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Credit Spread – Celgene Corp. (CELG)

CELG is likely to remain in a channel


Just because a stock looks like it wants to move higher doesn’t necessarily mean a trader has to implement a directional strategy. With options there are several strategies that can work. Here is a trade idea on a stock that looks poised to move higher — but even if it doesn’t, you can still profit.

Celgene Corp. (CELG): Put Credit Spread

The trade: Sell the September 125/130 put credit spread (selling the September 130 put and buying the September 125 put) for 80 cents or better.

The strategy: The maximum potential profit for this trade is 80 cents if CELG is trading above $130 at September expiration. The maximum loss is $4.20 ($5 – 80 cents) if CELG is trading below $125 at September expiration. Breakeven is $129.20 at expiration based on a credit of $0.80.

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The rationale: Celgene is a biopharmaceutical company that develops therapies for cancer and immune-inflammatory diseases. It appears the drug-maker has been doing well if earnings are any indication. The company said its net income jumped about 30% in the second quarter partially due to its cancer drug Revlimid. Celgene also said it predicts an even greater net income and revenue for 2013 than it originally had planned.

The stock really took off at the beginning of 2013 and hasn’t looked back. Over the last several months, the stock has been able to move higher and it is now trading at an all-time high. CELG has formed several areas of support and resistance as it has moved higher. Generally resistance has become support and kept the stock from moving lower again. Just this month the stock gapped above a previous pivot level which was resistance and has not looked back. That area can be considered now support and if it holds like some previous areas have held, this put spread has a good chance of expiring worthless — which means you keep the initial options premium.

No positions held at the time of this writing. If you are interested in a free trial of my LIVE options trading room visit:



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