©(c) provided by Benzinga

Cruise ship operator Carnival Corp (NYSE:CCL) earlier represented one of the intriguing bullish plays in the broader consumer discretionary market, with CCL stock rising 71% between the beginning of May and the end of August. Since then, however, the security has incurred a noticeable erosion of value. Still, the downturn may present a potential upside prospect for data-driven speculators.

Much of the latest volatility can be tied to competitive pressures sending CCL stock down in sympathy. Last week, rival Norwegian Cruise Line Holdings (NYSE:NCLH) suffered a downturn after its third-quarter report showed significant sales weakness. It wasn’t necessarily surprising given that consumer sentiment has been dropping due to top-level concerns, particularly inflation, job security and overall economic stability. Still, the actual disclosure required a capital reevaluation.

Unfortunately, this reevaluation meant that direct competitors — which are obviously not immune to consumer-related pressures — also suffered from Norwegian’s less-than-desirable report. However, it’s also fair to point out that the bad news has likely been baked into CCL stock. With nearly a full calendar week having passed since Norwegian’s disclosure, investors will need a new justification to continue bleeding out CCL.

Based on Carnival’s quantitative picture, the next moves may be net positive overall.

Leveraging Data Science to Navigate CCL Stock Options

In the sport of baseball, the shortstop position is one of the most demanding because most balls are struck in that vicinity. Naturally, MLB teams run heavy analytics on the opposition to understand probabilistic spray patterns. As such, professional shortstops will position themselves accordingly so that they can have the best chance of disrupting the opponent’s offensive intentions.

If a children’s game utilizes data science to improve performance, it only makes sense to utilize the same principles for the equities market. Thanks to modern technology, we can deploy the conceptual frameworks of the two Andreys, Kolmogorov and Markov. Using the methodology of these two Russian scientists, price behavior can be treated as a discretized and measurable probability space with real outcomes and distributional probabilities.

That sounds really complicated. What we’re really trying to establish is where CCL stock is likely to cluster given certain conditions.

Using the aforementioned Russian axioms on a dataset extending back to January 2019, the forward 10-week median returns can be arranged as a probabilistic distribution, with outcomes ranging between $26.68 and $27.42 (assuming an anchor price of $27). Further, price clustering would likely be predominant at $27.20.

Image by author

The above forecast is based on an aggregate of all sequences in the dataset. However, the current quantitative structure of CCL stock is distributive, arranged in a 4-6-D sequence; that is, in the past 10 weeks, CCL has printed four up weeks and six down weeks, with an overall downward slope.

Under this setup, forward 10-week median outcomes would be expected to range between $26.10 and $29.60. Moreover, price clustering would likely be predominant at $27.70. Essentially, there’s a 1.84% positive delta between the outcome that would be expected under baseline conditions versus the outcome that is contextually realistic given the historical response to the 4-6-D sequence.

The argument, then, is that an informational arbitrage exists that could potentially be exploited by savvy traders.

A Daring but Empirically Sensible Trade

Given the expected dynamics mentioned above, the trade that arguably makes the most sense is the 27/28 bull call spread expiring Dec. 19. This transaction involves buying the $27 call and simultaneously selling the $28 call, for a net debit paid of $50 (the most that can be lost).

Image by author

If CCL stock rises through the second-leg strike price ($28) at expiration, the maximum profit is also $50, representing a max payout of 100%. Enticingly, the breakeven price is $27.50, which sits about 0.7% below the forecasted clustering zone. Theoretically, this should provide a relative margin of safety.

Plus, reaching the $28 strike isn’t an unreasonable play since it falls firmly within the overall distribution of median expected outcomes following the flashing of the 4-6-D sequence. To be sure, there’s some risk here as the risk tail extends to nearly $26. However, the reward tail juts out further to the upside, making the contrarian trade enticing.

Read Next:

• EXCLUSIVE: Private Markets For Retail Investors—More Than ‘Just OpenAI And SpaceX’

Photo: Shutterstock

© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.