tv Options Action CNBC September 15, 2013 6:00am-6:31am EDT
bye-bye. this is options action. tonight, bullion breaks down. >> those cubes you put in hot water to make soup? >> no, not the little cubes. we're talking about the big gold bars. could a gold rebound be in sight? we'll break it down. >> plus, why is he taking on floyd mayweather. >> i told him may 5th is open. >> because this weekend's big bout could mean knockout returns for your portfolio. he'll explain. and does the twitter ipo mean the top is in for tech?
we begin right now. >> welcome to new york city's time square. i'm melissa lee. while stocks continue to soar in september some of the names that lead the market are showing signs of fatigue. tesla shares taking a breather. netflix showing sign of running out of gas. is the market losing it's mojo for momentum stocks. let's get in the money and find out. what do you think? >> they're taking a pause here. these things appreciated so much, so fast, in such a short period of time. fabulous games here to date speak to risk appetite and there's been a lot of it. we're having one of the best years in the s&p and nasdaq in awhile. but these things don't represent value. so to me, it does speak to the fact that people are chasing performance. they know they have it here. >> what does it mean if they're losing steam? if the fuel higher was the chase for performance -- >> my question would be a pause
on their way to where. i don't see how you could possibly justify committing new capital at this point, especially if the momentum part of the trade is over. they're all at nose bleed evaluations. >> you could have said that months and months ago. >> and i did. >> exactly. >> and netflix has been up and around the 300 level for a little while now. tesla obviously had a heck of a rally. kudos for having called the momentum trade there. listen to elon musk himself. he is actually putting a lot of cold water on this as well. >> he also said today he took profits in tesla. so scott, i'm curious, in terms of the option market what are they say act the momentum names and if they'll continue snnchts people are trying to get protection. for good reason, a name like tesla came so far so far and the option market is the only way to
short it. insiders hold so much of it but for momentum names in general. i think newton's lesser known 4th law is that stocks run too far and when they run too far it gets ugly in a hurry. netflix, the amazing thing there is not that it came all the way back but that it came all the way back and people were jumping on board. index traders love to watch the s&p open lower on the day and get all the way back and sell off. that's what netflix is seth up to do. all the way back to it's all time high and now it's going to be ugly i think. >> what does it mean for the market right here? >> yeah, margareted highs still -- >> these are companies with 3 or $4 billion market caps a year ago. now they're 18 or 20 bld billion. you're seeing a rotation. we have seen money come back into names. so they are coming out of speculative u.s. stuff -- >> that would be a good sign for the overall market.
>> it is. that's positive. >> how does that sit with you? >> it doesn't sit well for these that have run out of steam. netflix got news this week. it had two downgrades. we also had carl icon i think on the air earlier this week say he hasn't sold a share of it yet. this is a guy that bought it at the dead lows over a year ago at $70 ands above $300. >> he is using a put fly -- this one is tricky. so let's open the play book and see how it looks. buy two slower puts against it to protect your cost but then buy one even lower strike put. the goal is simple. you want the stock to go to the strike of the puts that you sold. that's where you make the most money. walk us through the trade. >> the trade exists because of this. carl icon rang the bell at the bottom. he's not going to do it at the top. don't wait until you get a press
release saying he is out of it. some of the things to me show the declining momentum. the gaps are doing so on lesser and less volume. short interest is at a two year low. when you look at that chart right there, the price and short interest chart have gone haywire. i made a short-term bet that the stock would pull back in the next month or so. i wouldn't short this stock with your money. i'm going to define my risk and set up a structure where it's a set it and forget it trade. i bought the october 2080, 255, 230 put fly. i sold two of the october 255 puts at 230 for a total of 460 and bought one of the october 230 puts for 75 cents. between 277 and 233 i can make up to $22 with my maximum gain
of 22 at 255. this is a set it and forget it trade. i'm ready to risk three to thread the needle. >> on the thread the needle trades it's harder when you use structures like this out longer in time. this makes a lot of sense to me. the last time netflix hit these levels and then collapsed, a trade like this, it probably wouldn't have worked out because the stock fell so far. here, if you're going to try to be more tactical about it. >> congratulations netflix. trailing 12 month pe is almost hundred. the only argument i have with this trade is i don't think this is a set it and forget it trade. the more time there is to exconspirae expiration. i could get out of this trade. >> one last point here, in terms
of the high flying stock. we saw linkedin. the stock acted well. you would think that would be, not game over for them but a set back. how do you weave that into your belief that netflix would go lower. >> we had carl on the show last night. here's a guy who is a smart trader here with fabulous gains. sooner or later you'll start to see big holders take profits in this thing. lipged in is still growing. it's not nearly as controversial. >> carl also indicated he wanted to get out of the stock earlier. it was his son that prevented him from doing that, remember? >> a wedge in the family. >> you have to think the conversation is being engaged in again at this point. they enjoyed enormous profits. >> that is the financial equivalent of the lone ranger. it offers an almost 8 to 1 pay
out and risks just $300. well, listen to this. this music can only mean one thing, the fight of the century. tomorrow night floyd money mayweather takes on canelo alvarez at the mgm grand. it's the fight's paper view totals that have the world abuzz. getting warmed up for the fight. >> this thing is getting serious billing, guys. golden boy promotions is promoting the fight calling it the one. it fully expects to break paper view boxing records. golden boy ceo thinks there will be more than 2.5 million homes that will buy this fight. here's the biggest boxing events of all time. first mayweather de la hoya. that's followed by tyson and
we asked him what drives him to stay motivated the way he does. >> i stay motivated because the boxing world keeps creating these young, strong monsters. so the only thing i can do is keep working hard. these guys want my spot. they want to be at the pinnacle. >> if you want to watch the fight, it's $65 for the standard definition feed and if you want to see the blood sweat and tears all over the ring it will cost you $75 for all the hd action. this is no cheap proposition. certainly a big boom for companies like showtime if they can get that demand. >> sure is. have to ask you. who are you picking in the fight? >> i like mayweather. yeah he's had problems but he's still the best fighter out there my money is on mayweather. >> thank you. have a great weekend. thank you so much. this underscores the growing demand for paperview and video on demand. >> that's right.
fact that you see rising content cost and prescribers at the cable companies haven't been able to grow fast their business is still quite strong. these are companies with quite good returns. we're talking about companies like the owner of this network, comcast, which is probably my favorite in the space. >> mine too. >> conveniently enough. this is a company probably trading 12 times. consistent eps and so i think also because it is so consistent the options are relatively cheap. all i'm going to do is make a simple and straightforward bet by going out and $1 out of the money, pay 2.50 and take advantage of the fact that this is a stock that's gone up at a 45 degree angle. the options are cheap but i'm not willing to just purchase the
stock here. i don't want to start buying stocks at 52 or all time highs. >> a lot of the stocks in the space are at highs. take a look at disney. what a great look for disney. >> they said they're going to buy up to $8 billion worth. comcast say really unique one. it's 18% on the year. if the markets are going to make new highs then comcast is likely to make a new high. mike's option will be in the money. he'll have the opportunity to spread it. this say cheap option on a cheap stock doing a lot of good things. >> you don't want to sell that upside call because you're not going to get much for it. mike is buying an outright call so he's going really long dated and that makes a lot of sense because that long-dated option isn't going to erode until the end of the year. >> comcast is the owner of nbc universal and cnbc. we'll answer it in our one-on-one extra tonight.
do check it out and also check out our educational material. here's what's coming up next. >> mike's got a bullion problem. >> houston, we have a problem. >> that's because his bet on gold has gone bust but with time left in the trade, could he still be sitting on a gold mine? >> plus could the announcement of the twitter ipo mean the top is in for social media stocks? we'll break it down when options action returns. >> options action is spontaneous sord by think or swim. by td ameritrade. [ 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 to options action. time to get called out. last month mike made a bet on gold. that trade hasn't worked out. it went so wrong it's become a cautionary tale on wall street. >> fame, power, fearlessness. >> i'm looking to take advantage of that volatility. >> and above all else risking less to make more. >> you're the one that has the problem. >> i don't think anyone could have predicted that kind of success. >> this is the story of mike's gold trade. this is the true wall street story. growing up mike had never been too interested in gold. >> i'm not particularly a gold bug. >> but in august, all of that
changed. the shiny stuff suddenly had a magical allure. but just buying 100 shares wouldn't be enough. he had to have more. to to make a bullish bet he bought the november strike call for $4.50. to make money, he needs shares of the gold etf or gld to rise above $135 by more than the cost of the trade or above $139.50 by the november expiration. when he told his friends he wanted to spend $4.50 just to bet on gold. they couldn't believe he was serious. >> hi jaw fell to the floor. >> that's when they staged an intervention and helped him turn a costly trade into a things of options beauty. >> sell the other one for $1.70. >> mike sold the november 145 strike call for $1.70 and turned
this into a call spread and kicked his addiction to risking more. that's because between the call he bought and the higher strike call that he sold, mike is now simply paying $2.80 on the trade and now instead of needing the gld to rise above $139.50, he simply has to see it rise above the $135 strike price. >> he was at the top of his game. >> but there was a problem and mike was now forced to contend with a serious trade off. because by selling that 145 strike call mike capped his profits between the difference of the strike of the call he bought and the strike of the call he sold, minus the $2.80 he spent. now since this now classic trade, what's happened? gold has moved lower meaning this trade hasn't worked out. so what's mike going to do now? will he keep trying to cash in on gold?
or has that moment already passed him by? that's something fans around the world are trying to figure out. while they do, they'll still remember when mike changed the face of option trading forever. >> can you win a noble prize for that? >> perhaps this might offer some so solice. if mike were to close out his trade today he would be looking at a loss of $155. certainly not great. november is a ways away. that's a crucial meeting next week. what are you doing at this point? >> one of the reasons we were using options, i'm not a gold bug but if i were trying to play for a bounce i wanted to try to risk less. this thing is actually trading for 1% of the value of the underlying. i'm not going to take it off. i still have time. keep an eye on the higher strike call. if it starts coming in more you may want to cover that and ride
the other one. >> mike has a company here yesterday, somebody bought 28,000 of the october 131, 135 call spreads. somebody is playing for a bounce, possibly up to 135. >> when you're in a trade not working, you bail, you pull the plug because then you can take a step back and reevaluate. >> coming up next, it's the ipo on the century. that might be overstating the case. but could it signal the end in the massive rise of internet stocks? we'll discuss that when options action comes right back. >> options action is sponsored by think or swim by t td ameritrade. [ 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.
it's the first pure social media ipo. >> what's it going to be worth? >> 10 to 20. >> 10 to 20. >> that's what people have saying. that's what people have been saying for awhile. >> that was cramer talking to the ceo of buzz feed saying twitter could face $20 when it goes public. the sum of internet stocks have been remarkable but could a twitter ipo signal the end of this run? i fwesz the question is does
twitter suck is oxygen out of the room in terms of money that can be allocated to the other stocks? >> the amount of money committed to these, when you take a look at the market cap that on the margins could it? yeah, it certainly could. but even if it does fetch a $20 billion evaluation, that doesn't mean they'll float it just off the bat. >> you know what, i think the demand is insatiable. look what happened to facebook. it went from 55 billion in market cap to 107. there's money coming out of other areas. they think this is the next growth phase in technology. think about all the companies you have put cash in as far as technology is concerned with no growth and you don't get great returns and all of a sudden now you have these things. >> i think facebook and twitter and linkedin really are into themselves in this space. i think twitter, they already know how to do it.
so twitter actually may do well. certainly better than fwoonchac >> content is king. twitter is a key source of content, especially for people trying to follow news in real tiech time. even for traders. sometimes you look at your wire and hear something is going on. >> can i tell you what it should do, facebook was filed on february 1st, 2012. one of the things i would say it could do is we may see a binge in the private markets. people may kind of find some of these more nichey players because maybe they're the next ipo or stage of growth for twitter. that's interesting but listen, twitter is a pure play here. >> going back to your trade on netflix, take a look at these growth stock. investors don't typically say i need this allocation to social
media. they say i need this allocation to growth. therefore, could you be concerned? >> we talked about it last night. you know, facebook -- the first year it was public had over $5 billion in sales. right now, the last one that they filed, twitter filed last night means they have less than 1 billion. they are expected to gross sales. people are expected to put a 15 to 20 multiple on those sells. so that's really great growth and that's what real tech and growth investors are looking for. >> 15 to 20 multiple on the revenue number. that's what's interesting. >> there won't be any earnings for awhile. >> exactly. i think that there's plenty of oxygen for all of these players given the evaluations right now. >> speaking of twitter. if you want updates follow us on cnbcoptions. if you're on facebook stay posted on our trades throughout the week. coming up next, the final call
from the options fits. >> get more options action with our news letter. packed with exclusive information and analysis, this is the extra edge you need. it's free when you register or visit the member center at cnbc.com. >> options action is sponsored by think or swim by t 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.
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i didn't. time for the final call from the options fit. >> for a different trade, check out web extra. >> yeah, netflix, short bets. >> i like comcast. >> our time is expired. thanks so much for watching. check out our website. we'll see you back here next friday. "mad money" is up next. >> announcer: the following paid program is sponsored by great healthworks. the opinions and views expressed are those of the program's sponsor and do not necessarily reflect the opinions and views of cnbc. the following is a paid advertisement for omega xl. >> my name's larry king. a few years ago, i had to have open-heart surgery. when i recovered, i established the larry king cardiac foundation to help people like me avoid heart problems with proper foods,