tv Options Action CNBC August 16, 2014 6:00am-6:31am EDT
only one thing that i want you to remember when it comes to your money, and it's this -- "people first, then money, then things." now you stay safe. . >> yes, ha ha. >> this is options action tonight. energy stocks have gone from hot to not. shut up. but according to charts, they could actually be setting up for a huge run higher. we've got a special report. plus, so so, that's what tesla did. shares rose to an all time high. we'll tell you why some traders say it is time to hit the brakes. will bill cosbicy netflix? a new strategy could take the streaming giant into fast forward. tweel you how to play it. the action begins right now.
sitting in for melissa lee, hello, everybody. these are the traders in time's square. well, this is the big question for this week. do bond traders know something they don't? stocks enjoyed their best weeks until april. who is right, the risk takers or the safety chasers? let's get in on the money, it seems like someone can be wrong on this. >> the tlt 20 year bond is up 20%. in the year we live in over the last year, we know there was this bifurcation when we had this temper tantrum. bonds came down and there were times when the bonds went up. at some point something has to
give. from where i'm sitting, something has to give. we will foe soon enough. >> for something to give, there has to be some sort of trigger, doesn't there? >> there is some global macroconcern maybe you will continue to get fuel for the fire for all financial assets. what i would point to is the fact there has been a mild uptake, they still are exceptionally low at less 350 basis points. >> carter, what is all this bond action tell you? >> you think rates are going lower, in fact, there is relative value in the u.s. compared to everywhere else in the g8. here's the tlt. can you draw it this way or a textbook bearish to bullish reversal. we think this continues on a yield basis at 23, 24, wily the we are going to 12r50e67b8 look at the long-term chart.
you can draw the lines fairly well defined. you got to the top of the channel to the bottom of the channel we go to the mid-point. >> i think carter makes an excellent point don't you when he talks about the relative ray tractiveness, it's bee1% now. >> i think given from the language from the fed and they're willing to find down cautious optimism. if field at 23rs something will be wrong in the world. it doesn't make a whole lot of lens sense to me that equities are all time high, bond yields will go back to 2% in a good economic environment. >> my view of in is buying bonds with yields like this to me is the same thing as selling exceptionally cheap puts. i don't see a whole lot of
upside. i see plenty of downside. listen, if we get something that will fuel bond markets, i'd rather be long equities. >> what's the look here at tlt. >>. >> i want to take the other side of carter's technical call. 120 looks like barely resistant technical instance and we see the tlt back at 120, we had this consolidation just last week at 115. today i priced it up when the tlt was 117.y. what am i doing right here? i'm selling this september 115 put at about 80 cents. i'm buying the to have 115 put
at 12. i own the november. why am i startinging november? we'll have the wind june of q3 at the october fed meeting. i think that would be a good opportunity that we could see, what's the catalyst? maybe it's when the fed is done buying bonds, lately. >> i think this is a part is way to try to buy premium, take advantage of the fact that those near options will decay. the other situation here, i mean, this looks like the very low premium. treasuries are not that volatile. when you look at these things, you say, why would i look at these historically? >> bottom lean. >> if you are buying bonds here, you they whole heck of stuff is going to go badly, i don't think the world will come to that armageddon situation where we're buying the bonds when the fed
says we're done buying. >> okay. let move on to crude oil. balancing today, only after hitting a seven month low. jackie deangelis is at headquarters with more. >> we are certainly seeing oil respond to headlines out of ukraine today. crude prices rising more than 1%. traders tell me they have no desire to be short over the weekend. crude lost about $10 in two months. the reason for that, geopolitics hasn't helped supplies and that drop hasn't been a help. that's the only losing sector this week. >> so will energy stocks keep on lagging? let's check in with the chart master? what are you looking at, carter. >> history shows when you have this drop in a two-month period,
we know crude has developed of late around a 12% decline. take a look at these statistics, there have been 203 times going back to 1980, 25 years, where oil has dropped on a two-to-three month basis by 15% as stated here. oil drops more than 15%. this is the performance of the energy sector on a one month, three month and five-month basis relative to the s&p. it actually outperforms. so we think that's an important backdrop here. take a look at two charts that i think matter here's a two-year chart of the sle that measures the energy stocks. these are the four important intermediate declines of last two years. the percent annuals are remarkably similar. 8%. 9.5%. 17. the duration. this was 22 sessions. this was 2003.
this was 22 and this one lab 32. but the principles are that after a sell-off you get a bounce. you get a bounce and we're playing for a bounce here based on this chart and based on what history tells us. now, last chart, a long-term chart of the xle. this is the all time peak in 2007 and there is where support comes fly. on any further dip but here and on any further weakness, we think the xle, the energy sector, the energy stocks are a good bet. >> steve is thnamgerian is look. >> there are a lot of things people don't like about many of the components of the xle. so the biggest component of the
xle is the integrated oil company, chevron and exxon alone represent 30% of that the integrated bask of their reserves are trading relatively cheap to the market about 12 times earning, seven-and-a-half times ebitda. the other thing is there is a lot of other subsectors under some pressures as well. some of the drillers. carl icahn is notably if one of them. vai one of the stocks that have been decimated for quite some time here and is also trading relatively cheap. then you have areas that are holding up reasonably well. everybody is fearful the refiners will start going down, really, their crack spread has held up nicely. so they're doing pretty well. >> so water the trade on the xle, itself. >> very simply, i'm going out and these quarterly puts expire at the end of the month about four bucks. those were $1 on the money earlier today. this is a way you can spend
about 4% of the under lie to make bullish bet? >> i actually disagree, i think the moment item is broken. we had a 22% rise from the low in february. it just broke that uptrend in place here. to me it looks like you have a broken momentum six. quote to be long premium in a sector that momentum is weening. >> you were going to say something. meek. >> this is the reason we're trying to trade calls hereing even if it doesn't work out, you are not taking the risk of going out. >> that was the view on that. >> if you are a listener, you can sen us a tweet at cnbc options to get your voice heard. for everything action, it's optionsaction.cnbc.com. there is water coming up next. coming up, will this pan make you big profits on netflix? >> all right. hit it. >> mike's got the cosby trade and we'll tell you how to trade
high this week. i was so surprised i had to walk over here to check it up myself up close and personal. i guess it's working out. does the run continued, what does it stall? >> one of the things real interesting to me, it was a piece of negative news. consumer reports came out and gave a washy report and they're generally enamored with it. i think they were talking about issues there. investors didn't seem to care. when you look at this chart, it's interesting to me. it actually, this was the balance it got off the gig ga factory in february. i guess this could be an epic double top. fiwas looking to get back in on the long side, if you thought about taking profits. this is a good level if there is
any good news, remember, this is 30% short interest in the name. we'll make another point here. we talked about the short interest. this is a very good stock. it's in good hands. elon music owns 23%. he is in a battle with the shorts. they get tripped up. they have to cover. new shorts come in. the stock goes up. they keep buying. >> he has the muskian touch, doesn't he? what i want to foe if you have sort of negative reportsic like edmonds and consumer reports, if bad fuse like that doesn't knock this off it's momentum? >> here's one of the things that's interesting to me. you look at the top holders. it's largely held. there are capital pulls. looking at the options market, the highest levels of open interest, they're all if stripes
like 50, 100. things that were put on long ago, that were like 10, 30,000 contracts, when you look at the interest that are near money and near dated, there is not a lot of options activity. one thing that says to me is that the stock is in such good hands, like i said before, people are not nervous, they're kind of complacent. this is implied volatility of tesla over the last two years. look at the, it's hat two-year lows. i will not tell you whether i think it's going up or down, i don't know. my crystal ball is not working. >> when fidelity decides they're going to start lighting their positions. they own 10 million shares, they have been exceptionally bullish. they were right to do so. at the end of the day, the valuations were at such a level. if they start to do that, that's when the bottom falls off. the only thing that can hold it up is probably that short
interest. >> you can't even use the word valuation with a stock like this. there is no valuation, now there is no momentum. it's a die namic situation. the truth is it's right at a past high. the actual high was 265 on february 26th. we think it breaks out. if you are long, stay and enjoy. >> i would add one more point to applied volatility. for a stock that's moved very well, i would expect a doctor 32 billion market cap, the price of options to be much higher. here's the thing, if you are starting to get nervous, you can do stock replacement trades or buy protection. that's what this chart tells me right here. it's as cheap as it has been in the last two years. >> you don't tow whether it's going up or down, the crystal ball is broken. i know one thing for sure, as the beautiful car. it is a beautiful car. coming up next, is netflix trying to eat hbo's lunch. we will discuss when "options action" returns. [bell rings]
incredible run with a 2% bump today. that's not such good news for our friends koe and carter and this is why. >> on "options action," it's why we're internet superstars. we know how to rick less to risk more. it's what they tried to do. carter thought the stock looked like a house of cards. >> take your profits if you are long, sell short if you are gone. >> all right, mike thought, i'm in, just going short? >> i will not do that. >> and neither will we. look what happened if you shorted netflix two years ago, to define his rick, he had a 380 strike put for 3.y. he needs it below doctor 3.50 by january expiration. wait, you are spending 30 bucks to bet against netflix.
>> maybe you should have thought that all the way through. >> sell the near dated one for about $13.5. >> mike sold the august strike put for $13.50 increasing his put calendar. he did something better. he made making money easier. here's how. between the $30.50 he spent on the longer dated put and the there are 13 prone 50 he collect bid selling that shorter put mike cut the cost of his trade down to $17 even. now instead of needing netflix to fall below doctor 4.30 for him to make money, mike needs the stock to fall below that strike price by more than the $17 he spent or below $363 by january expiration. it gets even better. that's because the put that mike sold will decrease in value faster than the put that he bought, meaning he can turn time into money. >> that's what i'm talking about. >> but there is a tradeoff and because he sold that nearer data
put. mieblg needs netflix shares to stay up 380 but goes below that elf by the second exploration. so far netflix shares have only risen making this trade a slight loser. >> achilles is only as strong as his heel. >> with plenty of time left in the trade, all the options action binge watchers want to know, what will koe and carter do now? but before we even get to that, let's play some options versus options to explain why we use all these strategies. if mike had bought that january strike put, he'd be looking at a lot for 50%, since the year date was worthless today, he's looking at a loss of 25%, not great but you know what, better than the alternative. now carter, would you keep on betting against net lix? >> we like that bet. the principle is this, the stock has returned to a difficult level, actually, it's finding a bit of difficulty.
few look at how it's performed relative to mark, it's a real lagger, we think this is the stall the sign, ultimately, it will roll over, given the amount of time we have, we are incleaned to stay. >> the exercise we realized, net flicks, the biggest knock against it for the longest time was that they were going to see increase in content costs. they solved that problem by deciding they were going do start creating their own him some have turned out to be incredibly successful, himself. so they actually are changing the game a little bit here. the valuation is what we are betting against, it's hard to buy outright options, this has been offset by some of the decay, i'm declined to stay with this. >> we are talking changing the game, what do you make of netflix introducing these samberg specials, including with bill cosby, it looks like they're on hbo's turf here. >> when you think about it, hbo
pioneered there, these exclusive eventsch here's the thing, when you talk about house of cards and orange is the new black, there is tremendous costs in producing these sorts of shows, there is not a heck of a lot of costs to producing one-man samberg slows. i think we will see a lot of this with netflix, at the end of the day, bill cosby, you can see him here and there or go on youtube. >> i have a two way bet on netflix, 90% of the content on tele56s other than cnbc is often netflix. but the evaluation is something i can't stomach. >> coming up, the final call from the options pits. [ bell ringing, applause ] five tech stocks with more than a 10%... .
okay, everybody in unison, ah. >> ah. >> this week our executive producer max myers welcome this baby boy, robert joseph meyersway weighed in. we are told his first words were risk less to make more. >> well, you know, i'm very happy for max and sarah, i feel jealous. i file was his tv baby. he brought us into the world, now we have a lil' little competition. >> i think robert has max's hair. >> i think more hair than maxi. >> that's a picture of a leap. >> okay. time now for the final call. the last call from the options pits. carter, over to you. >> we bet crude weakness is a setup for energy stocks. >> they are an inexpensive way to stay strong.
>> the fear trade pushes tlt higher, you have to use that strategy to sell it. i think you do it with a fair risk. >> it looks like our time is expired. go to optionsaction.cnbc.com. "fast money" every day. next friday, have a great weekend. ♪ >> a better back and a better body. since 1981 that has been my passion. i created teeter hang ups so people could live healthier, more active lives. i know what it's like to have back pain. when i found inversion, it changed my life forever, and i believe it can change yours. i am proud to present the newest and best teeter hang ups. >> if we wanna live not only a long life, but an active, healthy, pa
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