One sure sign that the cruise ship industry is in trouble was this announcement from Carnival Corp. (NYSE: CCL) last week: “Game On – Princess Cruises Launches Sports Betting at Sea; Lets Fans Wager on Favorite Events.”

Can you think of a better way to spend your vacation than staring into a computer screen all day debating which side of an over/under bet to take on a college football game? I can, and I suspect a lot of other people can, too.

However, the company must come up with ways to recoup the money lost during the past year. Since the onset of the coronavirus pandemic, Carnival has lost hundreds of millions of dollars as its ships remain idled in port.

I’m not sure if marketing to sports gamblers will turn out to be an effective means of filling up its ships once cruising resume, but I guess it’s worth a try. Presumably, Carnival will get a cut of the profits earned by the casinos that execute those wagers.

If nothing else, I have to admire Carnival’s optimism in the face of the financial bloodbath it is taking. Two weeks ago, the company announced that it has broken ground on a new terminal at PortMiami. The terminal will be the home port for the Carnival Celebration, a new ship currently being built in Finland.

Those developments would excite me about Carnival’s prospects except for one major problem; its cruise ships aren’t sailing because COVID-19 isn’t going away. In fact, it’s getting worse as evinced by the decision last week by Canada to not allow any cruise ships in its waters until February of 2022.

Whistling Past the Graveyard

I understand why Carnival may be whistling past the graveyard as it announces these seemingly promising developments. The alternative is unthinkable. If COVID-19 delays cruises into next year, the company may be in big financial trouble.

I also realize why the city of Miami must appear to be thrilled with a new terminal being built during the height of the coronavirus pandemic. The cruise industry brings in a lot of money to the city. Also, Carnival is headquartered in Miami.

But what I don’t get is Wall Street’s apparent willingness to go along with the unbridled optimism. Since bottoming out below $18 on January 27, CCL broke above $21 on February 4.

Then it dawned on me; Carnival’s recent rise might suggest that an alternative agenda is at work. Its newfound popularity coincides with the extraordinary circumstance surrounding GameStop (NYSE: GME) that drove its share price up more than 1,000% in a matter of days.

Read This Story: The Rise of the Reddit Revolution

Since then, GameStop’s share price has come crashing back down to earth but its legacy lives on. Similar to GameStop, Carnival is a company in deep financial trouble. It may not be long until the sharks (i.e., short-sellers) start circling the company.

For that reason, the time to buy call options on Carnival may be now. A call option increases in value when the price of the underlying security goes up. If the Reddit gang can induce a short squeeze on Carnival later this year, those call options would soar in value.

Inducing the Next Short Squeeze

What we may be witnessing is an organized approach to profiting from the next GameStop. The same hedge funds that lost money on GameStop may be looking to get it back by inducing a short squeeze on a troubled company like Carnival.

I know that may sound crazy, but it works like this. First, they buy call options on Carnival while they are cheap. Last week while CCL was trading near $21, the call option that expires on July 16 at the $25 strike price could be bought for $3.

Next, they engage in short sales of CCL to drive its short ratio high enough to attract the attention of the Reddit crowd. For the purposes of this example, let’s assume they are able to sell those shares at an average price of $20.

Then, they trigger a short squeeze by buying a lot of CCL to drive its price higher. However, the money they are losing on those trades is more than offset by the increase in value of their call options.

Finally, they sell their call options to close out those positions at inflated prices. For this strategy to be profitable, they only need to drive CCL up to $30 long enough to execute all of their trades.

At that price, the loss on the short sales is 33% ($10 loss on $30 purchase price). However, the gain on the call options is at least $67% ($2 increase in intrinsic value on $3 purchase price, plus any time premium).

Assuming an equal amount of money is invested in the short sales and the call options, the net gain in this example works out to 34%. To the extent CCL rises above $30 prior to the option’s expiration, the net return on investment also goes up.

Putting the Odds in Your Favor

I realize that idea may sound farfetched, but I would not be surprised if it happens. Speculators may already be buying into names such as Carnival on the assumption that it may be put in play later this year. Hence, its recent rise since the GameStop fiasco disrupted the established order on Wall Street.

If that sounds a lot like gambling, that’s because it is. It is a bet based on a hunch that requires a lot of guesswork. As an investor, I don’t like those odds. What I do like are investment strategies that put the odds in your favor.

Which brings me to our new special report: “5 Red Hot Stocks to Own in 2021.” In this report, we provide the names and ticker symbols of the highest-quality growth stocks to own for the new year. Unlike Carnival or GameStop, these stocks boast solid underlying fundamentals. They belong in any retirement portfolio. Click here for your copy.