Shares of Carnival Corp (CCL) are trying to rally ahead of the company’s earnings announcement June 28. The option pits are pricing in a move of up to 7% after the results are released, and the technical setup might provide a short-term opportunity for aggressive traders.
Wall Street is expecting a profit of $0.39 a share on revenue of $3.68 billion. The high estimate for earnings is $0.43 a share, while the lowball estimate is at $0.36 a share. Revenues are pegged to come in at $3.75 billion on the high side and $3.64 billion on the low side.
The company beat estimates during the past four quarters by 7 cents, 8 cents, 12 cents and 9 cents, respectively. Revenues have come in higher than expectations during three of the past four quarters.
CCL Stock Options
The technical setup shows a mixed picture, as are all of the major moving averages in play. The 50-day moving average recently fell below the 200-day moving average to form a “death cross,” which is usually a bearish development. However, both are flattening out, and the 100-day moving average is trying to turn higher.
The CCL July $49 calls (CCL160715C00049000, $1.65) were active Wednesday, as over 1,100 contracts traded. If shares trade past $52.30, technically, by mid-July, these call options will easily double from current levels.
The CCL July $49 puts (CCL160715P00049000, $1.64) have traded thinly today on very little volume. These options would double from current levels if shares fall below $45.72, technically, by July 15.
Both options purchased together would create a “straddle” option trade for a combined cost of $3.29. The breakeven points for the trade would be $52.29 and $45.71. A double would occur if shares trade past $55.58 or trade below $42.42, technically, by the middle of July.
The aforementioned straddle option trade would require a double-digit-percentage move in the stock to make a nice profit. Although this is possible, it is asking a lot, which is why I would shy away from this type of strategy for this particular play.
A directional trade makes more sense, but figuring out how shares will react makes this strategy much more risky. The trend of the earnings beats is hard to ignore, but analysts have soured on the stock in recent months heading into next week’s event.
If shares can clear $49.50-$50 over the next few days, perhaps it would be a sign that a bullish breakout is coming.
If these levels, along with the 200-day moving average, hold for the rest of the week, it could be a clue that resistance will hold.
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