Large Option Traders Bets On More Carnival Downside Despite Easing Oil Prices

Shares of Carnival Corp CCL traded lower by 1.68% on Wednesday as oil prices slipped another 1.7% in the wake of Saturday’s attack on Saudi Arabia.

Despite easing concerns over a prolonged supply outage in Saudi Arabia, Carnival shares continued lower, and at least one large options trader made a pair of massive bets that the worst is yet to come for Carnival.

The Trade

On Wednesday, Benzinga Pro subscribers received two option alerts related to an unusually large Carnival option trade.

At 8:52 a.m. ET, a trader bought 1,841 Carnival put options with a $47.50 strike price expiring on Oct. 18. The contracts were purchased near the ask price at $1.25 and represented a $230,825 bet that Carnival shares have at least another 5.1% downside over the next month.

At 9:30 a.m. ET, possibly the same trader bought 956 Carnival put options with a $42.50 strike price expiring on Oct. 18. The contracts were purchased near the ask price at 30.1 cents and represented a $28,775 bet that Carnival shares have at least another 13.4% downside over the next month.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of the Carnival option trades by institutional standards, they are unlikely to be hedges.

All About Oil?

Carnival shares are down 3.5% this week on concerns that higher fuel costs could eat into earnings in the wake of the Saudi attack. The attack sent Brent crude oil prices soaring as much as 19.5% on Monday, the largest single-day jump in history.

Fortunately for Carnival investors, oil prices eased significantly on Tuesday and Wednesday on reports that Saudi production may be back on line sooner than expected. Instinet analyst Harry Curtis said this week that a sustained 10% increase in oil prices could reduce Carnival’s annual EPS by 24 cents.

Benzinga’s Take

Assuming Wednesday’s large option trades were not hedges, the trades suggest no end in sight to the rising tensions in the Middle East in the next month. Any military action on behalf of Iran, Saudi Arabia and/or the U.S. would likely lead to another leg higher in oil prices and potentially pressure Carnival stock further.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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