Royal Caribbean (RCL)

Dec 21, 2020Trade Ideas

News of a new strain of the COVID virus is hitting the UK, triggering more lockdowns and travel restrictions across Europe at the moment.

According to CNBC, “The U.K. last week warned of a new coronavirus variant that is thought to be up to 70% more transmissible than the original strain of the disease. According to the World Health Organization, the new variant has so far been identified in Denmark, the Netherlands and Australia.” At the same time, France, Germany, Italy, Ireland and the Netherlands have all barred flights from the U.K., while Austria and Sweden are reportedly preparing to do the same.

The bad news here is the new COVID variant is far more transmissible, and could spread at a quicker pace. The good news is that according to US FDA commissioner Dr. Scott Gottlieb, the new vaccines being sent out should protect against the new strain.

In fact, according to Dr. Gottlieb, as quoted by CNBC, ““It doesn’t seem to have mutated the surface proteins of the virus in a way that they would slip past our vaccines or prior immunity. In fact, we don’t think that that’s the case.”

If that is the case, travel stocks, like Royal Caribbean (RCL) could recover after falling to less than $70 this morning. To profit from a potential recovery, we can buy the RCL stock at current prices, and, or buy to open the RCL January 15, 2021 72 calls at market. To hedge for the worst-case scenario, we can hedge our bets with the RCL January 15, 2021 71 put.

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