Carnival Bears Strike After Thomas Cook Collapse

CCL tests of its 120-day trendline have preceded periods of weak price action in the past

Sep 23, 2019 at 2:39 PM
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Carnival Corp (NYSE:CCL) is trading lower today, as travel stocks swoon on news of U.K. tour company Thomas Cook's collapse. CCL shares are down 1.9% to trade at $47.30 -- pacing for a fourth straight drop, and retreating from a historically bearish trendline -- and put traders are driving a busier-than-usual session in the stock's options pits.

So far today, more than 8,000 CCL puts have traded -- triple what's typically seen at this point, and double the number of calls on the tape. The weekly 10/4 42.50-strike and 45.50-strike puts are in heavy rotation, and it looks like one speculator used the short-term contracts to initiate a long put spread. If this is the case, the goal is for Carnival to sink all the way down to $42.50 by expiration at the close next Friday, Oct. 4.

Elsewhere, traditional options bears appear to be buying to open the weekly 10/4 46- and 47-strike puts. By doing so, they will profit the further below the strikes CCL trades through expiration at next Friday's close.

Widening the scope reveals today's put-skewed session is nothing new for Carnival. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 2.80 registers in the 89th annual percentile, meaning puts have been bought to open over calls at an accelerated clip.

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.02 ranks in the 100th percentile of its 12-month range. In other words, short-term speculators are more put-heavy than usual toward CCL.

Looking at the charts, it's not hard to see why options traders are betting against the stock. Carnival shares are down almost 30% year-over-year. Plus, CCL's recent bounce off its Aug. 28 three-year low of $42.42 was quickly halted near the round $50 mark -- home to its late-June pre-bear gap levels.

What's more, this recent run higher brought CCL face to face with its 120-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the seven other times the stock has tested resistance at this trendline, looking back three years, the shares were 4.2% lower, on average, one month out, with just two of those returns positive.

carnival stock daily chart on sept 23


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