Range-bound trade sees Carnival adrift

By David Russell,

Shutterstock photo

One investor thinks that Carnival is dead in the water.

The cruise-ship operator has been bobbing up and down since the market sold off in August, staying mostly between $29 and $34. Today's option activity is looking for shares to remain in the upper end of that range for the next five weeks.

About 5,000 November 32 puts were sold for $0.95, and an equal number of November 35 calls were sold for $0.75 to $0.85, according to optionMONSTER's systems. Volume was more than twice open interest in both strikes.

Known as a short strangle , the trade generated income of $1.75. If CCL closes between $32 and $35 on expiration, the position will expire worthless and the trader will walk away with the credit as profit. Gains diminish and will eventually turn to losses outside that range.

CCL dropped 0.08 percent to $33.39 in morning trading. Its last earnings report on Sept. 20 beat estimates as management raised prices, but it has lost some bookings as political and economic worries hurt European demand. Management also cited rising fuel costs.

Implied volatility has been climbing in CCL and is now about 45 percent, versus the 35 percent area earlier in the year. That means that option premiums have increased, which could make some traders want to sell calls and puts. (See our Education section for more on market-neutral trades that make money from the passage of time rather than directional moves.)

Overall option volume in CCL is almost twice the average level so far today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: CCL

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