Until last week, I had no idea that a person could be the godparent of a boat. But I was disabused of that notion when Carnival Corporation (NYSE: CCL) announced that actress Cassidy Gifford “will serve as godmother to its newest ship, Carnival Celebration.”

You are forgiven if you don’t recognize her name, but you may know her parents. Cassidy is the daughter of former NFL Hall-of-Famer Frank Gifford and television personality Kathie Lee Gifford.

My first reaction was to wonder why the boat, Carnival Celebration, needs a godparent in the first place. If something unfortunate were to happen to its parent company, I doubt that Cassidy would be in a position to step in and ensure the boat’s safety.

But if she ever has to do that, she need look no further than her own mother for advice. Kathie Lee Gifford was anointed as the godmother to a Carnival ship in 1987. Presumably, her prayers over the past 35 years have been answered since that boat never sank.

At this point, Carnival can use all the help it can get. The coronavirus pandemic shut down cruising for more than a year, during which time Carnival was burning through more than $500 million a month.

Now, rapidly rising interest rates are increasing Carnival’s cost of carrying the debt it needs to remain afloat. The only way out of this mess is to raise prices, which the company is doing.

We will soon find out just how much cruisers are willing to pay for a week or two of wining and dining on the high seas. And it better be a lot given how poorly the company is doing this year.

Drowning in Red Ink

Last December, Carnival stated that it “expects a net loss for the first half of 2022 and a profit for the second half of 2022.” The company made good on the first part of that promise. During the half of this fiscal year, Carnival booked an adjusted net loss of $3.8 billion.

However, the second part of that promise may now be impossible for the company to keep. Last week, Carnival released an update on its Q3 results that revealed the company incurred an adjusted net loss of $688 million during the quarter.

That news caught Wall Street by surprise, sending CCL careening down more than 20% that morning to its lowest share price in nearly thirty years. Cassidy Gifford has her work cut out for her. Some divine intervention may be necessary to keep Carnival from going under.

Nevertheless, the company is trying to spin this news as being better than it looks. According to Carnival CEO Josh Weinstein:

During our third quarter our business continued its positive trajectory, achieving over $300 million of adjusted EBITDA and reaching nearly 90% occupancy on our August sailings. We are continuing to close the gap to 2019 as we progress through the year, building occupancy on higher capacity and lower unit costs.

That statement reminds me of an old joke. An airplane pilot announces to the passengers, “The good news is we are making very good time. The bad news is we are lost.”

And right now, Carnival is quickly losing liquidity. At some point, the company will have difficulty raising capital in the debt markets. If that happens, it may be forced into declaring bankruptcy.

Turning the Tide

Nine months ago while CCL was trading near $18, I recommended opening an options “straddle” since I believed the stock was likely to move strongly one way or the other. A straddle entails buying both a put and a call option on the same underlying security with the same strike price and expiration date.

I hope you took my advice. By the time those options expired in July, the intrinsic value of that trade equated to a return on investment of +26%.

Over the same span, the SPDR S&P 500 ETF Trust (NYSE: SPY) lost 19%. That means this trade outperformed the index by 45 percentage points in just seven months!

I think it may be time to open another straddle on Carnival. The company is fighting for its survival and we should know by next spring if it will be able to avoid bankruptcy.

If it cannot, then CCL could fall all the way to zero. But if it can return to profitability then it could rally strongly.

Last week while CCL was trading near $7, the call option that expires on March 17 at the $7.50 strike price could be bought for $1.60. The put option expiring on the same day at the same strike price could be bought for $1.80.

Since the total cost of that trade is $3.40, CCL must rise above $10.90 or fall below $4.10 by the expiration date for this trade to be profitable. To the extent it moves further than that in either direction, this trade could end up being another big winner.

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