Options Trading: Taking a Shot on Celestica After Last Week’s Hit
Stocks were hit unusually hard on Friday as the Nasdaq fell some 4% on very heavy volume.
It seems the aggressive names of late were hit the most, and count Celestica ($CLS) as one of those hit by the selling stick. The stock had been in a mild uptrend after a recent retreat to the 50-day moving average. Celestica rebounded nicely though and soared about 30% in just four trading days, but with the big hit to the stock last week, those gains have disappeared.
Despite the move back down, the chart remains constructive, with higher highs and higher lows, our textbook definition of an uptrend. We believe this move to the 50-day moving average, while excessive, sets up a nice trading opportunity. This stock is highly volatile and options are quite expensive — the market expects large moves on a daily basis (high implied volatility).
We may not see a rebound to the highs printed last week (circa $470), but even a move up through $400 would be positive and profitable for a trade. The options are expensive as mentioned prior, but the July $400 call appears to be a good play prior to their next earnings report. There is only about six weeks to go in this option but it gives us enough time for Celestica to move, we only need this above $400 quickly to start thinking about taking some profits.
This option currently trades around $30 to $32 per contract, so just buying one would cost you about $3000 to $3200. That is not cheap, but the expected move by the expiration is about 24%, so buying an option that is only 8% of the stock price gives us some great leverage. We would stop out of the trade at $17 on the option.
