tv Options Action CNBC September 6, 2013 5:30pm-6:01pm EDT
. >> this is "option action" tonight, why are traders digging minutes? new internet stocks are partying like it's 1999. we'll explain why the party is just starting. plus, rosieing rates have investors freaking out. >> it's mass hysteria. >> the man that calls the bottom in gold explains the rates have tapped out. hemoexplain why. could microsoft be dead money again? with the ballmer boost over, will microsoft see another lost decade in the action gens right
no now. lievg from the nasdaq markets and in new york city's time's square, i'm mellissa lee. there is only one thing on investor's mind today. >> that is the new iphone, will it be a stud or a dud and what will it be for apple? it's has a summer of love. so why are some trade sores skittish ahead of this event? let's get into money right now and find out. dan, "options prices" suggests a pretty good move to come on. >> next week's options are supplying a 4% move. it had a 30% run,ment-84 lows here, a lot of thing going on, i don't think a lot has to do with fundamental also, what happened is this thing got too cheap. you got activists involved. >> i'm going to push back a little. there is a buy back going on, they're also anticipation there was going to be a china mobile deal him with edid get that report from dow jones. right. >> let me make a real strong
case here. apple is losing in china. within they reported in july, their market share year over year in their fiscal q 2 or excuse me q 3 was down 4 percentage points, from 9 to 5%. it's a critical sort of thing. >> you add china mobile, mike, thattiaed the carrier the size of at&t or verizon in terms of volume of phones. >> well, you certainly have the potential for volume. you don't necessarily have the potential for margin. that's certainly one of the issues. one of the things that's true, though the valuation compared to the broad market was looking keep. >> that creates a backstop, as you pointed out, have you the share repurchase going on. you have investors deciding. there is a money flow backstop that's helped out a little bit. it's hard for me to get enthusiastic about it at this point. handset makers, let's be frank, these things should not trade, they're here today, they're gone tomorrow. we have seen it again and again, you may not believe this, but in 20 years from now, people think apple will be the company it is
today in terms of its dominance, i just don't believe that. >> well the china mobile phones will be second tier phones, that means they will be lower margin phones, it may mean that apple is every other handset maker that existed. maybe they're not the bright shining city on the hill. maybe they're everything else. i think what that means is margins will go down. they've done some really great things. they have all been financial things. everybody loves to talk about how apple sold bond at the very high. great. what about a new product, guys? you say it's cheap. maybe it's cheap for a reason. >> on the if you car front, we got reports this week. the stock rallied a half a second they're testing 6-inch tablets. this is something samsung is doing. they're not leading the pack. they previewed these phones with ios if june. investors will be disappointed. your point is a it gra one. if they open up, there is 107 million users on china mobile, they're not going to rush out an buy tens of millions out of the
gate. it will take time here. if investors get too excited a about the chat mobile opportunity. i think it will take some time to work itself through. >> in terms of your view on the stock price, dan, you would buy on a pullback? >> i think 500 is an interesting level. it's reached technical resistance. that 50-day or 200-day moving average at 4.65 is an important level. i think you will see tons of support there, because of all the buy backs and these reasons that you mentioned. to me, if you have to go out. you think this stock is a screaming buy right here because of this china mobile opportunity, i have a way that you can do it that i think makes sense with the fine risk. >> that chart is important. we will run it again. >> dan has a bullish trade for you on apple, he's using a call slide, it's complicated. let's see how this works. it's a bullish strategy. you buy one call and sell two higher strike calls against it. to protect yourself, you then buy one even higher strike call. it sound a little tricky.
you want to stock to do to those two strikes that you are short. >> that is where you make the most money. that's your target for the stock as well. it's sort of like threading the needle. >> i do want to buy this stock at 4.65. we will get this unchanged at some point. to me, right now, if you have to get in for next tweak's event, this is one thing to do it. also considering the fact there is fiscal q4 earnings will be november expiration to look at this. because that could be the pivot point. if this company says or they have an outline to earnings growth, they have not had in a while. that's the thing, to me, when the stock was at 4.98 today, i priced up the november 500, 550. 600 call butterfly to. >> thatst cos $10. what do i do will? i bought one of the november 500 calls for $25. i sold two of the november 550 calls at $9 each. it's $18. like said, to cover myself on
the upside, i bought the november 600 calm for $3. >> that cost me $10, that's my maximum risk. between $510 and $990, i can make $40. my maximum gain at 550. it does sound complicated. it's not. >> there is a reason you want to look at spread trades like this in a name like apple with an upcoming cat a lils. dan was talking about if implied move. the reason we know that implied move is we are taking a look at the supplied options, the options are quite expensive going into this catalyst. it is no circumstances, especially when you know the catalyst is going to come and go while you hold your position that you need to look at spread trades like this, because that will suck a lot of the premium out of those options. >> we talked about butterflies. i like to look at them as buying one call and selling another call spread, you are selling the 550. 600 call spread, be you the stock has to go right to that middle strike to make that maximum amount of money.
i don't know why you wouldn't sell a put spread instead. i don't think anybody on the desk thinks that anything we talked about is going to help out those guys that have a,000 dollar price target who is long at 705. i would rather sell put spreads than thread the needle. >> quickly, dan, do you want to respond for the that? >> i don't think threading the needle. 532 is the break even on the year. >> that is a reasonable outlook. if this company is able on their next earnings report in november expiration and say we are going to start growing earning, i think you will have the stock back. >> we are talking 40 billion of market cap. that's a big needle. >> i want to buy 100 shares. you better get an i-loan. $1,000 offers a 4-to-1 payout. let move onto the other big story of the day and the week. >> that is the outstanding performance of new internet stocks. domenic skr hu has more on this. >> let's call them the next
generation of internet stocks. facebook is roaring back. up 140% from the post-ipo last september. investors are more bullish on the company, now they've shown they can generate sales and profits on mobile platforms, linkedin, another stock that's built up a huge head of steam. it is up in 20 thrown alone. it recently announced plaens to help finance possible new product developments and international expansion. then check out shares of online review site, yelp, rather, they're soaring. they're up about 230% so far this year. analysts at stifel nicolaus and barclays have spiked ratings on yelp. these three companies are trading. they are all worth billions of dollars. check out how much in profits they're expected to make this year. yelp, by the way, still forecast to lose money, mellissa, despite its $4 billion valuation. >> thank you very much. the question thousand is, is it too la it to get in on any of
these plans? carter worth of oppenheimer. >> hi there. we would say no, not too late. let's lock at a few things and try to figure it out. obviously, great performers. i have a one-year chart. i show 40u correlated these are. this is linkedin, groupon, s&p 500 technology sector. basically unchanged. no result, yet, these things are exploding up 100, 200%. actually the last six months, lincoln has underperformed the group. if you see the stats here, the most sort of benign, we think that's an opportunity. we think it will catch up with some of the others. looking at the chart of linkedin, what is important here is well defined levels from which it broke out. when i brake out from a range, a period of equilibrium gives way to dis-equilibrium. you only gap with news, obviously, it has to be good news.
then you second a second gap. typically, you get a third. that's another piece of good news. you get one more. at which point we would play the name. here now, play for that fourth gap. >> it's interesting how carter focuses on linkedin. it has a different business model. it has more of a subscription based model. >> i think that's definitely true. like many subscription models, once they pay, you get dinged on your credit card, like me, i am a paying subscriber. i have been for a number of years. >> that said, it's hard to get behind it on a valuation basis. these stocks, we saw on the table right there, he was talking $180 million profits. these are very petty multiples. i think if you want to play the momentum here, the only intelligent way to do that is with options. i wouldn't go out risking capital by initiating new loan stock at all time highs.
>> opposite the trade, mike. >> this is straight forward. i'm looking at selling the 250 put stred spread. i will collect and pay 14-and-a-half. basically, i will take in 4.5 dollars. that's the distance between the spread. the idea is the stock sits here, which probably is likely. if it goes higher, i will collect that premium over time. if it goes down, i have it put to me. i'm covered bety lower strike put, i'm long. it won't actually go to the full $10 of that spread value if it declines in the near term. this is a way you can take a measured long position and only risk. >> if you share that view, i don't sthair share that view. we have seen this, we know how it ends, it will not be pretty. >>io don't you like that view? >> it's mental. these stocks are going up parabol ec. they make no sense and have no earnings. linkedin is a different story. they priced $5-and-a-half shares at $22. i don't leak your strikes.
if we get hairy in the market, that stock goes down. people got too free money. they will pile out of it. >> it won't go to the full $10 bucks if that hams in the near term. i agree the valuation is not the justification in this case. >> all right, got a question out will? sens send us a treat, tonight, scott is taking a lock at an under the radar football play that can have your portfolio feeling pretty full. you will find great trader blocks as well. check it out. here's what's coming up next. . >> don't call these guys soft, last month, carter found a window of opportunity. now their trade is in the green. but they have a way to make even more. plus, talk about a bold call. well, not that bold. carter worth does say the rates are going lower. hemoexplain why, that's when "options action" returns.
. >> we think it is right for the do the exact option of what is being done on the street. there is very little downside. >> a variable call from a bold man. >> that, of course, our own carter braxton worth, calling the bold three months ago. >> that has been golden. now, carter has a bolder call in the bond market. he says rates are done rising. let's find out why. carter. >> if you look at the chart, i think the principle is you boy the rumor, sell anew. there is expectation of tapering. we think the move in the bond is pricing that in this is a long-term chart. it is a well defined trend.
i don't draw them, they draw themselves. we have just now reached the top of the chat. we are almost 4%. 3.9% and change. >> that is pricing in what is coming from the federal reserve. let's look at a few other charts to put this in context. this, of course, is price versus yield. this is the tlt, the bond proxy, of course. if this is a moving yield, the inverse quarter is all we will know. we think this is at an end. let look at the tlt, itself. here is the play. this is a one-year chart. bond have been selling off and off and off, of course. rates are going up and up and up. we started to break up above this channel. we think that's the tale that something is occurring here. look at the long-ferm chart of the tlt. we reached something of a trend line. we would again play for a bounce, if you will, in tlt where a pullback in rates. >> all right.
so, mike, tlt, share that view with quarter, first of all. >> i think it's possible. of course, the bond market pretapered. we saw significant outflows of big bond flows. pimco 14.5 billion in june. more many july. how much is taper going to take out of the markets? it's not the full 85 billion. we are talking 10 or $20 billion. if it starts to level off, you essentially could see the effect we seen is all the impact we will get. now. it's not a long-term call. on a short-term call, that makes sense. what i would do is play for a bounce in bonds. there is a simple way to do it. i would go out and buy the december 104 call and tlt. that costs you a little less than $2 bucks. if we do get a rally in bonds, you will participate. you give yourself a little time to play out as well. >> i have a question. there is also the tbt, which is the enverse, would you do the
inverse of the strategy on the tbt? >> you know, these guys are right. on the near term basiser that oversold. just as bonds go up and up and up. they overshot. if the fed, maybe they buy mbs, they stop buying some of the treasuries. the treasury could get really nailed here. i think yields continue to go up. if you do have a hint of an unemployment rate below 7% in the next few months, some say it could happen. >> any evidence we could expect it's the first thing? we are not giving good economic data. that's the reason you buy calls. >> i would stick with tlt. traders like to say when it's horrible, sometimes it's best. i think carter here is being incredibly courageous. i think this is completely in the face of conventional wisdom. >> that said, this is pretty expensive. i don't think the taper is a rumor. it's a fact.
>> you know -- >> it's a guess. >> sometimes when it looks terrible is when you step in, you make the most money. but, wow. >> when we come back -- >> 1.5%. no one wanted to expect anything but lower rates. now we move up to 4, empg everyone is talking higher. we think you take the road less traveled. >> we will see. what do they have? in microcost's zay case, it could be dead mine i money, we'll tell you why when we come right back. stinct shouting ] ♪ [ 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 ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade.
[ 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. >> welcome back him time for the upside call, a couple weeks back, carter worth made a bearish call. it has been spot on. on "options action," it's how we squeeze profits out of walking
dead stocks. mike and carter did with their bearish bet on microsoft. carter thought microsoft shares would stay dead money. >> we think this is a dead animal here. >> shorting the stock can lead to a bad outcome. >> when there is no more room in the hill, the dead will walk the earth. >> actually, we were worried about another bad outcome, because shorting microsoft or any stock to that matter could expose them to infinite losses. mike sold the call for a dollar. to keep all that money, mike needs microsoft shares to stay below that call's $35 strike price about $35, profits will trail off. mike won't see losses until microsoft rises above that call strike price by more than the dollar he took in or $36 by okay expiration. >> well, hold on, because there is a tradeoff.
and above $36, nike is still subject to infinite losses. can't we do better? >> payout about 36 cents. >> excellent. so to limit his risk, mike then bought the october 36 strike calm for 60 cents and created his bear call spread. now between a dollar to collect it by selling the lower strike call and the 60 cents he spent on that higher strike calm, mike still pockets 40 cents. >> that 40 cents is the most he can make on the trade. but to keep all of it, mike needs microsoft shares to stay belie $35 by october expiration. above 35.40, losses do kick in. they are limited to the difference between the strike or the call he sold and the strike or the call that he bought, minus that credit. so, in other words, while plaik mike may not be able to raise the dead, he can do something more impressive, make money whether microsoft dropped, stays flat or goes slightly higher.
>> i guess it deals with the resurrection of the dead, long distance electrodes shock into the pituitary glands of the recent dead. >> tins since the time of the trade, microsoft shares have slid some 10%, making this trade a weiner, not, "options action" fans are coming in far and wide. they all want to know the same thing, what will mike do now? before we answer that, let's capture this. mike captured the spread. so, mike, are you going to close out the trade or reshort microsoft at this point? >> i'm not too crazy about microsoft. there is 5 cents left. it can potentially be worth a dollar. i would absolutely close this position. i would very spreading out another short call. >> carter, do you think that would be a good move? >> i think it's a good move. stay away from the stock, why
bother? >> what if alan mulally -- >> elap gets the job. it goes down to high 20s. >> coming up next the final call from the "options desk." [ indistinct shouting ] ♪ [ 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 ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
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. . >> a dog at niagara falls farm gave birth to eight puppies. it has nine mouths to feed. the kitten was recently born on the farm. he made the discovery and saw eight small hungry puppies and a kitten trying to breast-feed dogs and cats living in harmony. >> that is tonight's edition of optional viewing. >> this year, bulls, can buffalo wild wings score chicken many. >> i think you do so with a fine
risk. >> mike. >> if you are short that microsoft call spread, you definitely want to buy it back. when things get that cheap the risk reward no longer makes sense. >> thanks so much for watching. check out our website, we'll see you back here next friday. p.m.. in the meantime, "mad money" with jim cramer 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 to cramerica. other people want to make friends, just trying to save you a little money. my job is not just to entertain you but i'm trying to coach and teach you, so call me at 1-800-743-cnbc. you want confusion? today confusion galore right from the get go when the stock market looked like it was going to rise --