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tv   Options Action  CNBC  January 16, 2015 5:30pm-6:01pm EST

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>> this is options action. tonight how would you like to make money if facebook shares go up, down, or nowhere at all. we'll show you how. plus you won't believe how high some traders see gold going. we'll break it down. the incredible true story of how one of our traders just doubled his money by betting against tesla and now he has a way to make even more. the action starts right now. ♪ live from the nasdaq market site on a very busy expiration friday these are the traders in times square and sunny miami florida. we begin with the letters that will make or break this market.
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ecb because next week's central bank decision could cause huge moves. how do you profit? does the ecb overshadow earnings? it's a big week for earnings. >> i think we got the answer this week when we saw what happened with the swiss decision to basically unpeg their currency. if that which is actually relatively small percentage of european gdp is going to move the markets as much as it did it would be foolish to think ecb action wouldn't have at least as large an impact. >> the real question is what equities do after the ecb acts and there's every possibility that a lot of the good is priced in and europe might move for a day or two and then the whole thing comes apart. >> i want to bring you in. there's that notion already that because there was a belief initially that the snb had sort of inside information or they got whispered to by the ecb. maybe earnings priced everything in in term of that decision.
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>> there's a good chance but if you look back over the last two years betting against central bank action hasn't been a great bet to make. if you think about it is there cause or potential for disappointment? no doubt about it but when you think about the move that we've seen just in the last few weeks, just this year in u.s. treasuries, in the euro, just getting absolutely demoll liish. with the preempted moves by the swiss you have to think there's going to be fireworks next week. at least news or some sort of continuation or counter trend. >> have we seen a lot of positions when it comes to currency, etfs or other related instruments? >> huge up ticks in gld and on the gold miners. and i think the answer is yeah
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absolutely. a point carter made was a good one. if we were about to see evidence that a prolonged zero rate environment is going to persist something is going to have to break one way or another and i'll let him speak to it but the multiples -- >> if rates are going to continue either the s&p is underpriced or equities cannot continue this benign 45 degrees. they have to crash. but you can't say they're perfect and the environment is getting more and more dangerous. >> dan i want to go to you because you're putting a trade on tonight on tlt. the etf attracts the bond market. >> this is one interesting as a set up into the ecb. there's been no shortage of reasons to buy u.s. treasures when you think about how weak a lot of the global data is and then how we are being treated as a safe haven country if you think about it for all intents
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and purposes when you think about the move in the dollar. when i think about the potential for ecb raising rates. so we have that next week. we'll have january 28th an fomc meeting and then this is a really important one, out in marchand this is important for the trade i put on today we'll have another meeting. if we continue to see the jobs data that we have, if there's any hint of wage inflation over the next couple of months as we go to that march meeting and we also have ecb, qe in a big way, i think the tlt, i think u.s. treasuries are in for a fall and i think that the markets are going to start pricing in higher rates quicker than people think. so to me, i'll just tell you what the trade was simply. i took a look at the tlt. i looked out to march. when it was 13370 i brought the march 130, 120 put spread. i bought one of the march 130 puts for 230. i sold one for 30 cents. my max gain is at 120. i can make up to 8 in that whole
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stretch and then i can lose 2 above 130. here's the thought. i went a little bit out of the money here. option prices we have a chart of implied volatility. they have risen sharply on the massive move. the tlt is up 7% year to date. i want to play for a retracement of this most recent move and we have a chart of the six months. i'm looking to target 125. that's essentially the 50 day moving average and when you think about it here give back the 7% move on slightly better u.s. jobs data. if we get better wage inflation and ecb qe bonds go lower. i have time for it to play out. >> this is the way to make the play but for me it's hard to see how long-term treasuries get crushed here. real wage inflation, how are we likely to see that with cap x dropping and everything going on, the higher wage jobs are going to be lost. we're going to see more of that in the entire sector and that's one thing but the other thing is
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rates have to pair off. you can't have german bonds and european bonds trading at rates of 0 and u.s. treasuries trading at rates of 4%. >> that's right. there's no way in principle u.s. traits can go higher. the spread is the widest ever. >> i just heard two no ways. so that's the point of this trade. this is a contrary trade and we're defining our risk and there's a lot of time for this to play out because to me it becomes a matter of positioning and if the whole world is positioned one way the options actually are giving you an opportunity to make four times your money over two months with all these events. >> in your defense the options markets are imlying that. >> but yields go higher. that's the consensus trades. >> let's move on. a number of high growth stocks have been taken to the wood shed this year but not facebook. still you say there's problems with the chart. why is that? >> there are. it has to do with other growth
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stocks the way they rolled over. let's go through google. we know we have a trend well defined and breaking trend. the trough down about 18%. price line, trend, break in trend. down about 23%. tesla, trend, break in trend. and so forth and so on. netflix. now take a look at facebook. and it's comparison to the other trades. look at the percentage decline and look at the numbers and look at facebook compared. the average is down 28 and facebook is down nine. look how far they are below the trend line. if facebook meets the average of the trough decline and the average it comes out to exactly 63, $64 and that implies that we will, as the others have done, break trend and drop about 18%
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and or about 11%. we think 63 to $65. sell it. >> sell it. >> mike what do you say? >> well one thing is it would be very very tough for me to short facebook at this point. one of the things i would say about it is trading it's mean valuation. they have demonstrated real growth and exceeded my expectations repeatedly. so the notion of taking a short position in facebook seems a little bit challenging. i actually wouldn't even because we have elevated options premiums going into earnings which they report on the 28th. i don't look at buying options as my way to make a bearish bet either. why don't we take advantage of the fact that the markets seem to be under a little bit of stress right here. options premiums are higher so i'm looking at a call spread specifically to february 77.5. then buy the 82.5 and collect $1.45. one quick point about this trade. three things can happen. two of them are good. if the stock goes down you're going to win f. the stock stays
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here and even if it goes up slightly you'll collect the premium. only if the stock rockets higher you'll end up losing. >> dan how do you like the trade with the set up of facebook going into earnings? >> it's actuallily a smart options trade. t it is the chicken little trade. especially when you think about how carter played it out. when you think about the internet sector, ex-facebook and ex-yahoo! it's a bear market. so when you look at facebook trading 13 times 2015 expected sells that's a bubble you have one stock trading at 13 times sales in a bubble. i don't like it and i have to tell you those long-term breaks in trend down lower rallies should be sold and i'll also tell you that i have a feeling that maybe a quarter of their active users are probably fake -- >> so dan let me get this
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straight, chicken little you're saying they're being chicken with the trade and you would put on short trade. >> a move prior to earnings and that's where you sell it for the event. the company is supposed to go from 12 million sales last year to 17 billion this year. that would be one third of google's sales with two third of the market cap. doesn't make sense to me. >> for those of you willing to take a lower probability bet and follow dan's advice i would still maybe use the proceeds and by a down side put but in this environment i'm a better seller. that's why i'm doing the trade. >> a lot of people are hiding here. the presumption is this will stop working. >> send us a tweet at options action and do check out our website, options action.cnbc.com. we have the hottest videos and exclusive trade. heres what's coming up next.
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>> dan doubled his money in just two weeks in tesla and he has a way to make even more, plus. ♪ >> it keeps going higher. you won't believe just how high some traders see it going now.
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we have news on at&t. they dropped a regulatory filing saying they're going to record a $7.9 billion noncash charge related to its post and
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preemployment benefit plans basically saying that they reduced the amount that they think they can earn on their pension investments assuming that people are living longer. they're not making as much in their money. it's going to result in a $7.9 billion charge. they're also taking a $2.1 billion noncash charge for the abandonment of certain as sets. this is related to copper assets that the company deemed not necessary going forward because people are not using the same data and voice networks they have in the past. also migrating to next generation technology. so a total of $10 billion worth of charges. they're going to be reflected in the company's overall results during this next reporting period. back to you guys. >> thank you so much. dan your thoughts on this? in terps of the pension it's good this team is dealing with it and getting that out of the way. >> no doubt about it. talk about a friday afternoon data dump. stock was trading down a little bit in the after market.
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this yields 5.5% down toward the lows of the year. you probably have a 6% yield. remember the pricing wars is a real fundamental issue here. they're taking it to verizon and at&t and there's a massive, massive data war going on and i don't see this as resolving anyway shape or form. here's the thing if you like bonds and you like the points higher potential maybe you take a shot. >> it's been a tough week for tessa. this after ceo elon musk concerns about shares in china and profitability. that made him a friend of dan nathan and that's why. >> on options action it's the rule of the road. risk less and you can make more and that's what dan did with his bearish bet on tesla. dan thought the stock was going
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down. >> the 50 day moving average is about to cross below the 200 day moving average. that's what some technicians call the death cross. >> but just going short, that could be even scarier. after all any stock can technically rise forever meaning unlimited losses. so to define his risk dan instead bought the february 210 point for $11. but paying $11 just to bet against tesla. so to cut costs dan then sold not one but two february 180 strike puts for a total of $7. now between the $11 he's paying and the $7 he's taking in dan is paying $4 for the trade. that means that he only needs tesla shares to fall $4 below the higher strike put to make money or below 206 by february expiration. but we have a problem. you see because dan sold more puts than he bought he could be subject to serious losses if tesla falls further than he
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expected so to protect himself he bought an even lower strike put. specifically the february 150 strike put for and created his butterfly. he's now paying a total of $5. he'll see profits as long as tesla falls below 205 by february expiration. who is on first? but it's not that complicated because all you need to know is tesla shares have tanked making dan's trade a quick winner. the better question is what will dan do with his tesla trade now? >> dan you're up. what now. >> here's the thing. so the stock is down almost 15% since we put the trade on and here's the thing. the options trade structure was designed to take advantage of that volatility. so the stocks move down and the options structure is worth a double. yesterday when the price was around here i took half of it off and now i'm in a situation where i want the stock to stay
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down here and i want implied volatility and option prices to come in a bit. that's how this trade from here on out realizes the maximum potential. here's the thing for trade management. you don't have to worry much on the down side because we have a lot of room down there. really what we have to do now is think if the stock starts to work back toward 200. you probably want to pull the plug. you don't want to see it go away. >> i think the way he's managing this trade is the right one. he's playing with house money at this point. taking a look at the stock it's had a little bit of a bounce here. it could trade lower and get right toward the short strike. >> but that wasn't the only good trade from this show because they made a bearish bet on alcoa. take a listen. >> you have all of these dead bodies. interested sellers. sell out. >> i'm looking at selling the february 1617 call spread. you can sell the 16 for 65 cents and buy the 17 for about 30. this is a way for you to get paid.
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i think you can probably ride this one for another week or so and then we let you cover at about a dime. >> carter what do you see? >> it's a broken stock and rolled over and not acting right. the presumption lower prices. >> coming up next a huge bet was made on oil in the options pitts today. just how high they see it going when options actions returns.
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well as investors got nervous this week they went for the gold. bullion is up 8% this year and mike you say some traders are making some bets that will go higher. what do you see? >> substantially higher. we saw three times the average
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daily call volume today. actually options activity has been highly elevated all week ever since basically the swiss currency thing. what i thought was really interesting we saw actually some april 145 calls trading at about 60 cents so that would take you back to levels we haven't seen since early 2013 and gold has been in a bear market and obviously took a big rip here. obviously some gold traders are hedging their currency exposure. >> carter you made a great call on monday. you made a bullish call on gold which is well timed. >> so far so good. up the biggest week in the year but what's important is as the dollar has appreciated gold has not budged for the last year. so it's held in there and then of course coming to life in an aggressive kind of way our early momentum usually against higher prices. >> what do you think? especially seeking a new safe
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haven that's not the swiss frank. >> i don't see gold as the safe haven asset. to me it would just show you throughout the volatility we have seen along currencies and commodities we haven't seen any counter trend realities in gold. this is one you don't want to be stepping in front of it. it's going to see 1250 but there's going to be a level very soon that's probably like the down trend from a few years ago. >> in the beginning of the show you mention the regular minors as well as the junior minors. if you believe gold was going to go higher why wouldn't you play that. >> they seem to have a great way of dropping the ball every single time and even though they have the benefit of lower energy costs the fact is that marginal gold is getting harder and more expensive to extract. you have risk depending on where
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the mines are. i just sort of figure out they never end up being as leveraged as everybody seems to think that they are. it's a purer play to just play the metal. >> and one thing not talked about is whether it's the currencies or the risks as it relates to gold. the major in put is energy. >> coming up next your tweets and the final calls from the options pit. >> options action is sponsored by think or swim by t td ameritrade.
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>> can mike provide an update on his trade and if he's still in it? are you? >> so this is an interesting situation because actually shortly after carter had made that bearish call it actually worked very much in our favor. it traded from 80 cents to about
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$1.35 on that spread on january 5th. it's only worth 30 cents and can be worth as much as four. this isn't one i would sell at these levels. >> what would you say? >> they're all going like yields. they're doing what reads are doing and utilities are doing. it's the most prouded trade in the whole market. everyone looking for any kind of year on year cash return. it ends badly. >> time for the final call. the last word from the options pit. >> you have the ecb next week. two more fed meetings between now and march expiration. i like put spreads in march. >> well in keeping with the gold thesis we think you do embrace some data and go after the low quality if you will minors, low price gdxj. >> this is a situation where we have seen a bump up in volatility and we're not far off the markets highs and that sets up a great opportunity for you finally looking for an opportunity to sell premiums. if you're long stocks you can
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sell covered calls and if you're not you can sell call spreads like the trade we did in facebook. >> looks like our time has expired. thanks for watching. for more options action check out our website and also option. see you back here next friday 5:30. "mad money" starts now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. >> hey, i'm cramer. welcome to "mad money." welcome i'm trying to make you money and educate and teach and coach. call me. of course, tweet me at jim cramer. at last, after a series of real droppings, we saw what it takes for the market to rally, higher oil prices and best conr

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