This is the internet so it’s best to not play games: I’m a big fan of energy drink company Celsius (CELH). The fact that it has been able to distinguish itself so brightly from a saturated and competitive market speaks volumes of its brand power. However, it also cannot be denied that on a year-to-date basis, CELH stock slipped almost 57%.
Fundamentally, question marks over the broader beverage industry may continue to pressure shares before swinging higher. According to a post by Barchart content partner The Motley Fool, CELH stock offers three big reasons why investors should scoop up the discount. Primarily, it’s a resonating brand in a growth industry with sales rising in international markets. Also, based on sales, shares seem attractively priced.
Again, I don’t disagree. Should CELH stock continue to erode, I would be looking to buy in when the volatility shows evidence of fading. However, I’m not entirely convinced that such time is now. If you consider the technical chart, it more looks to me like CELH will print a rounding bottom before eventually clawing back positive momentum.
And there’s that old adage about not catching falling knives. With CELH stock down more than 11% in the trailing week, that statement seems wise. Still, for the more adventurous investor, one could place a temporary wager that shares will continue to fall.
That’s where Barchart Premier becomes an extremely useful tool.
Scoping Out the Scenery in CELH Stock
With options, there are many ways to be net long or short a security. To better decipher which strategy is appropriate, you must get a lay of the land. For me, one of the most useful tools — available to Premier members — is the Options Overview screener, specifically the “View History” button.
With this screener, you’re able to see the historical progression of implied volatility (IV) rank, which represents the relative positioning of IV. For example, at 100%, the IV has been at its highest level over the past one-year period. On Nov. 4 (which was notably before the election), IV rank stood at 88.88%. After the polls, IV rank slipped to 39.12%.
However, this metric has been gradually rising, in part possibly due to political uncertainty. With controversial figure Robert F. Kennedy Jr. tapped to head the Health and Human Services Department, there are concerns that his unorthodox views on public health policy may impact food and beverage enterprises.
As the realities of the incoming Trump administration dawn on investors, it’s my opinion that consumables may face more pressure before circumstances improve. In addition, other beverage companies have also faltered, so it’s not just a CELH stock problem: it’s an industry-wide dilemma.
Put another way, the IV rank may rise for Celsius options. If so, a bear put spread would likely capture value the best since higher IV would potentially benefit a long put position; that is, long a bearish trade.
Picking an Ideal Bear Put Spread
Now that we’ve figured out which strategy may be the most appropriate, it’s time to consider the ideal bear put spread. With so many strike price combinations to choose from, it’s easy to get inundated trying to calculate the most effective spreads. But once again, Barchart Premier comes to the rescue.
With the premium membership, Barchart users have access to all mathematically viable spreads. This benefit alone saves considerable time. What’s more, you can download the data to a spreadsheet, allowing you to punch in your own modeling and methodologies.
Personally, I run a methodology called risk-adjusted capital expenditure or RACE. It’s a metric that recognizes the multi-variate nature of risk (how much cash is on the table and the likelihood of profitability), revealing how much each unit of probability costs in dollar terms at that moment. Further, some RACE metrics are negative because the position of the trade is profitable at the time based on the breakeven threshold.
Put simply, the goal of any options trader is this: grab as much reward possible while incurring the least amount of risk.
With that, a good baseline strategy to consider is the 27/25 put spread for the options chain expiring Nov. 29. This transaction calls for $125 to be at risk. However, if CELH stock drops to the $25 short strike price, you will earn a payout of 60% of $75. What’s more, the breakeven for this trade is $25.75, favorably above Friday’s close of $25.66. This trade also happens to have the lowest RACE metric with the highest possible payout.
Still, for those who really want to dial up their risk-reward profile, you may consider the 27/24 put spread. This trade puts $161 at risk for the chance to earn $139 at expiration, leading to a maximum payout of 86.34%. In order to collect that payout, CELH stock must drop to $24, which is riskier. Still, the breakeven threshold is at $25.39, about 1.06% away from Friday’s close.
Deciding What You’re Comfortable With
Finally, before you make your decision, it’s useful to consider Barchart’s Expected Move indicator. This algorithm gives you a reasonable idea of where your target security may end up at specific expiration date intervals. For CELH stock for the Nov. 29 options chain, the algorithm anticipates a high/low range of $27.94 to $23.38.
If you’re bearish, the $23.38 target may be reasonable, considering the volatility that the security has already incurred. And that also means that the high-risk, high-reward 27/24 put spread is about as much as you want to risk before you get into irrational ideas that have less chance of being in the money.
Ultimately, that’s the beauty of a Barchart Premier membership: it gives you incredible trading analytics and intelligence that’s usually reserved for elite market participants. This is your chance to change the narrative by tilting the odds in your favor!
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