Options Know-How: Carnival Cruises, J&J

How much do you know about playing the stock market with options?

The following are highlighted options insights and ideas from TheStreet.com.

From Option Traders See Smoother Seas for Carnival Cruises:

Carnival Cruise Lines (CCL Quote) has hitherto remained fairly upbeat about its earnings capacity, even in the increasingly obvious recessionary environment, arguing that cash-strapped Americans are likely to fly less and opt for closer-to-home cruises -- certainly a tantalizing prospect if the cruise in question is an all-inclusive one. And maybe the cruiseliner will be able to leverage this preference with a protracted decline in fuel prices.

Option traders today [Oct. 28] appear to be siding with this view, expressing it in number of unusual trades. In one 6,000-lot position, a trader appeared to sell the November 22.50/27.50 put spread, taking a $2.65 credit and betting on Carnival shares recovering above the $27.50 level by Nov. 21. Furthermore, with the price of the November 32.50 call hitting a 52-week low today, we observed option traders buying into that weakness in a 3,000-lot position.

Read the full version of Option Traders See Smoother Seas for Carnival Cruises (RealMoney access required).

From Retailers Show Late-Day Surge in Implied Volatility

Today's [Oct. 27] announcement that Standard & Poor's had put the heavily debt-laden women's clothier Liz Claiborne (LIZ Quote) on CreditWatch with negative implications sent shares another 7.6% lower today to $6.42 -- nearly $10 below that company's book value. Options traded at more than 13 times the normal level, as the higher risk premium to LIZ shares sent implied volatility in the company's options some 22% higher this afternoon.

While the company is due to report third-quarter earnings on Nov. 11, still coinciding with the front-month options contract, what we've observed in the options market today is that traders are forgoing the November contract and entering fresh positions instead in December and January options.

Here the activity appears roundly pessimistic, with what looks like short call-spread positions in the December contract between strikes 7.50 and 12.50, and put-buying at the January 7.50 line. Both of these strategies suggest a very rough road ahead for Liz Claiborne shares, which these option traders believe will be scarcely able to achieve a meaningful recovery from current depressed levels even into the first of the year.

Read the full version of Retailers Show Late-Day Surge in Implied Volatility (RealMoney access required).

Mad About Options: J&J in Review (Video, Oct. 28)

Jud Pyle and Matt Buckley take a look back at Jim Cramer's comments about Johnson & Johnson (JNJ Quote) and review how their related options trades performed.

To watch the video, click the player below:

Plus, don't miss these other recent options videos on TheStreet.com TV: Mad About Options: Western Digital Clocked (Oct. 28), Mad About Options: Exxon Pumped (Oct. 27) and Mad About Options: Qualcomm Quality (Oct. 27).

For more information about Mad About Options, visit www.ONN.tv.

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