Celestica stock has been in a great uptrend since April 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. You always know the worst-case scenario in advance.
This type of trade will profit if Celestica stock trades sideways or higher. It profits sometimes even 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 also has risk equal to the difference in strike prices, less the premium received.
The Bull Put Spread Trade Setup
Traders that think Celestica will stay above 210 for the next few weeks could sell a Nov. 21 210-200 bull put spread for around $2.40. Selling this spread also would generate roughly $240 in premium with a maximum risk of $760 on a 100-share contract.
If the spread expires worthless, that would be a 31% return in seven weeks provided Celestica stock is above 210 at expiration. The maximum loss would occur if Celestica stock closes below 200 on Nov. 21. Further, that would see the premium seller lose $760 on the trade.
The breakeven point for the trade is 207.60, which is calculated as 210 less the $2.40 option premium per contract. That's also 17.26% below Thursday's closing price.
Meanwhile, it's best to set a stop loss if the stock breaks back below 220, or if the spread increases in value from $2.40 to $4.80. Sticking to this stop loss level will help avoid large losses if the stock drops back down.
Also, for investors seeking income generation with defined risk parameters, this bull put spread presents an appealing opportunity in the current market environment.
Celestica Stock: Working With Big Players
Celestica is one of the world's largest electronics manufacturing services companies, working with big players in the computer and communications sectors.
Further, it handles everything from printed circuit and system assembly to postproduction support, giving OEMs a full end-to-end solution.
What makes them stand out is their ability to service both ends of the spectrum. That goes from low-volume, highly complex custom builds to high-volume, commodity-style products.
Investor's Business Daily gives Celestica stock a Composite Rating of 99 out of a best-possible 99, an Earnings Per Share Rating of 99 and a Relative Strength Rating of 98. According to IBD Stock Checkup, Vertiv also ranks first in its group.
Please remember that options are risky, and investors can lose 100% of their investment.
Gavin McMaster is founder and operator of Options Trading IQ, which offers instruction on how to buy and sell options. Follow him on X/Twitter at @OptiontradinIQ.
