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tv   Options Action  CNBC  July 12, 2019 5:30pm-6:00pm EDT

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hi there we're live at the nasdaq market site on this summer friday the guys getting ready behind me you know hey, look, guy there sticking around for the big show in the meantime, here is what is coming up. ♪ a record numb of people just watched "stranger things." >> it is a good thing, right >> dan nathan thinks so and he will tell you how to get in on the drama. plus -- ♪ up from the ground come a bubbling crude ♪ >> oil and energy stocks are surging and mike khouw thinks
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there is more room to run. he will explain what is about to spark a major rally and how you can cash in. and -- ♪ oop, there it is >> that's right, "options action" fans the dream team is back mike khouw and guy adami will tell you the one tech stock they think is about to break out. it is time to risk less and make more the action begins right now. ♪ what it is all about >> let's get to it because netflix is on deck for earnings next week, the streaming giant is up 40% this year although most of the gains came in january. the stock is still 10% from its all-time high and the option market is implying a 6% move in either direction dan here thinks new highs are in play dan. >> yes, but not right now. i will tell you why. it is one that is not a trade stock, it is not one that has, you know, adverse effects of, you know, strong dollar. for the most part, that sort of thing. but it is a stock that has a lot of unusually positive sentiment into it, we know that. a lot of investors have valuation concerns with this, and one of the things that got
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me thinking about this name into earnings next week is they started off the week putting out a tweet, talking about how many people in first four days of "stranger things" season three, i think over 41 million people watched it in the first four days that's the six-day chart, okay, since basically this news has been out there, and it closed dead on the lows of the week, you know, which is kind of odd, almost down 2% you know, the stock had a big run over the last month and a half or so, kind of keeping pace with the nasdaq for a little bit. when you think about the implied move, about 6.5% after earnings next week, that is basically shy of the 4% it has moved on average over the last four quarters, but the long-term average this stock has moved about 1% about 12%. it has been very volatile. i think investors are not expecting a lot of net ads from the u.s., but a company on the back half of the year starting with the strength of "stranger things," and they have "orange is the new black" and a lot of
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reasons people buy this thing. the chart tells you that for whatever reason since january it has been range bound between 335 and 385. i suspect it still will be range bound after earnings, but i think it could set up for a nice, long trade into the fall as we get through some of the volatility that i expect this summer so how do we do this obviously it is an options show here i do not want to be naked long calls, especially out of the money calls. the price of options is pretty high this in this into the report, so to me it sets up pretty nicely to do a call calendar where i'm selling a short dated out of the money call next week and buying a longer dated one in september. specifically, if you would do this if you thought into august, into september this stock could move back towards the prior highs towards 400. today on the trade when it was trading at 374, you could tell july next week, 400 call at $4 and use the proceeds to help finance the purchase of the september 4, '00 call for $12. that costs you $8. that is the max risk
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it is a little over 2% of the stock price. the implied movement in this thing would be up to about 400 or down to about 350 so that's just a one-day move. i like the risk/reward of this trade because if it continues to consolidate then i have the september long-dated call that i own for, i don't know, you know, a third less than what i would have if i had just went out and bought it. >> yes there's no question certainly that their programming is very popular. i hear from my wife, from my kids, "stranger things," it seems to be the only thing everyone is talking about this week so i can definitely see that the fascination with netflix's stock is harder for me to get my arms around. it is a company without free cash flow, it hasn't ever had flee cash flow, it is not forecast to have free cash flow, so it is not something i would reach out and buy the shares, but the options trade makes a decent sense to me if you look at the way the stock has traded since the beginning of the year, the range has been quite a tight one. when you are looking at selling these 400 strike call options, you are making a good bet in terms of probability there's not really a high
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probability it is going to break through that level, we haven't seen it in six months time i don't know why it would be the catalyst that we would but even if it did happen, all in you are spending $8 on this thing and that's a little over 2% of the current stock price. these are the kinds of high probability bets you should be making as part of an investment process using options, whether it is a netflix or another stock. you don't have to love the stock to love this particular trade. >> what do you think, guy? >> last june it was 411 stock, in the next six months it traded down to 350. that's where it think it bottomed out, at 250 we have effectively gotten it all back i think the smart trade is probably to take money off the table and into earnings on wednesday. i'm still in the camp that this thing retests that high from last year, 411 or so everything that mike says is 100% correct in terms of balance sheet, in terms of tech, all of those things however, look at the move disney had over the last, i don't know, three or four months when the stock went effectively from 115
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to 143, hasn't given a lot back. a lot is attempting to cut into netflix. netflix at least until today hasn't flinched. the smart thing is to take money off the table, but i do think things rally post earnings. >> come petition and all of the shows they're going to bring back and pricing, et cetera, those are catalysts for the other. >> it could be catalyst. look how comcast and disney acts, they make new highs every day. i think it is one reason the stock has consolidated the way it has over the last few months as money flowed into the other ones, but they're not getting massive result any time soon basically they gave us long-term guidance for their targets on subscribers and profitability, but in the meantime netflix may have a bit of a runway they put up the price increases earlier in the year, they have a lot of original content. the way i see it that's the only reason you're in netflix, is the original contact we know a lot of stuff is going back to warner and that sort of stuff, so longer term it is a
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more challenged story but in the meantime it may have a run. >> one thing i would like to say about the options trade, and that is that buy rights are one of the most popular things for people who buy stock, you sell calls against it, looking to collect the premium. in situations where you think there's a risk to the stock, it is a better trade to do, buying longer dated calls, selling nearer dated calls because you're mitigating the risk but you receive the benefits you do from put sell or buy rights. >> netflix is not the only stock on fire. energy stock is best performing in the last month with many names lighting up, with oil prices climbing and tropical storm barry set to make landfall this weekend which could drive prices higher. mike says the group has more to run. what do you see? >> earlier this week we highlighted a trade we saw in the xle. we saw a large call spread risk versus somebody trading the 55, 64, 75 out in december it was basically a way for them to look at the lower end of the range and the upper end of the range that we've seen if xle other than, of course, the hurricane there's a number of other potential catalysts. we have a lot of energy
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companies that will be reporting earnings in the next several weeks. i think it is interesting when i took a look at the trade i gave it some thought when you have earnings, a lot of the names that are reporting, the halliburtons and so on, some are not actually implying very big moves. that tells us that the price of options on those stocks is relatively low looking at xle although high for an index, given those catalysts and the hurricane, to me i think they're fairly reasonably priced if you give yourself enough time to let your trade play out so basically either betting that energy is actually finally getting some traction, traction it hasn't had obviously basically for a year we've seen nothing but lower prices whether it is oil, whether it is the hurricane, whether it is earnings, any one of those things could give some additional upside. i think what you could do is just go out to december, buy the 65 calls those were about $2.75 when you look at these and i don't think you need to complicate this by either selling some down side puts to help finance it or selling some upside calls either, the reason being that this is more of a trend type
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trade. if it continues, you can look for ways to monetize or lock in some of your profits, but, of course, this is a heavily leveraged group. we are basically otherwise over supplied with oil in the long run, and i think when you consider that, that's the down side risk. this is a way you can play for additional momentum without really risking a great deal. >> what is interesting, mike is choosing the 65 strike if you look back to q4 last year when xle broke down, it went from 65 to 55 like straight line, you know, in november/december sort of time period and earlier this year when it broke 65 to the down side after a bounce, it also went down considerably, about 10%. that's an important level. i think it gets back above that. what i like about the trade is like he said, he is keeping it simple but risking about 4% for a near-the-money participation that gives him a lot of time for this thing to play out i just say this. we see it all the time this is the sort of trade though that if it doesn't -- it sits here or goes down or up a little bit and the thing starts to tank, you think about where to stop the call because it will be
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just sitting there, decaying obviously the decay gets greater closer to december but at some point you have to put a stop on it. >> that's right. as a percentage of the options premium, obviously near-dated options evaporate more quickly than longer one. here we are looking at a six-month option, maybe a little less basically three months in you will see the rate of pay accelerate considerably. if the thesis hasn't played out by then, there's a good chance we have the trade wrong and it would be a time to look at opportunities to take your profits or losses, whatever they may be at that point >> are we allowed to say beta bleed on this? >> there you go, buddy. >> only on this show i guarantee only on this show will those words come out of anybody's lips. >> tim is smiling at me, not that i know what it means. >> you left your tie on by accident. >> just my "oa" jacket, by the way. >> i know, but you left your tie on. >> is that bad i will take it off next block. >> okay. >> if we are looking at two names, when we're over and we walk to the plasma and do the power pitch and we did it with
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devin energy and i know i lost 75/25, but if you look at the august earnings it is setting up well the integrated oil name i like and continue to like against $60, so the risk/reward is co conaco phillips. >> for everything oob oob, check out our nulls at optionsaks.com. it is so cool you won't need air conditioning this weekend. here is what is coming up next. >> twitter is taking polite this month and guy adami and mike khouw will tell you how to catch the ride for less than a buck. plus, calling all "options action" fans, reach into your pocket, grab your phone and tweet us your question question @optionsaction. if it is nice we will answer on air when "options action" returns. "options action" is
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hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade welcome back to "options action". check out snap, feeling extra popular this week, getting a bit of a bounce from an upgrade at goldman sachs this morning and now up almost 3% since monday. but another social stock, that cohen guy i think is about to spread his wings and fly you know what that means ♪ >> it is a twitter tag team. >> that's right. time for "options action" tag team. >> i didn't know i was supposed to tell you that. >> guy. >> to be clear, by the way, when mike were on -- we did mike and i, and i picked that so if you are mad about it, it is my fault, not mike's. i pick the stock, mike picks the option if it is wrong, it is on me. number one number two, this is one i think
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we will get right and it is twitter. why is that? for years i was screaming, get away from this active user stuff, don't use that metric, it is wrong goog it doesn google doesn't use it. twitter shouldn't use it what happened? in february they took their medicine yes, the stock went lower, traded down to 29 but somewhat off to the races since they took their medicine in february, i think it works for them going forward number two, ad sales growth. you are talking 20% ad sales growth has a reasonable number and given their valuation i think it makes a lot of sense last thing, i think you are coming into an earnings release where people under estimated the power of twitter july 26th, so i like it in earnings. let's throw up the chart, earl, as we say, slide it. you can see what i'm talking about. here was the flush back in february when it traded lower, and it sort of effectively has been off to the races ever since. yes, it has tapered off, but i think it is just building a base, getting set to make the next new high. but with that, i'm going to tag
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my man, mike, and he is going to give you the options play. >> well, let's take a look here because obviously he highlighted the fact we have earnings coming up when you have earnings coming up, we have a catalyst we obviously like to work with that, but one of the first things that we usually get in a situation like this is higher implied volatility twitter is already a pretty high implied high options priced stock to begin with. with the earnings catalyst it is even higher. one other thing we don't always talk about but i think we do want to hear, try to match the moves of the strikes that you are choosing to the maturity of the trade that you're looking at so how long is the trade i'm looking at -- i was going out to september in this case i am looking -- let's clear that out so we don't have those things. i'm looking at the 33, 38, 43 call spread risk reversal. buy calls at 255 and sell against it you are spending $0.65 for the trade. we expect the two wing options
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to decay more rapidly here between now and september. notice the strikes i have chosen, 33 and 43. this will expire in just under 80 days. if we look at a chart of twitter, the one he was just highlighting, so let's look at the strikes we are selling we are selling this 33 strike and selling 43 strike. okay look how long we have been within that range. so basically we're saying these are, you know, relatively range, even if it breaks out the chances that it violates the 43 call that we sold or the 33 put that we sold is relatively low that's what i mean by matching the strikes for the maturity >> all right thanks, guys, for that come on back over. >> it is risk less, make more. that's the show. >> wow! come back over to the desk, please. >> coming over. >> i want to get dan's take on this whole thing >> yeah, i like the -- i mean, listen, twitter has been a stock that's been really gappy over the last few years meaning they have massive gaps in earnings, up and down. it tells me they get something
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like guy said in february, they took their medicine, had a big gap down then they changed, you know -- now this goes back up. so i mean i don't actually selling a put in a name like this unless you are prepared to buy this lower at mike's short put strike on bad news and so generally, you know, we like to buy stocks on good news. unless you are averaging into a story and you have a longer time horizon, but, you know, your fundamental case, fine, it is great. you know, your trade idea, fantastic. you know, you could just buy a call spread not have the down side risk. but i hate the thing has been public five or six years and has the massive gaps >> it is a good point. you would say, you know, chances are the thing does gap down, is that the time you want to buy it it is not just a question of whether you want to buy it or whether you wish you had or had not, but at the level at which you will be buying it. you will be buying essentially at $33, excluding the premium of the trade we just laid out that's the put you're short, the level you will buy the stock, a
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discount at where it is trading right now. when you think about the incremental risk being short that putt, it is the risk of being long on the stock at 43 you are adding to the equation, not at the risk you are buying where it closed today. >> typically when dan goes on one of though diatribes he ends by saying, knock yourself out. he didn't do it today. just saying. >> walmart is beating the market so far this year we will tell you why big box news is good for one of our traders. there's much more "options ♪ction" right after this ♪ction" right after this ♪ (indistinguishable muttering) that was awful. why are you so good at this? had a coach in high school. "options action" is sponsored by sink or swim by td sponsored by sink or swim by td ameritrade we offer free access to coaches and a full education curriculum- just to help you improve your skills.
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what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ r welcome back to "options action". time to take a look back at some of our open trades two months ago khouw and carter bet walmart could be a big box breakout >> we put this to the prior high, that's 106.21. we are right on the bottom i think at a minimum you make
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that move, that would be about four to five bucks from here, and then ultimately with a little luck, some backing and filling, and then a real breakout. >> i was looking at the july 1st, '00 calls earlier today. they were trading about 375 when i was looking at them. >> well, that stock is up 15% since the trade, so, mike, what do you do? >> so the stock is up 16% or so. the options trade is up about 300% we paid 3.75 for these, you could sell them for about 14.50 right now and that's what you do we got the trade right these things are deep in plmone and not much reason to hang on to the trade we will get carter back to talk about going forward. >> what do you think of walmart? >> i keep on channelling -- >> you are wearing the tie which carter would wear. >> thank you what i would say and probably would say then, in valuation walmart is expensive but appears to break out to the upside this is similar to what costco
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has done over the last month, month and a half i agree you take money off the table, but given the take we have, might be able to squeeze more out of the trade. you take half off the table and maybe let the last run. >> i take a little issue cramer had that thing and then i had the maga thing and cramer is coming back with this watch thing. do you know what it is >> yeah, walmart. >> walmart, target, costco and home depot, the big box things they're all breaking out this was first to go and it is interesting at this stage of the game because they're all pretty constructive and all have actually some premium value. >> you want cheap calls on expensive stock so you have to roll this trade if you are staying long. >> on the same day in june, dan predicted staples could become unstapled. >> we have a weakening economy here, and if we don't have any real resolution to the trade situation the back half of the year won't be great.
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you will have cyclical names going lower. i don't believe you have stocks of consumer staples anticipating whatever they're anticipating going higher from here you could buy the august 1, '97 half put spread paying $2 for that. >> proctor & gamble up 2% since then dan, with about a month left in the trade what do you do >> this is a good example. the stock was 112 1/2 or something and now closing up 25% on the year. everything i said i still agree with but i'm wrong on direction here the options trade was the 110.97 half put spread. it cost $2 at the time and now is worth about $1. back to our earlier conversation about setting premium stocks you have to manage risk. if you let it go longer, the highest probability will be 100% loser if you don't get it moved back to me you have to think about taking a loss at 50% of the premium you spent. >> what is your take >> i don't see what people see in proctor & gamble.
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it is crazy impaired to where they've been historically and crazy compared to the s&p 500. i don't get it i mean i get it at a certain level, but this stock is way ahead of its skis. they report on the 30 pgt. again, everything dan said is right, the stock just moved gh wh hieritthe broader tape i think the trade is still in play up next, your tweets and the final call "options action" is sponsored by think or swim by td sponsored by think or swim by td ameritrade td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪
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i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman?
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hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade welcome back time to take your tweets first fan asks, what are your thoughts on a calendar spread strategy with boeing i chose the 375 strike, selling july 26th, buying august 16th. mike. >> i like it so they're going to be reporting on the 24th and it is implying an above average move. that is the expiration you want to sell, the 26th. i like the 375 strike you chose as well because it averages about 3% move. that's about what you are looking at on the upside good trade. >> time for the final call guy adami. >> i want to say what an honor it is to be part of the "oa" group again. i look forward to earnings next week, potentially to derail a market that's way ahead of
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itself in my opinion. >> mike khouw. >> xle, if you want to make a bullish bet keep it simple december '65 calls work. >> dan. >> i do like call calendars. >> we'll see y bouack here next friday stay my mission is simple to headacmake you money. i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you find it. "mad money" started now. >> hey, i'm cramer welcome to "mad money. welcome to cramerica other people want to make friends, i just want to make you money. my job not just to inform, educate and teach you and entertain. we too often invest for the day. i hear people talk about what is working and in the

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