Before we dive into this week’s idea, we do need to move on from our Oscar Health (OSCR) position that broke below our stop. While it’s possible the stock will rebound in the days/weeks to come (especially as the stock decline may be tied to politics), we need to respect the stop and exit our covered call.
To execute this trade you need to:
Sell OSCR Stock
Buy to Close the OSCR July 22.5 Call
Moving on …
Ahead of a holiday-shortened week, last week was mostly quiet as the S&P 500, Dow and Nasdaq were all down marginally.
And while the market may be slow again this week headed into the Fourth of July, this is the start of the third quarter, which could bring some volatility ahead of the presidential election.
The Stock – Carnival (CCL)
The persistent nature of the “revenge travel” trend of the last couple of years has resulted in higher bookings and earnings for cruise industry leader Carnival in recent years, despite higher ticket prices—and, defying expectations, trends are as strong as ever today.
That was one of the key takeaways from last week’s stellar Q2 results, which included record revenue, operating income and booking levels, all of which allowed the company to make “incredible strides” in just about every metric the firm reports. Revenue of $5.8 billion increased 18% year-on-year, while per-share earnings of 11 cents soared past estimates by 13 cents and adjusted free cash flow of $1.3 billion (north of $1 per share) doubled from a year ago (all reasons for the stock’s strength).
More important is that there are no signs of any slowdown: Customer deposits reached an all-time high of over $8 billion, obliterating the previous record from last year by over $1 billion, and other figures were equally solid, including a record cumulative booked position (the firm’s booking measurement) for the remainder of 2024, both in terms of price and occupancy, while the cumulative booked position for full-year 2025 is currently even higher than this year in both categories!
Carnival said it’s encouraged by the consistent growth (up 10%) in both repeat guests and new guests within each of its segments in Q2. What’s more, this isn’t just a post-Covid recovery story: The delivery of two Excel-class ships in 2027 and 2028 will be the firm’s eighth and ninth new ships to hit the water since 2019, bolstering capacity by a whopping 50% during that time. The continued strong demand trends prompted management to raise guidance and expect EBITDA to increase 40% for 2024. Analysts see the top line perking up 14% this year, with significant improvements in the bottom line and free cash flow over the next couple of years as the company’s initiatives pick up steam.
Technical Analysis
CCL had a strong recovery from a record low at 6 in October 2022, shooting up over 13 points in the nine months that followed before peaking last July. The going since then has been quite tumultuous, with shares zig-zagging between 11 and 20 over the last year. However, the stock has established a rising series of lows since April, with trading volume picking up significantly after last week’s earnings release ... before today’s sloppy decline after the stock was rejected from resistance. Stop — 16
The Covered Call Trade
Buy Carnival (CCL) Stock at 18, Sell to Open August 18 Strike Calls (exp. 8/16) for $0.85, or a Net Price of 17.15 or less
Static Return: $85 per covered call (4.95%)
Breakeven: 17.15
Covered Call Return (if assigned): $85 per covered call (4.95%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 17.15 or less. (In this case 18 minus 0.85 = 17.15. Or another example is you could pay 17.75 for the stock and sell the call for 0.60, which also equals 17.15)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Pinterest (PINS) | 41.5 | 43 | 35 | July 41 -- $2.75 | $2.00 |
| Oscar Health (OSCR) | 22.5 | 16 | 17 | July 22.5 -- $2.30 | $0.10 |
| Dutch Bros (BROS) | 36.35 | 42 | 31 | July 37.5 -- $1.65 | $5.00 |
| Sweetgreen (SG) | 30.45 | 29 | 25 | July 32 -- $2.10 | $0.70 |
| Howmet Aerospace (HWM) | 83.15 | 77.5 | 74 | July 85 -- $1.90 | $0.35 |
| Guardant Health (GH) | 30.75 | 29 | 24 | July 30 -- $2.40 | $1 |
| Hims & Hers (HIMS) | 23 | 21.7 | 17.7 | July 23 -- $1.85 | $1 |
The next Cabot Profit Booster issue will be published on July 9, 2024.
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