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tv   Options Action  CNBC  July 30, 2022 6:00am-6:30am EDT

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as always wanting one thing. >> his goal for the day -- and, literally, a day -- would be to scam somebody for something. it's what made him tick -- was getting something from somebody it's what made him tick -- was getting something from somebody for nothing. . welcome to friday and "options action. i'm melissa lee. all this and much more coming up ahead. tonight, the broader tech sector showed signs of a turn around in the last month amd is one of the stocks leading that charge, already up about 20%. can it keep that momentum through its earnings next week carter worth charts out the chip maker. then, it's been a poster child for the rise and fall of big tech but tony zhang now thinks it is
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the time to ride uber. plus caterpillar, set to report results next week year-to-date, the stock has unsuccessfully tried to dig itself out of a hole mike khouw thinks that's about to change. it's time to risk less to make more "options action" starts now. before we get to tonight's trades, let's take stock of the market's move this month we've seen a substantial turn especially in the nasdaq mike, your thoughts on this? >> i think it was a positive week because we had some pretty low expectations in several names going into the earnings. alphabet, what we usually refer to as google was a good familexample of this. the other names were pretty good amazon, it's interesting i don't think from an operating standpoint it was so exciting.
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but i think the price action is very positive when we take a look at it and of course now it looks hike there's some progress going on in washington. whether or not you happen to like what's going on with the schumer-manchin deal or not, the fact that there is some movement does create some bit of a tailwind, i think, for equities. so you put all those things together, and generally, it's a positive although there were a couple spaces where bassett, we've seen might and little too much and too quickly. >> we've also seen a drop in the ten-year yield, that's helping the overall market as well >> that's exactly right. 2.6% that we're currently on, on the ten-year yield is a pretty pivotal level. we could see it down to 2.3. that would be a huge tailwind for equities as we get to where we are now in the s&p, this is really where we
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look to fade the strength, because if you look at the chart here, we're still in that down trend. the strength here i think is an opportunity to look for some shorts and the reason for that also is because on the risk-reward side, it favors to the short side. if we do break out tup to that 4300, then we would simply say we were wrong and we were looking at bullish opportunities there but we would take on a fairly small loss to take this bearish exposure in the next month or so. >> carter, your thoughts? >> i'm in the fed camp with conviction what we know is of course the big earnings have come out but we've expended a lot of energy big moves from depressed levels, and it's the things that led on the way down, nasdaq, that are leading on the way up. times up to 30% to difficult levels and the net of it all is that earnings growth is 5%. it's not impressive, and i think we've come a long way.
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let's look at a couple tables and charts and get around to tech eventually. year-to-date if you look at a stacking order, who's done what, it's still very much a case of the market beating tech. and i think we might have some tables that will look at this. but the stocks index, if you look at its relative performance to the s&p, we've had this huge ricochet, but the ricochet leads us up to the difficult level a down trend you can see very clearly. what we have is a rally to a difficult level. now, do you pick a stock and bet against it i think you do i think intel's news is terrible look at amd, and this is as precise as you get i didn't manipulate the lines, the lines show themselves. it has failed against that downtrend line five times to the penny. it is 32% off its lows
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we think it's expended the energy and it's not likely to be such a good bet for earnings >> okay, mike, what's the trade? >> yeah, so this is an interesting one, because obviously, i indicated when we sort of kicked off here that i didn't think it was all that bad. the situation when we take a look at amd versus intel, these two companies really die die verged you go back to 2017, fast forward to the present day, one of them's down about 25% the other one is about 15 fold amd massively outperforming intel over that period and really, it's an issue of execution. and that's something that intel still trying to catch up with. and the reason i point this out is because from a fundamental standpoint, there would be reasons why you would like amd and you might not like intel, and we could see that in the
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price action today amd closed higher and intel closed lower i agree with carter that from a technical standpoint it does seem like we have reached a difficult level at 20 times to forward earnings what i'm interested in doing is putting on a trade that will give me some exposure in the event that the stock disappoints but doesn't take any risk in the event that they do continue to outperform and demonstrate that when they report next week so what i was looking to do was buy the august 90-85, one by two put spread when i was looking at this earlier today, could you buy one of the august 90 puts, cost you a little over 3 bucks. net-net you collect a small amount of premium. what happens here? if amd's earnings are a big nothing burger, no harm new york
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city foul effectively the worst case is they have a massively disappointing earnings and you own the stock at just below 80 bucks a share. let's think about that for a second that's more than a 15% decline from where the stock is now, and those expire august 19 that would and pretty steep decline. you're going to be owning the stock, you know, at something in the neighborhood of 18 times, a little bit less, actually. so i think this is a way that can you be a bit tactical going into earnings, if they do end up in a result that's disappointing a little bit like intel, you have an opportunity to profit. of the two companies, this is the one that's executing intel isn't. >> yeah, and they indicated as such in the last quarter that
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they were taking intel's share so some telling you that intel's pain is even better for amd, which is what we saw in today's market in terms of the price action >> yeah, this is exactly right and this is one where the charts and fund abilamentals are sort f opposed to each other. i certainly agree with fading this current strength that we see. the strength, we have to put into context it's in a clear downtrend. the risk-reward favors to the down side, but the fundamentals, amd is quite strong compared to its main competitor, intel and taiwan semi that just reported gives a peek of what amd look like. these are potential headwinds for amd. that's what i like about mike's trade. it's extremely creative. if amd does rally substantially,
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he doesn't see a loss on this particular trade, but with these types of put ratio spreads, it's really tricky to figure out the strike prices. i particularly like the 85 strike that he sold here on this put spread the 85s shappen to be just insie o one. those are the best practices that you like to look when you thread the needle using a butterfly strategy check out uber's rough ride this year. the stock down more than 44% but tony has a way to play it if you think it's due for a u-turn. what are you seeing? >> i'm taking a look at uber which is a story of market share. they're simply taking more risks and growing faster than their primary opponent
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we've seen a pretty long down turn, 18 months. what we've started to see in the last couple months is what we typically see in a market bottom, an inverted head and shoulders. that's a pretty material move that we could see on the earnings catalyst. the important thing is looking at the two businesses uber and their primary rival, lyft. what you really want to look for is the fact that lyft grows, their revenue growth is less than half of what we see for uber and i think those types of growth numbers justify the richer valuation that we're currently seeing here in uber. and what's more interesting is the rich implied volatility going into earnings. the market is implying a 12% move, versus the historical average which was half of that at 5.3%. i want to harvest their elevated
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implied volatility and look at taking a riskier position than loift by selling a put option. so i'm going out to august and selling the 22.5 puts just slightly out of the money. effectively what are at the money puts which elevates the extrinsic value. i'm going to be able to collect about $1.36. that's more than 5% of the stock's value that i can collect by selling the put option. this gives me the option of buying the stock if uber's below 22.5 bit august expiration at about $21.15 that's pretty much the all-time lows this gives me an opportunity to participate in the upside while collecting premium which are quite rich going into earnings >> mike, do you like this trade? >> i do like this trade. i bought uber this week actually and one of the reasons for that is not just the fact that the stock has reached these really
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depressed levels this could potentially be the first year that the company actually has positive earnings in pre-cash flow, and really this is a pretty critical earnings i think if we're going to get some kind of visibility on whether that's actually a possibility. if we get what the street's expecting in terms of how that higher revenue growth is translating to the bottom line and to cash flow, i think this could actually be an attractive entry point for a stock that i really have never liked very much but one of the things that i like about what tony's doing here is that we are sort of bouncing along the bottom, and we do have those elevated premiums, and that's one of the reasons why i think you could look at selling a put. i happened to buy the stock, you know, and if i'd been thinking about it a little bit more, maybe i actually would have sold the put the way tony's advocating >> could still do it carter, what do you think of the charts? >> right, so stwrwe have two ths in conflict.
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the stock's relative performance to the spx, to the nasdaq 100 is very poor. i think he's doing it obviously the right way by selling premium and not just getting along with the stock. >> for everything "options action" check out our website and newsletter here's what's coming up next still to come, despite recessionary concerns, caterpillar's stock has gained almost 10% over the past month mike khouw is looking to build on that trend into the company's earnings next week plus, calling all "options action" fans, reach into your pocket and get your phone and tweet us if it's nice, we'll taens on air. when "options action" returns. '6 it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position.
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welcome back to "options action," check out caterpillar closing out its best day since march and the best week since june 2020. if you've been lucky enough to have this one in your portfolio, congratulations. because professor khouw is about to teach you how to scratch even bigger profits out of cat. take it away >> we're going to talk a little bit about covered calls. the stock has obviously had a phenomenal run, up more than 16% off the recent lows. now we've got earnings coming up how much further can this thing go and if it has had much of the
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run it is likely to have by august expiration is there a way we can achieve a little bit more, and i'm looking at selling covered calls against this stock to essentially collect some premium. and the idea here is when you do their trade that you want to make sure that you have some upside potential one other quick point, the further out in time you go the farther out of the money you want to choose your strike and the other thing is you want to try to look for potential levels of resistance i was looking out to the august expiration, specifically the 210 strike call, i could collect about $1.85 or so for those. here's an important point. as a general rule of thumb, i'm looking to collect probably something along the lines of 12% annualized in premium or better, just to make sure that i'm making it worth my while thousan
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now here's an important point. if it gets up to 210 it's going to have had a run around 26% that would be an ambitious move. as good as the news is from caterpillar we're probably looking at 9% year-over-year revenue growth i think we're probably going to start running into a little bit of resistance as we start approaching these higher levels here coming out of earnings, and i think this is when you want to start taking a look for opportunities to enhance the returns on positions that you already hold >> carter, what do you make of mike's levels? >> i think that's exactly right. just he's saying fade this to some extent or be cautious because it's moved a lot let's look at a couple charts. the first one is for fun but it tells a big story. this is s&p for caterpillar since 1980 what if we add its biggest competitor, john deere john deere has doubled the performance of cat that says a lot.
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as to caterpillar itself, the selloff of the past year and a half took us right down to the peak of 2017, and we held and bounced off that line, but the bounce sis a little too far too fast as seep in in the next chart, i you put lines in, what is this? this is essentially a rally to the mid point of the range this is where interested sellers are lying in wait. overhead supply is defined as such >> tony, what's your take? >> i like it quite a bit i highlighted a short here in caterpillar in early june u and we have the exact same chart setup now as we did in june. the fact that we recently broke below 180 and managed to climb back above it leads me to believe that we're going to retest the recent lows rather than bounce back up to that 220 level. and i think what's really
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interesting about mike's trade, he's collecting a fair a premium, just to put into context, this generates about 2.4% yield he's generating more than half of that in just 21 days. the tealdeal that you're gettin this is quite high if you are a caterpillar investor and are concerned about a return back below 180, you could use the premium and buy yourself some protection depending on what your views are for this particular stock, i think we could see further down side, it might make sense to buy some puts and buy some protection up next, we are taking a look back at one of tony's shining trades tweet us your questions at "options action" on twitter. we're back in two.
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>> it happens to be the same breakout level that we saw in 2020 the decline we've seen in the solar industry is perhaps coming to an end and now is that opportunity to potentially gain some exposure. i'm going out to the august 12 expiration and looking at selling the 70.5-64 put vertical >> since then, it has surged nearly 20% with congress's climate funding plan what do you do now >> yeah, the end phase earnings was real ly the catalyst. when you see it trading at 13 cents we've made 95 potential profit it's time to take your profits and move on to the next trade. >> time for some tweets now. our first fan asks, amazon has
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gone up too much too fast. so is selling the august call a good move? >> selling covered calls is what you're suggesting here and i think that's an excellent strategy to collect premium. but it's not so much a hedge would you be collecting a little over 3% of the stock price if you wanted to hedge it you could do what tony was suggesting to do on the cat trade. our next fan asks, is the crew still bearish on apple for august and september if so, is there another trade at these prices? tony >> yes, so as we said at the top of the show, my view is to still fade this particular strength. the answer to your question is yes, and i would use selling a call credit spread the squu still favors those strategies up next, the traders have
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their final calls, do not miss "the tech trade" coming up next. that's right after oa. we are back in two flowers are fighters. that's why the alzheimer's association walk to end alzheimer's is full of them. because flowers find a way to break through. just like we will. join the fight at alz.org/walk
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that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. time now for the final call. carter, braxton worth. >> many, many stocks have rallied substantially to difficult levels caterpillar is one, amd is another. take them low. >> tony zhang? >> as uber continues to dominate on market share and starts to focus on profitability, i think now is the time to start investing by selling some put options going into earnings. >> mike khouw. >> intel earnings were obviously disappointing, but amd isn't intel. if you think there's a move
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