Nonpolitical Title | The Daily Peel | 6/27/22

Market Snapshot

Futures pointed higher on Friday, and the markets appeared to be looking to close the week higher for the first time in what seems like forever. During the trading session, markets absolutely ripped, making us nostalgic for last summer.

WTI Crude closed slightly higher, above $107. ETH is up 10% in the last week, back above $1200, and BTC is still hovering around 21k.

At the closing bell, the Dow was up 2.68%, the S&P climbed 3.06%, and the Nasdaq soared 3.34%, capping off the second-best week of 2022 for markets.

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Let’s get into it.

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What's Ripe

Cruise Lines ($CCL, $NCL, $RCL) — Royal Caribbean, Norwegian, and Carnival Cruise Lines soared on Friday, ripping higher by 15.78%, 15.36%, and 12.44%, respectively.

Cruise line stocks are beaten the eff down since C-19, losing something like two-thirds of their value in the last couple of years.

Shares of the floating petri dish operators climbed on strong guidance from these companies, noting that bookings, revenues, and demand for cruises after what amounts to a multi-year hiatus are all on the rise.

Airbnb ($ABNB) — Summer travel season is in full swing, and shares of the crowdsourced lodging marketplace operator $ABNB jumped by 8.14% on Friday.

Travel is picking up. Have you tried to find an Airbnb in the Hamptons, Montauk, Martha’s Vineyard, Nantucket, or any other quasi-bougie finance bro vacay destination this summer? For a lot of us, these destinations are out of our price range, and $ABNB is raking in the fees on these bookings already for the summer.

What's Rotten

Verizon Wireless ($VZ) — I love to talk about Verizon as a big loser for a day. When their shares lose ground, it’s usually not that significant, so it’s funny to me. Friday was one of those days; $VZ retreated 2.17%.

Verizon is a stable, low beta name, and it is only down 2.82% for the year. When you consider Verizon’s dividend, it’s actually basically flat for the year. Flat sounds pretty attractive at the moment, especially if you’re into crypto or SaaS companies.

Devon Energy ($DVN) — $DVN is an energy exploration company that has had a pretty good YTD, showing positive gains, up more than 17%.

Unfortunately, $DVN is a laggard amongst its energy peers, missing the boat compared to the $XLE, which is up 25% for the year. Shares of $DVN retreated 1.77% on Friday.

All eyes will be on Devon as it preps to announce its earnings in a little over a month.

Thought Banana

Defensive Strategies — In this kind of market, there are not a lot of places to hide.

Unless you went long in energy back in January or short everything else around the same time, it’s pretty likely that you’re licking your wounds by now.

So how can you play a little bit of defense and hold on to the value you’re fortunate enough to still have in your portfolio?

Well, an elevated volatility index means higher premiums on options contracts.

For me, in a down market with fewer rips and rallies, this screams covered calls.

If you’re not familiar, a covered call strategy is one in which you buy 100 shares of an underlying stock, and then you turn around and sell a call contract against that position. It’s essentially the combination of a 100-share long position and a single contract short position simultaneously.

With higher volatility in the markets, the premium that you collect selling that call contract will be higher than usual, putting added yield in your pocket.

Sure, your upside is limited if the market has a miracle turnaround and shoots to the moon, but in the short term, you can play a little defense with this strategy.

Another strategy is buying puts against your positions. That being said, premiums are a little high, so you’re going to pay a pretty penny for this insurance in this type of market.

A way to offset this premium is to sell a lower strike price put in conjunction with the purchase of a higher strike price put contract. It affords you some of the downside protection with less of the risk.

With relatively high implied volatility, options seem like a great way to protect yourself. But these complex financial instruments carry their own risks: they’re not for the faint of heart.

Wise Investor Says