Stocks

Carnival Stock Is Attractive to Long-Term Call Option Buyers

Buying long-term CCL LEAPs and selling short near-term puts is a good play for value investors

Photo by Cody McLain on Unsplash

Carnival Corp (CCL) is an attractive stock worth buying here, as I described in a recent article:

Dec. 20, 2024, Barchart.com article:

Carnival Corp Generates Huge Free Cash Flow for its FY 2024 - CCL Looks Undervalued

The article was based on Carnival’s recent fiscal year (ending Nov. 30) results, released today (Dec. 20, 2024).

I argued that, based on its free cash flow (FCF), CCL stock is now worth over $33.53 per share.

CCL closed at $26.80. That means the buying CCL stock has over 25% upside for a long-term investor.

However, there is a way to leverage this upside, without much more risk.

How to Play This with LEAPs

One way to do this is to buy deep-in-the-money (ITM) call options.

These are known as LEAPs (long-term equity anticipation securities). This play provides good leverage for the upside.

It can also be financed by repeatedly selling short out-of-the-money (OTM) put options in near-term expiry periods.

Let’s look at how this would work.

Long-Term ITM Calls. For example, CCL call options with expiry periods over one year out have attractive premiums. Here is a typical strike price play:

CCL calls expiring Jan. 16, 2026–392 days to expiration (DTE) — Barchart — as of COB 12–20–24

So, this table shows that the $20.00 call that expires over one year from now has a mid-price of $9.28 per contract.

That means that instead of paying $2,680 to buy 100 shares of CCL, you can buy 1 call contract expiring Jan. 16, 2026, and pay just $928.00 (i.e., 100 x $9.28).