Cruise Stock Plunges After Downgrade

The equity is down almost 68% year-to-date

by Fernanda Horner

Published on Jun 24, 2020 at 11:12 AM
Updated on Jun 24, 2020 at 11:26 AM

The shares of Carnival Corp (NYSE: CCL) are down 9.1% at $16.38 this morning, after ratings agency Standard & Poor's downgraded the company's bonds to junk status on Tuesday, citing continued weak demand for the cruise industry. 

The equity has been sinking since mid-March, when the coronavirus pandemic stopped ship travel around the world. Though the shares fought their way back up to the $25 level earlier this month, they were turned away by their descending 100-day moving average. And despite a 23% quarterly gain, CCL remains down 68% in 2020.

Analysts have been shaken by the choppy waters, with 10 of the 13 in coverage rating the equity a tepid "hold" or worse. Meanwhile, the 12-month consensus target price of $16.39 is a mere a 0.2% discount to current levels.

Short sellers are piling on, too. In the last two reporting periods, short interest rose 11%, and the 113.07 million shares sold short represent a whopping 24% of the stock's available float.

In response to today's downgrade, put traders have come out of the woodwork. At last check, over 56,000 puts have changed hands, double the average intraday amount and twice the number of calls traded. Leading the charge is the weekly 6/26 17.50-strike put, followed closely by the weekly 7/2 17-strike put, with new positions being opened at each.

What's more, the stock's Schaeffer's Volatility Scorecard (SVS) sits high at 90 out of 100, showing that the equity has tended to exceed option traders' volatility expectations during the past year, a good thing for option buyers.


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