tv Options Action CNBC December 10, 2016 6:00am-6:31am EST
hey, there, we're live at the nasdaq markets. the guys are getting ready for the show. while they're doing that, here's what's coming up. >> stocks going to pluto, man. >> that's what people are saying about shares of goldman sachs, but there's something in the charts that suggest now might be the time to sell. we'll explain pch. plus, one stock is about to join the trump rally and here's a mihint. we'll break it down. and a number of stocks are at 52-week highs. and guess what, they could be going higher. high enough to get you rich. we'll give you the names. the action begins right now.
let's get right to it, because tech has finally joined the trump rally. the nasdaq surging more than 3% this week to a record high. this as we saw big moves from tech titans, alphabet, microsoft, facebook, and apple. so is tech your best bet? and which stocks can go have been higher? let's get in the money right now. not a moment to spare. dan? >> those four stocks, we spend an awful lot of time talking about them. and oddly, over the last month, we have not been talking a whole heck a lot about them. but what's interesting there, when you look at amazon and facebook, they have not really participated. they're still down about 10% from their all-time highs. possibly a valuation thing, possibly some of the issues in the quarter that they just reported like october. but the other two, the once that actually have very reasonable valuations, the apple and the alphabet have started to join the party. this week alone, let's talk about google here. it's up 5%. it had a really nice bounce off of what looks to be some support at 760. i think they have a five-day chart. look at this rally, this stock, it's just joined the party, and apple did too.
but this is very interesting. there's a company that's expected to grow. earnings next year, 19%. trades at 19 times that expected earnings growth. >> valuation wise, i don't know that apple seems like the same kind of story that alphabet does. it's a hardware company. we don't really know if their system is basically what the future holds. but for alphabet, it definitely is. it's a battle basically going on between oracle, amazon, microsoft, and alphabet competing in cloud space, for example. but this is where the future is at. and that's one of the few places that you can say, this is what the future holds. >> the weakness or underperformance, is it sincratic to google or something else. people have basically been trimming their amazon, facebook, google, and microsoft. we've had 1,100 basis points of
relative underperformance versus the bottom 250 in the s&p. and now perhaps there's a little bit of money going back in there. but there's also this. it's almost directly correlated to your tax rate. the tax cut's not going to help them. >> what's going to help, they have $84 billion in net cash. this is alphabet, okay? and that is certainly going to help them. they just announced a $7 billion buyback in october and they are now going to have this cash that they can go and do some stuff with. we know that the linkedin microsoft deal just closed. that was a $26 billion deal. alphabet has never made a sizable deal. maybe that happens in -- >> not chasing a late rally. this stock is trading exactly where it was five months ago. >> and trades at 12 times next year's expected earnings. the stock just rallied. we had that one-week chart here. i don't chase stocks that do that sort of thing. but i want to look out and target the next identifiable catalyst. that's going to be q4 earnings, that's either going to come in late january or early february.
i think you want to look to february expiration and use a risk reversal here. that's going to give you some time to not just be naked long premium, and the stock could bang around a little bit between now and february. so today when the stock was trading about 805, you could sell one of the february 7th 60 puts and use the proceeds to buy one of the february 850 calls for $13.50. it doesn't cost you anything. you make money above 850, that would be a new all-time high on february expiration, that's up about 5.5%. the worst-case scenario, you'll put the stock down at 760. we identified that as a technical support level. it bounced off twice over the last couple of months. that's also down 5.5%. but this straight strategy, if you have to get involved now, it gives you a little room to the downside, leverage to the upside. you're not exactly chasing it here. and on a market-to-market basis, you will have losses. higher toward the long call strikes, you will have gains. >> this is a value play.
this stock has underperformed the market for the better part of a year. there's that relative underperformance in opportunity, or is it a trap? and that's to be -- >> 760 being the recent low, i'm assuming that's basically while you were choosing that lower strike. that's basically where it was just a few weeks ago. but look, the company is very cheap here. and 5%, one way or the other, doesn't really make that much of a difference. i will say that any strategy, though, that gets you long, this is one of the places you want to be long. makes sense to me. >> can i make one point? >> one point. >> it's really a big point, though. people talk about facebook. they're coming at 'em, right? 1.7 billion users. bob pec told us this after their earnings. google has seven properties. when you think about the ability to monetize that and put some stuff together, i think that's a story in 2017. >> it seems like tech gained this week and not necessarily at the expense of the financials.
>> that's right. maybe to this point, it's been rotation. coming out of here to go there. if it's new money entering the market, you can get a real lift. but i think the issue is this. all of the things that you have just cited about google were also in effect a month ago. and the stock's been worse. the question is, is the underperformance at an end. but to get new highs, i don't know. yeah, i think the burden of proof is on the bull. >> okay. turning now to the president-elect. donald trump's cabinet taking shape with a common thread among his picks. a goldman sachs resume. john harwood is in washington with the latest. hey, john. >> hey, melissa. it's san intriguing common thread when you think about all the times during the campaign that donald trump described himself as a populist on the side of the working person in the country, as somebody who was going to take on wall street. at one point in the campaign, he said that hillary clinton and ted cruz are both totally under the control of people at goldman sachs. well, guess what? gary cohn, the coo of goldman
sachs, is slated to become the head of the national economic council, actually becoming the third goldman sachs alum to hold that role. bob ruben was the first under bill clinton. steve friedman under george w. bush. now gary cohn. and when you look broadly across the administration, you've got gary cohn at the nec, steven mnuchin, goldman alum, as treasury secretary, and steve bannon, also goldman alum, as the chief white house strategist. now, there's one cabinet post that has not been filled. there's still a lot of mystery around it. and that is secretary of state, rudy giuliani is now out of the running. donald trump put out a statement this afternoon saying that he respected rudy giuliani's decision to stay in the private sector. he would have made a good cabinet secretary. he said he would call on him for advice as appropriate. but that's got to be a big disappointment for rudy giuliani, who put in so much work as a surrogate for donald trump in the campaign. just like chris christie, who
did the same, rudy giuliani is finding he is not getting the job that he wanted in this administration, guys. >> all right. john, thank. john harwood in d.c. for us. the trump rally has given goldman sachs a more than 30% boost since the election alone, but the chart master over here says the stock is priced to perfection. what are you looking at? >> 30% a month is a heck of a thing. and it's not specific to almost goldman, it's almost every other financial, in anticipation of what we know is going on at the long end of the curve or prospecti prospectively, fed activity. let's rye to put this current move in perspective. a moving average, all it is is just that. it tries to smooth out price and you can use short-term, long-term. what i've found over time that has a lot of efficacy is the 150-day moving average. either way, let's look at the sheer angle of this. the issue is, is that sustainable? and it's frankly almost so steep that it's going back this way and you're not allowed to do that. it's got to go out to the right
every day. anyway, this is a chart with a 150-day moving average. let's put this in perspective. now let's do it going back a bit further. in fact, going back to the high of 2007. we're within a hair's breath of that. but how far above -- if we were to plot this and plot that and plot this and say, what is the actual percentage above or below trend right now? well, here's a chart going back since the inception of data when they ipo'd. now, goldman sachs has only been this far above its hundred day moving average essentially twice. once was 1999. actually, it was march of 2000. that was the end of that. and the second time was coming off of the financial crisis low. this was in late '09, early 2010. here we are now right at that thing. the issue is, an angle like that, an angle like that. is that something, if you've owned it, god bless, or do you take money off.
or should someone take new money on monday and buy more? i don't think so. all right. now i'm going to do a little bit of fundamentals and turn it over to mike. just for fun, in '07, this stock is about to hit its all-time high. its p/e in '07 was 7.2, and its p/e is now twice that. return on equity. this is the key thing. the ability to profit. 21 times, 7 times. the whole operating business is different. it's not as robust as it was. price to sales, 1.7, 2.9. the angle's steep. i think you let this go. if you've made money here, and if you've done a short selling book, i would try it on the short side. >> do you want to let it go, mike? >> i do. this has been an extraordinary move. i have a hard time believing that any stock is really going to roll over between now and inauguration, right? so i think the way to play this
is by selling an upside call spread. the one i was looking at is the january 240, 250 call spread. at the time, goldman was just under 240. the price might be a little higher on monday. here's the thing, if the stock goes higher, the most you're going to risk is six bucks. but we would need to go straight through it and well through it. if it stays right here or declines, and i have a sense it could trade sideways through the inauguration, you're basically going to be paid, in the meantime. i'm not interested in laying out premium to make sure -- >> well, here's one thing. listen, this move is extraordinary. and i was looking at a consolidated 215 for a week, a couple weeks ago, ah, it's going to roll over, and now it's up another 10% or something like that. it's going to 250. it's going to make a new all-time high between now and inauguration. you don't come this far and not -- like the old saying is, you go to the prom and not prom queen or something -- >> but it's who you are in the market. if one has the ability, dexterity, ie, implied, the money's not that big or you can do options. but if you're sitting there in a
major endowment -- >> but i'm saying this is the long trade -- >> -- do you have to? or do you take some measures. whether it's through options or something. but just to stay blindly long with an angle like that, over time history shows that's -- >> let's assume it gets too big. let's debate the parade. if it gets to all-time high at 250. some time between now and the third week of january, are you inclined to run out and buy puts between now and christmas or between christmas and new year's? i don't think the answer to that is yes. we've talked about that, the likelihood we'll see a steep sell-off, you need some kind of catalyst to make that happen. what would that possibly be? >> look at how traders go for these big, round numbers and go for prior all-time highs. i think it's a certainty it's going to trade 250 between now and january 20th. so if you're going to sell that -- >> selling the upside call spread, it's almost right there, right now. we're talking about, it's got another seven bucks, eight bucks to go. >> where do you think it's going? >> it's really not about whether
it goes down. it's ability to go much higher is very low. >> got a question out there? send us a tweet to @optionsaction, and for everything options action, check out our website, options action.cnbc.com. and while you're there, check out our news letter. what are you waiting for? here's what's coming up next. >> look! up in the sky! it's a bird! it's a plane! >> now, it's just the dow jones industrial average. but if you missed the move, we've got names you can still buy. we'll break it down. plus, here's how it feels to own bonds. but if you lost money, relax. we've got a way to get some of it back and we'll explain when "options action" returns. hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. we only do it for everyone gary. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary.
oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face.
mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. welcome back to "options action," as the major indices continue to make record highs, more and more stocks are continuing a higher rally. dom is in the newsroom to explain. >> let's focus on breadth, that major of range and scope rather than the air in and out of our lungs. one of the more positive signs is not only the upward direction of prices but how many stocks are rising in this tide. this chart shows the couplelytive advanced decline line for nyse traded stocks. it's a measure of breadth, it goes up when the net number of traded stocks goes up and vice
ver versa. the upward trend shows there are more net gainers than decliners. and we're getting other encouraging signs, as well, how many stocks are making new 52-week high. we had around 112 of them in the s&p 500 yesterday make new highs. today there are 40 to make new highs, including record highs for consumer-related stocks, like darden restaurants and transportation stocks like southwest airlines, alaska airlines, and u.p.s. as well. melissa, that positive breadth is what's giving bulls that breath of fresh air. can it stay that way? that's the question. >> have a great weekend. >> out of all of these stocks setting up record highs, what's the one that has more room to run? >> i'm actually taking a look at u.p.s. but first of all, we're going to take a look at buying a call as a strategy. you're obviously going to be bullish on the stocks. you might want to worry about downside risks. secondly, the sock is trading at a higher than average valuation
multiple. you're hoping that the fundamentals pick up with the stock price. and finally, when the options prices are actually lower than average. here we are, u.p.s. trading very close to the 52-week highs right now. obviously, valuations, as well, looking pretty stressed here. you can take a look at where we're trading probably 10% higher than we normally would. but interestingly, as all of this is going on, interest prices are not far off the lows of the year. very simply, what we can do, take a look out to april. that's four months away. we can buy the 120 calls, which are essentially at the money, for $1.95. that's less than 2% of the stock price. if the stock goes up a mere 2%, you're breaking even. everything above that is gravy. but if it falls, you're risking a very small percentage of the stock price to make that bullish bet. >> what do you think of u.p.s., that hit a new 52-week high. >> it's in the context of this thing that lags but then comes back live. the dow theory was triggered, just finally getting back to
where it was. still a major laggard relative to the s&p. i'm not sure there's much difference between this chart and fedex, or some of the other names. they're all pretty stretched. i'm a fader -- >> their margins are a little bit better. u.p.s., fedex is their primary logistics competitor. this is a company a little bit caught over their skis. 2013 was bad. 2014, they had a lot of investment to make up for prior mistakes. will 2016 actually be the time they mauk it all come together? we'll see. but that's why you want to use a call to make a bullish bet. >> it's up 35% from its january lows. it's up 25% on the year. it's trading above a market multiple. to me, this is a company that's growing earnings and sales mid-single digits. here's the best thing about this whole segment. mike can look out to april, buy an active money call, have exposure above $1.22 or something like that.
it's 2% of the underlying stock price. that's how you should be chasing things if you are in my camp where you think it's just absolute insanity right here. options are giving you the opportunity to do that. you don't want to litter your portfolio with that, though. >> you make a 2% upside bet, and you would have otherwise bought the stock. don't do that, first and foremost. you buy this call, and let's say this thing falls 10%, falls 15%, you've lost 2%. now you can actually sell a put right about where the thing was previously trading. >> error? >> no, you're basically re-collecting the premium and not going to have exposure to the stock, except a 15% discount to where it's currently trading. that absolutely makes sense if you have a bullish view on it. >> fair enough. >> dan, obviously, does not. still ahead, the bond bloodbath continuing ahead of next week's big fed meeting. but if you lost some money, we have some ideas on how you can get that back. we'll explain when "options action" returns. ♪ guyhey nicole, happening here? this is my new alert system
for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade.
hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. we only do it for everyone gary. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary.
wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. time for total recall. we take a look back at some of our open trades. last week, carter made a bullish bet on potash. >> a rare circumstance only happened five times. the spread is extreme. and everyone loves this. and everyone hates this.
i think i'm going to take the other side. >> potash, i think a really simple way to handle this is to sell the january 18 puts. you could collect about 75 cents for that. >> the stock hit a 52-week high today. carter? what do you think? >> i guess with everybody else, maybe. zbls true. >> but, anyway, longer term, you stay. i don't know what you think about the options at this point, but it's a big bottoming out formation. >> we've collected most of the money that we can. i think we're still comfortable being short this probably for another week or so. to dan's credit, he had say, why not buy a call, and it turns out with this sharp move, that probably would have been a better play. >> i think it would have been a much better play. this guy is saying this stock is going to explode. don't sell a put. >> 10% in a week, it did explode. that was a great call. and a great call on your part >> switching now to the bond market, dan thought the tlt could move higher. >> here's the trade, looking out to february, being a bit contrarian here, taking advantage of high option prices, i would look to sell the
february 116 put. this is when the etf was trading about 122 and a quarter. and using the proceeds to buy the february 127 call. >> now, as you know, dan, there is more than a 90% chance the fed is going to hike next week, what are you going to do? >> listen, i think this trade is a loser right now. that february 116 put is about 250. that's what your loss is in this position right now. that's about 2.5% of the underlying stock price here. the stock is down 5%. that's one of the reasons why i thought the risk/reversal strategy was a great way to play it. i think if you get a move back up in the texas tlt, a move lower in rates, then you can probably wiggle out of this. >> one of the great adages of markets is buy the rumor, sell the news. it's quite possible that move to 2.5% already priced in. >> up next, tweets and the final calls from the options pits.
hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.
♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade.
time to take a tweet. this first one comes courtesy hidden cash. what's your thoughts on straddling major binary events. brexit, u.s. election, opec meeting. >> this is interesting, brexit and the election, we saw slightly elevated options premiums going into these events. but the outcome, if you got a surprise, turned out to be much larger than you expected. you'll be paying up to get those options, so just make sure you're doing so with an eye towards getting that surprise on how big a market-moving event you think that should be. in this case, two very large ones. >> time now for the final call. last word from the options pits. >> great on goldman sachs. take profits or use the options strategy to get sort. >> if you think it's going to go down or trade sideways, selling trade stocks is a good way to
play. >> google had this big run. maybe look at february risk reversal. >> looks like our time has expired. for more information, check out optionsactions.msnbc.c optionsactions.cnbc.com. don't go anywhere. "mad money" with jim cramer starts right now. >> announcer: the following is a paid presentation for nutribullet lean, a breakthrough weight-loss system for total-body transformation, brought to you by nutribullet lean, llc. ♪ >> you go up a size, another size, and before you know it, everything has an elastic waist. >> no matter how much i work out, it's never enough. >> i look at skinny people and think, "what am i doing wrong?" >> i feel like a failure. [ record scratches ] >> male announcer: it's not your fault! >> female announcer: the problem isn't you or your lack of willpower. the truth is there's a real science to healthy eating and
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