tv Options Action CNBC August 27, 2017 6:00am-6:30am EDT
>> i a did a spread to mike's point because i want to sell a down side option that's going to help with the decay. in a lot of scenarios this stock could go sideways and i'm still in the game a little bit waiting for some of this fundamental stuff. >> let's move on to the metals copper, zinc and aluminum. all up 20% in 2017 copper now tracking for its best year since 2010 and that's giving material stocks a boost as well. alcoya up more than 45 percent
p and new month mining up around 9% carter you said some of these names have more room to run. >> one thing that just capped this week copper put on a seventh consecative advance that hasn't happened since the '09 low. alcoya as a stock ha has to pop here i'm going to start with a general commodities chart. what we know about commodities is the softs have been terrible. corn, wheat, so i beans, energy has been basically down. this is broad aggregate by contradistinction look at the following. copper, it's up and to the right. next one, aluminum up and to the right. next one zinc up and to the right. next one steel. reb rebar. what you find in the roads and what is also up and to the right? h looks identical, alcoa
so the question is is there nor to go or is this an i tlflexion point. >> there's a five-year you could draw the lines like this ready? head and shoulders bottom and played out perfectly you could draw the lines like this that's a cup and handle. but either way what is not rand dom is where we are now. so here's a really long-term. single annotations back on ready? there's your head and shoulders. next here's your cup and handle. what is the bet? the bet is that we're finally going to take out this range it's been in effect since effectively a decade here's the chart, drawings, i think you simply put your green arrow and go like that alcoa, fine. >> grate break down. what's the trade so this is an interesting
situation because unlike the staples, alcoa is actually a fairly volt tal stock and options premiums relatively high i think it's a situation that call the for being long premium. commodities prisses which are the big drivers can create volatility for the underlying equity aluminum at $2,000 a metric ton is getting a point for alcoa to be substantially higher. looking to 41-46 call spread spend about $1.70 for that basically the idea is with commodity prices getting a little bit more volt tal seeing these prices but we can also take a look at that one-year chart and see that the stock was also considerably lower, not that long ago and this mitigates that down side risk in case china starts producing more identify aluminum again. >> what do you think >> first things first.
technical setup is how many times it's actually been rejected at 40 the fact that mike is looking out, going slight out out of the money, giving six or seven weeks for this to play out i suspect you get either a consolidation or you get this thing just really getting going as cartersuspects. i like the trade idea. at the end of the day, this is a 30 vol name. expected to move around a few percent a day. so i like the trade idea >> what's interesting is if you put this in contrast to just a eggweek ago when we're making the case that cat tar pillar was over done, they're at an all time high. alcoa is nowhere near that position and the bet is this stock which has lagged, whereas caterpillar has expended a lot of energy and likely to stop going up. >> actually, compare tg to caterpillar is interesting
because they're trading very close to its all time peak valuation. ino. enter price for alcould wa about $1 billion clearly if you talk about room to run, there is in alcoa, there isn't in caterpillar. >> here's what else is coming up on the show. >> that's what housing stocks have done this week. we'll tell you why there would be even more pain to come. plus. >> a million dollars isn't cool. >> buying facebook for under $3. the and mike will show you how to do just that when options action returns [pony neighing] what? hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly
the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade welcome back a slew of bad economic data putting on the housing trade diana. >> well, i got to start with cold hard facts about today's housing markets. there are houses for sale but not nearly enough. high housing demand but more and more buyers are struggling to afford down payments home builders around putting up enough homes, not even back to normal historical levels of production nor shifting significantly to entry level models add that up and see why sales are now slumping but two things could make matters worse in the next six
months one, higher mortgage rates yes, they've been sitting near year lows. the but the federal reserve is going to shrink it's balance sheet of mortgage bonds and if inflation rises the fed could taper even more. then, there the emotionally and politically popular mortgage interest reduction is never on the table except maybe now paul ryan said it could be improved ant at the treasure is considering cutting it in half that would only hit about 4% of taxpayers who benefit. bottom line, if the market doesn't see significantly more supply in the coming months, which is not expected, affordability will weaken even more and keep even more potential buyers on the side line >> all right good run 0 down there. if you are worried about cracks, how should you play the space.
dan? >> there whaz a lot there. rate, supplies, demand, pricing. when i was taking a look at this earlier in the week, the s and p, i started looking at -- but the stock in the morning was down 4% despite commentary it was okay i included some of those potential head winds we just went through but i think there's a set up here interesting very nice uptrend here but just recently broke that down, seems to be a bit of earnings news which got me looking at that in particular listen, volatility and price of options is relatively low. look at how it's picked up a little bit which tells me with the etf, at near term highs, in a lot of ways, there could be some inverser concern about the group in general the i want to make a short term bet here
a bet that the etf actually breaks out -- breaks down back towards what i think is near term support at $36. with an etf that doesn't move a whole heck of a lot i can look to october expiration. define my risk risk a certain apartment to make a certain app amount if i'm right on direction and right on the magnitude of the move today when the etf was trading at about $36.50. i can look at october expiration and buy the october, 36, 37 foot spread buying one october -- selling one after october 36 puts at 25 cents, cost me -- the whole spread cost me .25 if the stock is above 37, i lose .25 if -- that is my max gain here i'm not risking a whole heck of a lot of premium, less than 1% i can make three times what i'm
risking but i got to get a lot of things right. direction, magnitude and timing. i like playing this for a risk reward back to that prior breakout. >> what do you think of the trade? >> i hate the fact that we keep seemingly coming up with bear trades it makes it seem like perennial pessimists this really does seem to put the odds in your favor a lot of things dan didn't point out v. to work right for it to rise from here you could have several things. that could drag prices lower and that ratio spending 25% of the difference between the strikes is one thing we like it's a relatively small amount of premium >> what do you think >> i would say two things. we know exactly two years ago, the second or third week in august, 2015, the xhp reached its cycle high off the '09 low
the we returned to that level and we've been rebuffed. it's a double top in terms of a -- what we also know is that this entire market from rt '09 low, home builders have not paced the general equity market and badly under performed the consumer they have not led this time. and they look very topee charts you saw, that dan put up are what they are. >> i love it when you like my lines. again, this is really a combination of fundamentals and technicals, kind of a risk reward which i think i like. 3-1. the. >> okay. still ahead, facebook falling 5% from its all time high and something this the charts that points to an even bigger sell-off we'll break did down. plus if you got a question, send us a tweet to options @options action. if it's nice, we'll read it later in the show.
i'm here at the td ameritrade trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. see options data like never before. with thinkorswim only at td ameritrade.
what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. welcome back to options action facebook falling more than 5% from its all time high
that's putting our friend mike in a bit of a precarious position. >> 0 on options action, it's how we maintain our social status, risk less so we can make more. that's exactly what mike tried to do with his bullish bet on facebook he liked the stock for a breakout, but just buying shares of facebook cost more man $16 grand. we don't need to go that far so instead he bout the september 170 call now to make money he needs shares to rise above that by more than the cost of the trade. by september expiration. but spending $4.25 just to bet on facebook? relax. we have a way to do this for less so to cut costs, mike then sold
the september 180 call for $1.75. and created his call spread. but he did something even better he made making money even easier and here's how between the $4.25 he spent on buying that lower strike call and the $1.75 he collected by selling that higher strike call, mike cut the total cost of his trade down to just $2.50 >> checking your mastth on that >> let's break it down instead of needing facebook to rise $4.20 he just needs it to rise above that 170 strike by more than the reduced cost of the trade, or in h this case, above $172.50 by september expiration >> i'm totalitily psyched about this too >> but don't celebrate too soon. because there is a trade-off and by selling that higher strike call, mike has capped his
profits to the difference between the strike of the call that he bought and the strike of the call that he sold. >> and since the time of the trade. facebook shares surged to an all-time high but pulled back slightly now all of options biggest followers just want to know one thing. what will mike do now? >> so mike, what do you do now >> you know, i'd interesting first of all, i think this tells us one the reason es we like call spreads if you bought that outright you'd be looking at losses probably in the neighborhood of $3 bucks this whereas a trade that worked out well at first. basically doubled in value in one week but now, actually i'm not feeling as optimistic. the market feels a little weaker facebook also. i almost would rather be short this than long it. le i'm probably inclined to take
my losses and move on. >> what do you think >> it's interesting. carter last night did a great job charting the fang stocks on fast money and talking about how a lot of these gapped after these earnings and kind of an emotion top in a lot of ways and worked their way back i like mike's analysis there he probably traded that thing after the earnings and took it off. at this point you'd remember than short upside premium. >> no. please facebook is the one that's held up we know that amazon is town some 13% from its high of just weeks ago. google as well the question is is facebook in a position to catch up to the down side with those other sort of high flying internet names i would say yes. i think there's a lot of viability here. >> isn't it a tough thing when you look at all of them. earnings was an emotional top. run close to 10% into them maybe with the s&p only down 2%,
pretty healthy let's remember facebook has gained over $125 billion this year alone. up 45% or sew. for these things to come back. i don't think anybody's panicking in amazon right now or google >> okay. coming up next, your tweets and the final call don't move hey gary, what'd you got here? this bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade
okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. see options data like never before. with thinkorswim only at td ameritrade. welcome back time to take your tweets alex asked hey, dan is xrt still the worth chart ever >> sure. hey. we love you. thanks for the e-mail here this thing is in a nasty down trend. i think you sell it when it gets back above le. >> time now for the final call last word from the options pit mike. >> alcoa one of the lowest cost
producers with the aluminum, i -- call the long set from move to 44. >> i like playing in october back to 36 bucks. >> that does it for us on options action don't move because mad money with jim cramer starts right now. >> announcer: the following is a paid advertisement for the shark rocket complete with duoclean technology, presented by sharkninja. to get your carpets really clean, you might think the bigger the vacuum the better. but big means bulky and heavy. is that really what you want? so shark introduced a totally new idea with the original shark rocket ultra-light upright and nearly 2 million have been sold. with true no loss of suction... the power to deep-clean carpets and floors... and the versatility for above-floor cleaning, too.