Celestica stock appears to be going through a textbook pullback to the 50-day moving average and could be a good candidate for bullish option traders. Traders looking for a way to play Celestica stock using options could use a bull put spread.
As a reminder, a bull put spread is a defined risk strategy, so you always know the worst-case scenario in advance.
This type of trade will profit if Celestica stock trades sideways or higher and even sometimes if it trades slightly lower, offering flexibility in uncertain markets.
The strategy involves simultaneously selling a higher strike put option while buying a lower strike put option in the same expiration cycle.
In exchange for selling the bull put spread, the trader receives the option premium and has risk equal to the difference in strike prices, less the premium received.
Setting Up The Bull Put Spread Trade
The 50-day moving average for Celestica is around 166. Traders who think Celestica will stay above the line and potentially find support there, could sell a Sept. 19 put at 165 and the buy a 160 put for protection in case the Celestica falls more than expected. This bull put spread produced a 1.10 credit per share. Under a 100-share contract, selling this spread generates roughly $110 in premium with a maximum risk of $390.
If the spread expires worthless that would be a 28% return in around one month, provided Celestica stock is above 165 at expiration. The maximum loss occurs if Celestica stock closes below 160 on Sept. 19, which would see the premium seller lose $390 on the trade.
The break-even point for the trade is 163.90, which is calculated as 165 less the 1.10 option premium per contract. That's 12% below the price as of this writing.
It's best to set a stop-loss if the stock breaks back below 170, or of the spread increased in value from 1.10 to 2.20. Sticking to this stop-loss level will help avoid large losses if the stock drops back down.
For investors seeking income generation with defined risk parameters, this Celestica bull put spread presents an appealing opportunity in the current market environment.
High Ratings For Celestica Stock
Celestica is a global leader in electronics manufacturing services, specializing in solutions for the computer and communications industries.
It offers advanced manufacturing and postproduction support for both complex custom builds and high-volume products, serving top-tier original equipment makers.
According to the IBD Stock Checkup from Investor's Business Daily, Celestica stock ranks first in its group. IBD gives it a best-possible score of 99 for its Composite Rating and Earnings Per Share Rating, along with a Relative Strength Rating of 98.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
