I want to talk about the NCLH trade.
So Zia says, "NCLH
is considering bankruptcy.
So why did you trade it?"
Zia, that is not correct.
They are not considering bankruptcy
at all, not at all.
So let's talk about NCLH
and why I entered
this trade, and why I actually
do like the trade even
though right now it
is down $500-$600.
But again, keep in mind that this
account that I'm trading here is
$36,000, so this is
really not a big deal.
Okay. So let's take
a look at NCLH and why
I traded this.
I've been trading NCLH in the past
and really liked it, here's why.
NCLH was a stock that has been
trading around 50 to 55.
Then we had this virus going on
and as you can see, they plummeted
down.
They found a bottom here and this is
when again, they popped back up.
This is what has been happening over
the past few months.
Then there were some bad news they
were going down, they popped back
up, we're going up and now
today they're down 23%.
So what is happening here?
Why did they drop so much?
And why do I still believe
that this is a really good trade?
So, first of all, today
the news broke, 2 news.
First of all, Carnival Cruise Lines
said we are going to resume
our operations on August
1st. Now, we don't know how many
people will go on a cruise.
But I do believe that
this will definitely help them to
make some money to bring in some
revenues again.
The other two cruise lines, Royal
Caribbean and Norwegian Cruise Lines
have not yet announced it, but they
are expected to say, make a similar
statement over the next few days.
Back to where Zia said,
"Don't they file for bankruptcy?"
Not at all.
So here is what happened today.
This is a report from Bloomberg.
So Norwegian Cruise Lines is
pledging ships and two islands
as part of a plan to raise as much
as 2 billion dollars
to survive the travel industry's
shut down. So they are actually
raising money.
And they say exactly here is
how we are planning to do it.
So they are selling 600
million dollars of junk bonds, they
are raising another
650 million dollars of exchangeable
notes, and a public
offering of 350
million ordinary shares, the regular
shares that you and I can buy, and
a 400 million investment by
an affiliate of a private equity
firm, L Catterton,
no idea. Here's the deal.
This has nothing
to do with bankruptcy.
All this means right now is,
yes, we do need
money, and here we have a plan.
Here is how we are getting two
billion dollars doing
this, number one, number two, number
three, number four, Number five,
okay? So this is a very concrete
plan.
Now you might be wondering if they
put such a concrete plan in motion,
why at this point, are
shares plummeting?
Very, very easy, and this is why
I liked where I bought it this
morning, didn't expect to go much
further down.
But so here's what exactly happened.
We need our handy-dandy notebook to
do some math because you already
know this money
is math.
Sorry, the good news is that the
math that we are doing here is
just very simple math.
It is math that you can do on your
iPhone here so no big
deal. But let's take a look
at NCLH.
And here's what I want to look at, I
want to look at their financials.
And looking at their financials here
is what I see.
The market capitalization right
now is 2.381
billion. So this is the first thing
that we want to write down.
The current market cap is, let's
say around 2,400
million dollars.
OK. So $2.4 billion
dollars, 1 billion is 1,000
million. So
2.4 million dollars.
Now, what did they just say?
What do they want to do?
They want to actually raise another
350 thousand dollars through
ordinary shares, the same
shares that they have here
right now being traded.
New shares will be 350
million dollars.
That's what they announced, right?
You're with me thus far? Is this
making sense?
If so, give me a thumbs up.
So in percent, how much
is this in percent?
So we need to do some basic
math and we take 350
divided by 2,400,
so this means 14.58%.
So this is what they're bringing on.
This is how many more shares they're
dumping into the market.
What does this mean?
Well, it means that now, obviously,
if the price yesterday was trading
at a certain level, that right
now this price needs
to go down by at least 14.58%.
This is how it works.
OK. So let's jump onto
the charts here right now and let's
take a look at NCLH of
where they closed yesterday.
It was at
$14.44. So now
today, obviously, what needs
to happen?
When they announce it, the share
price has to drop by
how much? Well, you guessed it, by
14.58%. So this means that today
the price should have dropped
to $12.27.
So this is what it should
have dropped.
Now, let's see where they are
trading right now.
So right now, as you can see, they
are trading at $11.18.
So what happened?
So why are they trading much lower
than they should? First of all, a
14.5% drop would have been
absolutely normal.
However, this is where many
traders misunderstand
of what is actually happening.
And this is why today
when some traders saw NCLH
dropping by
14.5%, which they had
to do, there's no other way,
this is when there was some
additional selling kicking in.
Now, I want to show you what
happened here this morning.
And let's take a look at a 5-minute
chart. So as you can see here this
morning, they opened at $13.10.
This is where they should have been
trading.
This is what happened this morning.
They traded right there where they
should have been trading for the
first few minutes and then
probably Zia and a few
others thought, "Ahh, they're in
trouble." And then there was some
panic selling coming in.
And then it bounced right back
because everybody realized, "Oh,
that's what they're doing.
They're raising more money.
I got it." OK?
And they have been trading around
this price here for most of the day
as you can see.
So this is why I
still like this trade
and why I do believe that
they might bounce back.
So that's what I see here on the
chart. Now, if they do go down
to $8 am I okay
owning this stock?
Absolutely.
But right now, so you see, they
did a few things that I think are
really important. Three things
that make me believe that
NCLH is a really good investment.
Number one, one of their competitors
already said, "we are resuming
normal operations August 1st." So
I'm pretty sure that they will do
the same fairly quickly.
Number two, they are restructuring
debt, they know that they need
money.
And last month they said, "Oh, we
have money for the next 6 to 8
months," but they are being
proactive right now.
That's good, right?
So they don't wait until bankruptcy.
Number three, today, they furloughed
20% of their shore
staff. So, of course, it's always
horrible when companies
lay off people, and
for NCLH, that means that right
now they are decreasing
their monthly costs.
Is this making sense?
So this is why I still
like the NCLH trade.
And when I plopped it into the put
options calculator, it seemed that I
can get $140
a day by doing this.
And my goal is $108
per day per position.
Is this making sense?
So Zia and everybody else
who is wondering about,
"Are they going bankrupt?" No,
not at all.
OK, so hope that helps.
This is why I wanted to share why
I like NCLH here,
as a trade, and why I'm
okay having it in the portfolio
even though right now it is going
slightly against me, you have seen
it, down $500-$600
really not a big deal.
I'm getting more concerned when a
trade is going $2,000 against
me, that's when I'm looking for
rescue missions.
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