Bearish Carnival Corp (CCL) option traders who opened downside positions just two days ago are already seeing exponential gains.
On Tuesday, Feb. 25, our Unusual Activity Tracking systems found that 6,500 Weekly $37 puts expiring tomorrow, Feb. 28, were bought for $0.50 to $1.29 with shares at $36.55. This was clearly fresh buying, as volume was well above the strike’s existing open interest of 688 contracts.
Those puts traded for as much as $6.69 today, more than 5 times their purchase price. The stock declined 16.94% in the same time frame, showing how quickly options can far outperform moves in their underlying shares on a relative basis.
Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.
CCL ended today down by 3.89% to $31.85. The cruise line operator has seen its shares fall sharply after passengers on two of its ships were found to be infected with the COVID-19 Coronavirus.