2 Cruise Stocks to Watch this Week

Options players are disregarding the earnings histories of RCL and NCLH

Nov 6, 2017 at 2:43 PM
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Later this week, traders will digest third-quarter earnings from cruise lines Royal Caribbean Cruises Ltd (NYSE:RCL) (Tuesday) and Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) (Thursday). Here's a closer look at what traders are expecting from the cruise stocks ahead of earnings.

Options Market Prices in Big Earnings Swing for Royal Caribbean Stock

Royal Caribbean stock has surged the charts this year, adding 52.7% and touching a record high of $128.09 on Oct. 13. At last check, the security was trading within a chip shot of this all-time high at $125.34, up 1.7%, after Wells Fargo and Susquehanna raised their price targets earlier this morning to $135 and $144, respectively. RCL shares could climb higher toward these price targets after Tuesday's earnings report, if past is precedent.

Historically, RCL shares have rallied the day after earnings in five of the last eight quarters, with an average post-earnings move of 6.4%, regardless of direction. This time around, the options market is pricing in a bigger-than-average one-day swing of 9%, per at-the-money implied volatility data from Trade-Alert. A jump of this magnitude would send the security up to record highs -- in the $136 neighborhood.

Despite the stock's impressive earnings history and recent price action options traders appear to be bracing for a RCL decline. The security's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.96 ranks in the 78th percentile of its annual range. In other words, options players have bought to open puts relative to calls at a faster-than-usual clip during the past two weeks.

Earnings History Isn't on Norwegian Cruise Line Shares' Side...

Although Norwegian Cruise Line stock has climbed roughly 30% in 2017, the shares have struggled to hold onto gains since touching an annual high of $61.48 on Aug. 8. And while the equity was last seen trading 0.6% higher at $55.37, it could sink lower after Friday's earnings report, if past is prologue.

Looking back at the last eight quarters, NCLH shares have moved lower the day after five of the last eight reports, with an average post-earnings move of 6.5%, regardless of direction. For Friday, the options market is pricing in a bigger-than-average one-day swing of 7.5%. A drop of this nature would send the security to the $51 neighborhood.

...But Options Traders Are

Options traders on the ISE, CBOE, and PHLX, however, could be expecting a post-earnings pop, as evidenced by the stock's 10-day call/put volume ratio of 20.76 -- good enough to rank in the 94th annual percentile. This ratio tells us that options players have bought to open more than 20 NCLH calls for every put during the past two weeks.

Echoing this, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 0.21, which ranks lower than 95% of all other readings from the past year, meaning short-term options traders have rarely been more call heavy during the past 12 months.

 

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