Thursday, December 17, 2015

CCL Analysis

Update 12/21/2015: My bullish analysis of CCL proved to be correct, with the earnings announcement followed by a large upward gap, and I exited the position with 60% of the potential profit.

Shares rose by +4.9% over four days, or a +451% annual rate. The options position produced a +150.0% yield on debit for a +13,688% annual rate.

The nautical cruise company Carnival Corp. (CCL), headquartered in Miami, Florida, publishes earnings on Friday before the opening bell.

[CCL in Wikipedia]


I shall use the JAN series of options, which trades for the last time 29 days hence, on Jan. 16.


Implied volatility stands at 38%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. CCL’s volatility stands in the 79th percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

CCL hit a post-recession peak on Oct. 30 and then swung into a counter-trend decline, which bounced back to the upside on Dec 3.

Zacks Investment Research, in its non-subscriber information, gives CCL as 12.2% earnings surprise prediction.

Analysts collectively give CCL a 6.3% enthusiasm rate, with half issuing strong buy recommendations.

I shall bias the trade to the upside.

Normally, I would go with the FEB options, but like many symbols, CCL's options series skip from JAN directly to APR. So, January it is.

Bull put spread, short the $50 puts and long the $49 puts,
sold for a credit and expiring 
Jan. 17.
Probability of expiring out-of-the-money


The premium is $0.30, which is 30% of the width of the position’s wings. The stock at the time of entry was priced at $51.20.

The risk/reward ratio is 2.3:1.

The entry price is $1.20 above the strike. The biggest immediate move after each of the past four earnings announcements was $2.70, and the average was $1.14.

Decision for My Account

I have opened a position on CCL as described above.

-- Tim Bovee, Portland, Oregon, Dec. 17, 2015


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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