Volatility has picked up a wee bit in the stock market today. Several of the weekly candlesticks are retracing each other within the indexes. So, today's column focuses on current market leader Celsius and why a risk-defined spread trade in Celsius stock makes sense today.
Without getting too wonky about math, market flow has begun to shift from a bullish flow to a more neutral-to-negative flow. This does not necessarily create a change in trend. But it does create the opportunity for longer candlestick bodies that hold a wider range.
Combine this with many of the market leaders, including Celsius stock, that have released earnings. We might come to this conclusion: The catalysts for trend shift are largely behind us from an earnings release, sending us back to the range-based trading within strong stocks.
This backdrop sends me to the short iron condor within a market leader. Celsius stock is my choice for this option strategy.
Celsius Stock Today: A Clear Market Leader
The company ranks 3rd in the beverages and nonalcoholic group, according to IBD Stock Checkup. The Boca Raton, Fla.-based company develops calorie-burning fitness beverages in the U.S. It also recently arrived on key IBD watchlists. Some of its competitors are Coca-Cola and Monster Beverage.
Yet Celsius stock shows a superior Composite Rating of 97 on a scale of 1 to 99.
Going into our options toolbox, we discover the short iron condor as a neutral position. This strategy estimates that the near-term prices are within a range.
Consider setting up this trade in Celsius stock in the following manner:
- Sell to open 1 CELH Sept. 15-expiration call with a 180 strike price
- Buy to open 1 CELH Sept. 15 185 call
- Sell to open 1 CELH Sept. 15 160 put
- Buy to open 1 CELH Sept. 15 155 put
The short iron condor spread formation allows us to collect premium as the price of Celsius stock fades or holds within its near-term trading range between 160 and 180.
Total credit received: $2.85 per spread, or $285 per set of contracts, based on recent trading. This trade has limited risk and limited reward. The breakeven prices (before commissions) lie at 182.85 on the upside in Celsius stock and 157.15 on the downside.
Defending The Trade
Stock hunting using fundamental and price strength within the IBD methodology is where I firmly plant myself under the backdrop of the current economic situation. I use technical analysis to find ideal buying opportunities in conjunction with the tools for strength seen on IBD.
Selling an iron condor spread out of the money in a sideways to downside formation has high probabilities of expiring worthless, which is our goal. But keep in mind that the reward is smaller than a long spread. Options sellers are positioned to win in two ways. One, the stock does nothing. Or two, the stock moves within the ranges. Option buyers get positioned to win in only one way: The price action must move in the direction of the spread that is being bought.
To effectively manage the trade, first identify key chart levels.
The weekly resistance zone in Celsius stock sits near 180, and support sits near 160. Therefore, staying between these values will deliver the full profit of the spread.
Iron Condor Spread Scenarios For Celsius Stock
- Stock grinds lower but does not break the 160 price. We collect 50% or more of the credit collected and leave the trade.
- CELH grinds higher but does not break the 180 price. We collect 50% or more of the credit collected and leave the trade.
- Stock breaks out of the range and breaks our personal risk thresholds for the trade. Often, a break of the short strikes that hold us in the range for more than three days defines these thresholds.
As with all trades, consider what you like about holding the position in the first place and consider your risk carefully. Be patient and allow price action to move around a range of your stops.
Anne-Marie Baiynd is a 20-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." She holds no positions in the investments she writes about for IBD. You can find her on Twitter and Stocktwits at @AnneMarieTrades
