This Celestica Risk Strategy Aims To Generate A 20% Return

Celestica stock currently trades above its rising 21-day, 50-day, and 200-day moving averages.

The company is a major player in global electronics manufacturing, supporting some of the world's top tech and communications companies.

Celestica specializes in building printed circuit boards, full system assemblies, and providing postproduction support. It focuses on delivering efficient, high-quality solutions that help original equipment manufacturers stay competitive.

Consider 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. Sometimes, an investor could profit if the stock 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.

Celestica Trade Setup

Traders who think Celestica will stay above 110 for the next few weeks could sell a July 18 put with a 110 strike and buy a 105 strike put to create this bull put spread. It was trading around 85 cents this morning. That means you collect roughly $85 in premium and have a maximum risk of $415.

If the spread expires worthless that's a 20% return in just over one month, provided Celestica stock is above 110 at expiration.

The maximum loss occurs if Celestica stock closes below 105 on July 18. Such a move would lead to a $415 loss on the trade. 

The breakeven point for the trade is 109.15, which is calculated as 110 less the 85 cent option premium per contract. That's 16% below the 130.50 price this morning.

Stop Loss Suggestion

While the risk is defined and no more than $415, you don't have to wait and take that full loss. You could cut a loss quicker with a stop loss if Celestica breaks back below 115 or if the spread increases from 85 cents to $1.70. Sticking to this stop-loss level will help avoid large losses if the trade goes south.

For investors seeking income generation with defined risk parameters, this Celestica bull put spread presents an appealing opportunity in the current market environment.

Please remember that options are risky, and investors can lose 100% of their investment. 

Also, 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.

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