 put, which saw nearly 4,200 contracts cross the tape -- the majority of them at the ask price, pointing to buyer-driven volume.

More specifically, these near-the-money contracts were exchanged for a volume-weighted average price (VWAP) of $1.07. Also of note, open interest at this strike soared by 3,507 contracts overnight, making it safe to assume that new positions were initiated here. This option now carries peak put open interest of 3,890 contracts in the March series. Essentially, speculators are counting on CCL to fall south of $35.93 (strike price less the VWAP) by the close on March 15, when these soon-to-be front-month puts expire. This would entail a 3.8% retreat from yesterday's closing price of $37.35.

However, the cruise concern is no stranger to downbeat attention in the options pits. In fact, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open almost 10 puts for every call during the past couple of weeks. The resultant 10-day put/call volume ratio of 9.74 is just 8 percentage points away from a 52-week peak, indicating speculators have been placing bearish bets over bullish at a near annual-high clip.

In a similar vein, Schaeffer's put/call open interest ratio (SOIR) for CCL checks in at 1.16, indicating puts outstrip calls among options with a shelf-life of three months or less. This ratio ranks higher than 80% of similar annual readings, meaning short-term traders have been more put-heavy toward the stock just 20% of the time during the last 12 months.

Technically speaking, CCL hasn't been much to brag about lately, as the shares hover just 1.6% above breakeven year-to-date. Meanwhile, the equity has also lagged the broader S&P 500 Index (SPX) by about 10 percentage points during the last three months. Things may not improve for the cruise behemoth anytime soon, as its crippled Triumph ship -- which stalled in the Gulf of Mexico due to an engine room fire, but reached shore today -- will likely result in considerable costs for CCL. President and CEO Gerry Cahill issued a statement on Wednesday announcing that each passenger will receive monetary compensation, in addition to full refunds and a credit for a future cruise. What's more, the company revealed that losses related to the Triumph fiasco could reduce CCL's second-half per-share earnings by up to 10 cents.


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