Before we dive into this week’s covered call idea we are going to first move on from our position in Credo (CRDO) as the stock finished below the 40 strike price on Friday, which means the call we sold expired worthless, leaving us with our stock position today which is now trading back above 40 (great!).
To execute this trade you need to:
Sell your CRDO stock
Moving on …
Not surprisingly, the post-election market wiggles continued last week as many stocks and sectors continued to show strength, while others got hit hard. By week’s end, the three leading indexes had all lost ground as the S&P 500 fell 2.3%, the Dow declined by 1.7%, and the Nasdaq lost 3.65%.
The Stock – Norwegian Cruise Lines (NCLH)
Norwegian Cruise Lines ($11.5 billion market cap) is smaller than Royal Caribbean ($62 billion) and Carnival ($28 billion), but it’s thriving thanks to the same trends of tight capacity, rising charter prices and a future outlook that continues to brighten despite doubts as to how long the boom can continue.
Norwegian operates three different brands (its namesake makes up 85% of beds, with Oceania and Regent making up the rest), and they’re firing on all cylinders, with the latest quarterly report on Halloween showing 11% sales, 30% earnings and 24% EBITDA growth, with margins picking up (EBITDA margins are expected to come in at a whopping 35% this year, up 4.6 percentage points from 2023) and with bookings at the “upper range of an optimal booked position,” with Q3 bookings mostly for 2025 at this point. (Advanced ticket sales totaled $3.3 billion at the end of Q3, up 6% from last year’s already-record figures.)
However, another big reason for the strength here is that the firm has embarked on an aggressive expansion campaign: From last year’s capacity of 22.7 million, the firm is targeting 6% growth annually through 2028 (including a 5% bump next year) and 4% through 2036 (longer-term plan). All told, another 13 ships are likely to hit the water in the next few years, so if the industry remains in good shape, Norwegian should thrive. To be fair, the firm is relatively highly leveraged, partially because of that expansion phase—its debt is still 5.6x EBITDA, though that’s down 1.75x in the past nine months—but the focus by investors is on the growth potential.
After a huge earnings pop this year, analysts see another 27% gain in 2025, but given that Norwegian has hiked estimates three times already this year, those are probably headed higher.
Technical Analysis
NCLH doesn’t get as much attention as some of the larger firms in the cruise industry, but its fundamental results have been just as good and now the stock is starting to discount it. After a huge base-building effort that started in July of last year, shares bottomed out with the market this August and turned up nicely in September, breaking out on good volume in October and getting an added boost after the election. Stop – 22.5
The Covered Call Trade
Buy Norwegian Cruise Lines (NCLH) Stock at 26, Sell to Open December 26 Strike Calls (exp. 12/20) for $1, or a Net Price of 25 or less
Static Return: $100 per covered call (4%)
Breakeven: 25
Covered Call Return (if assigned): $100 per covered call (4%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 25 or less. (In this case 26 minus 1 = 25. Or another example is you could pay 25.75 for the stock and sell the call for 0.75, which also equals 25)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Toast (TOST) | 38.7 | 40 | December 38 -- $2.45 | $3.00 |
The next Cabot Profit Booster issue will be published on November 26, 2024.
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