Royal Caribbean's unusual options trades reveal a bold hedging strategy amid oil pressures
Royal Caribbean's stock saw unusual options activity on Wednesday, pointing to a sophisticated trading strategy. Two large trades—one involving calls, the other puts—suggest investors are using a dynamic collar to balance risk and potential gains. Meanwhile, cruise stocks faced broader pressure as oil price concerns weighed on the sector.
On Wednesday, Royal Caribbean (RCL) stood out in the options market with two trades ranking among the top 20 most active. At 11:49 AM, an 8,000-contract block of April 17 calls at the $340 strike was executed, leaving just seven contracts untouched. Simultaneously, a 4,300-contract trade accounted for nearly all the June 18 puts at the $290 strike.
The activity aligns with a dynamic collar strategy, where an investor holds the stock, sells a short-term call to generate income, and buys a longer-term put for protection. In this case, the April call—44 days to expiry and 18.38% out of the money—was paired with a June put—106 days to expiry and slightly in the money. The net cost of the $290 married put stands at $318.30, capping the maximum loss at $2,830, or 9.9% of the share price.
The moves come as cruise operators face headwinds. RCL, Carnival (CCL), and Norwegian Cruise Lines (NCLH) all declined on Wednesday, with RCL dropping the most at 4.68%. Over the past five days, the three stocks lost an average of 10.4%, though RCL fared better than its peers. Rising oil prices, fuelled by geopolitical tensions including the Iran conflict, have added pressure to the sector's profitability.
For long-term holders, such as those who bought RCL at its March 2020 low of $19.25, the dynamic collar offers a way to lock in gains while maintaining a bullish outlook. Institutions often use this approach to manage risk without exiting positions entirely.
The options trades signal cautious optimism among some Royal Caribbean investors. By combining income from sold calls with downside protection from puts, they aim to navigate volatility in a sector sensitive to oil prices. The strategy reflects a broader trend of balancing growth potential with risk control in uncertain markets.
