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tv   Options Action  CNBC  January 25, 2013 5:00pm-5:30pm EST

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time to happen in some way. from what ki tell, the hardware is pretty sleek, too. what we'll have to see is can rim take a page from apple's playbook and offer itunes, i movie that are better than you can get on other platforms. that's what you have to do when you're up against stronger eco systems. >> we're looking forward to that big time. both of us blackberry users. thank you, jon. can't wait. one more time before we go to "options action." the dow and s&p continued higher, actually the nasdaq, too. the dow up 70%, for the month up 6%, the best january for the dow going back to 1989. nads dak up 19 points and the s&p comfortably above the 1500 level here. >> that does it for "the closing bell." "options action" is going to start any second. actually we're a little early.
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>> brian stutman's line, a lot of the option trading is pointing higher to 155 on that is, andp 500 index. we'll have to see whether the complacency that often accompanies a market top can start to come in place or whether people can see it continuing higher. >> 1.9% away from the dow from its record closing high. "options action" starts right now. have a great friday evening. this is "options action." tonight face saver. lost money on facebook? relax, dan has a way to get your money back from the social giant for free. we have a trade that can make four times your money in just three months. it's the brawl heard round the world. >> he's like the cry baby in a school yard. i went to a tough school in queens, used to beat up the little jewish boys. he is like one of these little
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jewish boys crying that the world was taking advantage of them. >> who really won and how do you make money? we'll break it down. the action begins right now. live from the heart of new york's times square, i'm melissa lee. these are the traders, while billionaires were duking it out, america was making money. the dow is 300 points away from an all-time high. the s&p 500 at multiyear highs. is there more room to run? dan, really the most interesting part about this market move is it did it without apple, in spite of apple. >> in spite of apple. a lot of things, this is a pretty powerful thing. the breadth of this market is broadening out. money coming out of apple is finding a new home. here we are at 1500, stocks like procter and gamble breaking out. stocks like fedex, those stuck in the mid for the last year and now finding new highs. you have amazon and ebay making
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new all-time highs. the home builders which were a big part of the rally last year, still continuing to make highs, only in spite of apple. in a lot of ways, the path of least resistance appears to be higher. >> there does seem to be an appreciation for the market for the areas that are higher beta areas. the mid cap index hitting 52-week highs. apple at a low at the same time amazon is hitting a 52-week high. >> a little bit of an equity market skeptic here and seeing the breadth is one of the things that makes you question your convictions. it's interesting because, of course, there are a lot of market participants, a lot of smart money market participants who believe that equities are fundamentally undervalued relative to other risk assets like high yield. you're going to start seeing some of those people migrating into this market. for me, again, as a market skeptic, it's very tough to fight that trend. that's the trend we're seeing
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right here. >> with the s&p with highs above 1500, now is the time to be a skeptic. i thought the action on thursday was really important here because the s&p got above 1500, fell back and that's when you started to see people buy puts. the vixx at that point spiked about 10%. vixx on a friday today was up again, despite the fact the s and pfrnlts was higher. this is one of the times you have to reiterate that you should buy protection when you can, not when you have. you can right now and you might have to next month. >> i would argue that maybe this is allowing people to remain long even if they are skeptic. they will give the market the benefit of the doubt. >> we're in a market of cheap calls. if you're long equities and have insurance again it, basically you're getting to make a bullish bet for very little money. the thing is, though, that cheap bet only lasts for about one quarter. the concerns are pushed out further in time. will the fed take their food off the gas? >> one quarter you could make your year, mike. >> let's hope. it's the best january in more
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than a decade. let's talk about facebook. that is going to be key in earnings next week. obviously this week it was all about apple. but for tech, facebook is going to be the next one. >> facebook, last year was mired with a whole host of reasons, a lot of it with oversupply and misfires in some ways. in a week that saw google have some strong results, facebook you would have thought maybe countered some of the facebook actions they did with their search graph and that sort of thing, next week you'll get got sets. there is a 47 million one in may. the way the stock acted around the lockup in november, who really cares at this point? people really want to see how they are going to get additional revenues out of that billion user base. if they can continue to demonstrate to the street that they can do this, then i think the stock hits 38 at some point this year. >> recoups the ipo level. >> that's the ipo price. i don't think it's going to be an easy road. at the end of the day, if you're long -- i get a ton of questions
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from people who bought in at 38, 39, 40, on the ipo and suffered with it all the way down to 18. we want to talk about a levered way, if you're still long on the stock, to get some of the money back. >> dan will do a one by two call spread. we want to open the playbook. in the structure you buy one call then sell two higher strike calls of the same expiration. the goal, you want the stock to the go to the strikes of the two that you sold. that's where your stock gets called away. word to the wise here, since you're short more calls than you are long, you always do this against stock. dan, walk us through the trade. >> that's a great point. you really want to make sure you line this up properly. when the stock was about 31.25 today, i looked out to april. i want to give this thing a little time to play out. the stock is at 31.25, the ipo is 38. a lot of people own it on the ipo price. i looked at the april 35-38
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spread. against your long stock, you buy one of the april 35 calls at $1.20 and sell two of the april 38 calls at 60 cents each. that's $1.20. you're not overlaying any additional risk to the stock that you have. the stock goes up or down. you're going to make the gains. like melissa said, you're capped at 38. between 35 and 38, that call spread can be worth up to $3.00. above 38, your stock is called away, but you take in $3.00 in gains. you've effectively sold the stock at $41. that's up 30% from here. a lot of investors would be happy about that. >> oh, yeah. >> i chose the 38 strike because i think there's going to be serious resistance there. there will be a lot of sellers who will be very happy to be back at the price they bought it. >> the syndicate bid will be the offer for everyone who got in at that stage. this is a stock that's reasonably volatile when you have that type of situation,
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what ends up happening, you have high options premiums. if you want a levered bet, these ratio spreads are a good way to mitigate the premium. when you run out to april, what's going to happen in between now and then. you're watching your p andl, you probably won't see that thing move around that much in your favor. you have to bear in mind while you're doing this, the p & l is the expiration. >> these are a great stock rehab strategy, probably the best going. i disagree a little bit. i think once the stock is above 35, it's going to get really mushy and tough to rally. i would do this, but i would bring those strikes down. >> let's wrap this up, stocks verses options. facebook? 100 shares will set you back over $3,000. that ain't a $15 stock anymore. dan's one by two spread, that costs nothing to put on and can be worth as much as $3,000. let's move on here. we all know about apple's troubles, of course. another key tech stock heads
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into earnings, that's amazon. the tech giant made another all-time high today. according to the charts it could be moving from the wrong direction when it reports next week. got to call to the charts and find out why with the one and only carter braxton werth of oppenheimer. what do you see? >> this has been a great winner. the issue, is it too much of a good thing? retailers in general are not performing. the market made a low in november, from 1350 to 1500. in that same period big retailers are basically down. take a look at this table. this is a two-month change walmart, nordstroms, target, sears, macy's, kohl's, almost all of them down. s&p is up,ing amazon is up twice the s&p. the bulls would say amazon is taking share from all of these players. the issue, is it too much of a good thing? let's look at the chart. this is a chart going back to the '08-'09 low. this stock has gone from 37 to
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285, up eightfold. it comes down to the trend line and bounces, bounces, bounces. at this point we think it's a bit above trend. the next chart puts this in context. it's had multiple sell-offs. typically the sell-offs are 30%. what i've drawn is the pre assumes, the next sell-off coming. we think you faded here, too much of a good thing, just not sustainable. >> a sell-off is coming. mike, what's your take? >> it's hard to talk fundamentals on this company. one of the reasons is usually you care little bit about earnings. on a relative basis they don't really have any. that's a bit of a chal when when you are trying to figure out what metric to use. as sales has grown, so has the stock price. at a certain point companies like this, they start to stabilize a bit as people expect them to grow into that multiple and figure out a way to make money. this is a company trading at many multiples of any money they've earned since its inception. that's quite a statement. if you're trying to get
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earnings, that's kind of challenging. i'm inclined to make a ber risch bet as well. >> mike is buys a put spread is one of the most common strategies. we have to crack open the playbook. buy one put, sell a lower strike put of the same. you want the stock to fall to the put of the short. that's where your make your most money. mike, walk us through the trade. >> looking at the april 265, 245 spread. i'll pay $10.75 for those and sell the 2.45s against it for $5.30. the whole idea is to try to spend about 25% of the distance between the strikes and paying just over that as i do this trade. the whole idea here is we do have earnings on the 29. if it runs down, we'll have an opportunity to profit on the short directional bet. stretching it out -- >> bears trades are tough on
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this one, dan. >> i think mike has said it in the past, good money after bad. i'm actually in april and i'm long a put fly right now. to me you're trying to pick a top here. it's a very difficult proposition. i actually put it in the camp as what jeff gunlock did with apple. it's on a sentiment basis. at some point if you have deep enough pockets, get in there. this stock will have its day of reckoning. >> he made that bearish call before the sentiment took place. you're not going to toptick this one. it's that simple. but it is going to have its day. >> dan is right when he says you're trying to pick a top. i'm fine not catching the first 10% of the move down. i'll catch the rest of it. >> what do you get when you pick tops? stinky what? fingers. >> one more time. the stocks acts like helium and could expose you to unlimited losses. mike's put spread offers a four
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to one payout. we'll see carter later in the show. up next, it was the battle heard round the world. >> i appreciate, bill, that you called me a great investor. i thank you for that. unfortunately, i can't say the same for you. >> i was concerned about dealing with carl icahn because he unfortunately doesn't have a good reputation for being a handshake guy. >> when we come back, we'll ask the traders to weigh in on who won the battle of the billionaires and find out how you can make money. stay tuned. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim.
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from td ameritrade.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim
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from td ameritrade. ♪ >> i simply said, look, carl, you are no friend of mine. that is it. he goes on tv and wants to slander myself. >> i never said i want to be friends with you, bill. i wouldn't be friends with you. you said to me you'd like to be friends so we could invest -- >> carl, i have no interest -- you think i want to invest with you? >> i wouldn't invest with you if you were the last man on earth. >> i love the irony of the love strong underneath that exchange. don't call option viewing, it was required viewing on wall street as carl icahn and bill ackman went at it. the question for investors is
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who won and how can you actually make money off this great entertainment. >> it was phenomenal entertainment. i think both of them won on two critical points. one thing icahn said which is absolutely rue is that ackman is absolutely a risk of a short squeeze. he said mother of all short squeezes, i think that is accurate. >> ackman didn't answer the question either. >> how is he going to answer that? that's a legitimate risk. on the other hand, the thing ackman handled well was he only tried to stick to the facts. i think he could have gotten the name calling, didn't see that as much. >> he's laid out his facts. he's been very transparent about it. i thought ackman did a great job and won that debate. he is at risk of a short squeeze. all the weak hands that bought it outside of third point which have very strong hands, if there's any fundamental bad news, if there is any traction on some sort of government investigation, this stock will be at 30 very quickly. how long do you think those guys are going to hold on to.
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to me, i think you have a lot of opportunistic longs. when this thing dropped in half in almost a very short period of time, it has not made a new high for mid december and it's stuck here in a lot of ways. >> that means icahn won. the market has spoken and the stock has rallied back from the ackman low from when he made the announcement. >> right. it's as if nothing happened. >> ackman is not short this stock because he thinks it's going to zero tomorrow. >> the question is there a potential for a short squeeze still. that was carl icahn's point. if there are long in the stock, all they have to do is take that stock, take it off the market, not borrow it and it shrinks the shares outstanding. >> ackman knows his game. he knows what he's doing. at the end of the day to me, i think for the retail investor out there, it is a treacherous setup to try to follow either one of these guys. that's why i think the options world is a pretty interesting place to talk about it. >> what's the volatility like in
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hlf? >> it's interesting, the near data 45 strike calls, those quintupled as icahn was talking. obviously -- if someone is going to make speculative bets at the upside, that's probably the only way they can do it and count on throwing some of the premium away. >> volatility was up 15%. the max myers that was made famous in that piece is our own max myers, our producer. thankfully he said we could come on today and say anything we want. >> dan, walk us through your trade. you have a trade even though you are cautioning investors to be very careful. >> i wouldn't buy or sell the stock here. this is adult swim here for the big boys. to me, when i was looking at the options market, in december when the stock fell off a cliff when ackman first disclosed his stake, volatility went to 150. the trade that i put on today when the stock was 44.5, i wanted to sell february options
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to buy march. i bought a february/march put calendar. they'll report q 4 earnings after february expiration, i want to make the bet the stock does not go lower than 10% between now and february expiration. then i have the opportunity to own the march put that i think will get bid up. this is going to be the next event where investors have any information. i basically paid $1.50 for the february/march 40 put. >> by the way, this is the exact right time to use options. if you do want to make any bet on the sock, you want to do it in a very conservative way in that you're limiting your losses. >> take a look at some of the price action you've seen in the stock. this thing was in the high 20s and shot to almost $50 in a short period of time. think about the risk you're facing there. the march put, i might stretch it out a little bit. i think to your point, even if ackman is right, it's going to take so long to play out. i think you'll have an opportunity to sell a lot of
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premium. >> i don't like this because there's no catalyst that is going to take all the juice out of that. >> stocks going down. just do fewer of them and buy puts out rigright. >> check out our revamped website. in addition to scott you'll find great trader blogs, educational material. so check out out. here is what's coming up next. hold the phone. carter made a ber risch bet on nokia and the strok has president dropped enough to make the money. they still have a way to make this trade a winner. find out how when "options action" returns. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros
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with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
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[ indistinct shouting ]
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ welcome back to "options action." last week cohen carter got bearish on nokia. they have an opportunity to make even more money. here is how. sometimes risking less to make more just isn't enough. sometimes you want more cash, and that's the case with
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cohen/carter's trade on nokia. carter thought nokia was overextended. if carter is hanging up on tokyo, then so am i. but shorting the stock -- well, let's do the math on that. nokia is a $4.00 stock. in the unlikely event it goes to zero, the most you can make is $4.00 but you could loose an infinite amount of money as stocks can go up forever. buying the february strike put for 15 cents, now mike has a right to sell that stock at that strike price or at $4.00 at february expiration. in order to make money, he needs it to fall by more than the 15 cents he spent on the trade or below $3.85 by february expiration. that's the most he could lose on the trade, but it gets even better. why is that? because if nokia shares do fall, the put will increase in value
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faster than the stock will lose value, meaning more money in mike's pocket. since the time of the trade, nokia's shares have fallen 7%, not quite enough to make this trade a winner. now "options action" viewers are pulling out their cell phones seeking someone to answer the burning question, how can these guys make even more cash? all right, after initially working out, that put has declined in value, so that is a trade that is a wash right now. nokia, will it fall further? carter, what do you say? >> no chance, stay short. >> no change. okay. >> the strikes are not that close on a percentage basis. we don't have a lot of choices. we have to stay in the put if we're going to remain bearish. >> to me i thought it was a cheap bet. when i look at nokia, i want to think about rimm. if you can follow dollar cheap
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options, blackberry 10, that could be a good shot. >> you might as well keep it. i'm not a fan of wasting 15 cents. >> our thanks, of course, as always to carter braxton worth of oppenheimer. time for the final call, the last word. >> buy protection when you can, not when you have to. >> with facebook, a lot of you guys own this thing, i think you should look for some vat gees, one by two call spreads can be a way. you have to be careful managing that through your stock position. >> mike? >> we have amazon earnings coming up which could provide a potential catalyst for this stock to finally roll over. i like buying put spreads as a bearish bet. the other thing is, scott's point, right now is a great opportunity to make bearish bets, xrt, that's a good place. >> looks like our time has expired. for more, go to our website, we'll see you next friday. meantime, don't go anywhere
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"money in motion" is up right after this break. stay tuned. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. i don't have to leave my desk and get up and go to the post office anymore. [ male announcer ] with you can print real u.s. postage for all your letters and packages. i have exactly the amount of postage i need,
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