One of the most interesting “smart money” trades we came across yesterday was with Carnival Corp (NYSE: CCL).
If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:
- Which direction the trader thinks the stock is headed
- How much they think it will rise (or fall), and
- In what time frame this will all happen.
If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…
A Pro Trader Just Bet $10,171,840 that CCL will Stay Bearish For the Next 4 Months
On Wednesday, May 25, 2022, a pro trader seems to have bought 181,640 of the September 16, 2022, $7.5 put options on CCL for $0.56 per contract. His outlay was $10,171,840.
CCL – Option Trade
The trade’s breakeven point is at $6.94, meaning that CCL needs to decline to $6.94 for the put option trade to break even. This is a nearly 43% downside from the stock’s previous close of $12.18. And then for every $1 the stock falls below $6.94, our “smart money” trader will make $18,164,000!
On analyzing the chart of CCL, the stock seems to have broken down from a downtrend channel (marked as blue color lines). It is also currently trading below a resistance area (marked as a pink color dotted line). All this makes it likely our pro trader is bearish on CCL.
CCL – Daily Chart
This lends credence to our conclusion that the pro bought these put options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the September 16, 2022, $7.5 put options on CCL for $0.56 per contract or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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