This Strategy Pays You 9.4% While Lining Up RCL at Bargain Prices
At about $333.75 a share, Royal Caribbean (RCL) is trading about 8.2% below its 52W high.
Do you think RCL stock is a good long-term bet at current levels? What about at a 30% discount at about $230 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
9.4% annualized yield at 30% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 1/15/2027, with a strike price of $230
- Collect roughly $1,150 in premium per contract (each contract represents 100 shares)
- That’s about 5.4% annualized yield on the $23,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 9.4%
- And you give yourself a chance to buy RCL stock at deep discounted price of $230
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| RCL stays above $230 | You keep the full $1,150 premium – 5.0% extra income over the next 338 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| RCL closes below $230 | You’ll be obligated to buy 100 shares at $230. But thanks to $1,150 premium, your effective cost basis is just $218.5 per share – a roughly 35% discount from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell RCL Stock or check Royal Caribbean Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds.
Why Hold RCL Stock Long-Term
Royal Caribbean demonstrates significant pricing power and operates within a strong secular trend of experiential spending. The high demand and forward-looking bookings provide a buffer against economic downturns. The company’s strong brand and customer loyalty, fostered by its Crown & Anchor Society program, create a durable competitive advantage. This makes us comfortable holding the stock for the long term if assigned.
Competitive Advantage
We classify RCL’s economic moat as WIDE, with the primary source being Pricing Power
- Royal Caribbean has experienced record-breaking booking periods in 2024, with significantly higher booking volumes and rates compared to the previous year.
- The company raised its 2024 earnings guidance due to this strong demand and higher pricing, indicating customers are paying up.
- Onboard consumer spending has also increased, driven by more passengers making purchases at higher prices.
- The booking window has extended, with customers booking cruises further in advance, even into 2026, despite rising prices.
See Royal Caribbean Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 12.2% (Source: The Business Research Company)
Secular Trend: Shift in consumer spending towards experiences over goods, and the increasing popularity of all-inclusive travel.
Key Risks: Potential for increased environmental regulations and the ongoing threat of technological disruptions, such as the recent IT outages experienced by competitor Carnival Cruise Line.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: As of their latest financial filing in 2024, Royal Caribbean Cruises had total liabilities of $29.34 billion and cash and equivalents of $388 million. While the company has a high debt-to-equity ratio, its debt is well-covered by operating cash flow.
If you are not comfortable with options or stock-specific trades, Portfolios are the way to go as they can protect and grow wealth even better.
Why HNI Portfolios Choose Multi-Asset Over Stock Picking
Stocks are just one piece of the puzzle. To navigate shifting economic environments, you need a strategy that protects wealth through intelligent diversification across asset classes.
What if you took advantage of the current commodity super cycle? Is a portfolio of 10% commodities, 10% gold, and 2% crypto, in addition to equities, likely to return more in the next 1-3 years? We’ve crunched the numbers. Our wealth management partner manages exactly these kinds of complex multi-asset strategies, blending real assets with high-performance equity sleeves like the Trefis High Quality Portfolio.