In my MorningWord earlier (Vol Around the World) I highlighted the potential for the growing global uneasiness to weigh on U.S. multi-nationals earnings at a time where it seems that the global economy is on fragile footing at this stage of the economic recovery.
Given the recent unrest in the Middle East and Eastern Europe, and specific issues with one Asian airline, and the spreading of diseases like Ebola, the travel industry could be in for a rocky period. Despite recent strong results from Royal Caribbean Cruises (RCL), this stock was on one trader’s hit list today.
As a routine observer of unusual options activity it is hard to know exactly what the initiating trader/investor is doing or thinking, but some times the activity makes sense when put in broader macro terms. Earlier today there was a large put purchase in (RCL) that caught my eye as at the very least it looked defensive, but possibly one player looking for a greater than 10% move by Sept expiration. Lets break down the trade: When RCL was $60.48 a trader bought a block of 7500 Sept 55 puts paying .58 to open. Given the stock’s 26% ytd gains, and last month’s 8% earnings gap to new all time highs, this trade was very likely a long looking for dollar cheap downside protection to protect the stock below the July gap:
If this was protection, the trader was probably looking for dollar cheap protection, in this case risking about 1% of the stock price for protection down 10%. The one year chart below shows in white the 30 day at the money realized volatility (how much the stock has been moving) vs the realized vol (the price of options). What sticks out is the discount of Implied vol to realize, and if the stock were to fill in the gap, options prices would surely pick up on a vol basis adding a little extra juice to the protection:
Here is another example of an investor buying protection when it is reasonable rather than when it is necessary.