tv Options Action CNBC October 14, 2017 6:00am-6:30am EDT
hey, we're getting ready. >> facebook charge >> we'll show you how to buy shares of facebook for less than five bucks plus, missed the move in the market relax. there's one dollar stock that looks poised for your a major breakout next week we'll give you the name. and talk about a bank job. >> this is a robbery
>> banks are beating earnings. but their stocks have since taken a beating. if you're worried, we'll show you how to buy protection for free it's time to risk less and make more the action begins right now. let's get to it, because as the dow continues its record run, a number of classic dow stocks are surging this month. check out the moves in walmart, mcdonald's, johnson & johnson and caterpillar, all outperforming the market in october. walmart is up a whopping 11%, and this as we head into a very busy week of earnings for the group. all those stocks right there, some pretty hefty moves. which name should you buy? dan, you say procter & gamble, p&g could be next to join the party. >> the dow is up almost 15%, 15.5%. a lot of those other names are back above their all-time highs. one thing that's very interesting about procter & gamble, they had that proxy
fight that they successfully fended off when you think about earnings next week, the options market is applying less than a 2% move in either direction on average over the last four quarters the stock has moved 2.5% here. i think this sets up as an interesting trade specifically because option prices are really cheap. if you wanted to buy a put or call, it's going to be costing a little less than 1%. i know it's only been one week you also had that earnings event. they fend off the activist investors. if i'm in management, i want to make the best case for the way we're managing our business. they're not going to manipulator their earnings, but they may be overly bullish about their forward guidance to me the trade is really simple today, when the stock was trading 9310, you could buy the october next week expiration 93 call, paying 90 cents for that that's a little less than 1% of the stock price that breaks 9290 just below the all-time high, 9445 we have a chart here, real quickly. look at this five-year chart dating back to 2012 or so.
you know, carter may say that might have been an epic double top. if there's a reason to break out, this call gives a lot of leverage to the upside of the event that could be the catalyst for it. >> i think, clearly, look, we have a market that's trading at all-time highs we have volatility essentially at all-time lows where proctor is concerned, i mean, it's not normally the kind of stock you would see activist activity in. actually i don't see how shareholders would have lost if nelson peltz had gotten a board seat, i wish he had. if your going to make a bullish play, buying a call here is the simplest and best way to do that by far u mean there's very little to lose, there's a lot to gain, and as you point out, you know the ceo of this company is going to have to tell an exciting story at this point. and basically, you know, we won the proxy fight. that's basically the affirmation that we're on the right track strategically. >> the key level that dan was
citing, it was christmas, it was the 24th of december 2014. we were literally right back to that level after basically three years of underperformance. here's the real thing. it's been a massive underperformer of the entire market you expect a defensive asset, but this has been massive underperformance, underperformed its own sector and badly so. you have the presumptive breakout that's not a bad one-two punch to get this up and out. >> and actually because you have these dynamics, using options really makes the most sense. to be the catch-up trade, or is there really something fundamentally broken the fact that it's been underperforming all this time, the thing is trading well over $200 enterprise value, that would be the reason why using options certainly makes the most sense because we're going the find out just this coming week whether that makes sense >> this is a trade, right? i'm not saying you should be buying procter & gamble at
$93.25 this is looking at a catalyst, it's looking at last week's news, how cheap option prices are. if you're willing to risk about 90 basis points that this thing could have a fundamentally induced breakout, and we know what happens when stocks like this that are unloved break out, they could get going for a little bit it's a one-day trade to report friday before the opening. >> a week from today >> when does that happen, before >> next friday one-day trade. >> real quickly about the options, mel, they're not likely to decay much more >> this is the same situation as what happened when you were looking at those intel calls, right? basically the fact is, you're owning the event the event takes place next week, a one-week option. the first four days, that's essentially free optionality if the stock takes off, that and you want to take some announcements before that, that makes perfect sense. >> the f.a.n.g. stocks bouncing back, facebook, amazon, netflix, alphabet, as the nasdaq 100 hit a fresh high today pointing to a bigger breakout
for one of these names, carter >> facebook is well positioned meaning the thing about this group is it's unperformed so badly since june and we'll look at some charts that reflect that, is it finally after being dead money for the better part of four months is it time to catch up facebook looks that way. we'll look at some charts and figure it out together the top five assets in the s&p badly underperforming all summer, all autumn one in particular looks as though it's going to come to life we know the names. this is the top five stocks in the s&p 500. the names speak for themselves so take a look, just to put this in don text. those five worth $3 trillion the bottom in the s&p worth $3 trillion i want to do a chart of those top five and take a look at it the top is -- we just talked about those. the bottom is relative
performance to the s&p what's important, of course, is this, that even though they've gone up, their basic relative performance in the market has gone down. that's been the problem with f.a.n.g. one in particular looks like it's finally going to play catch-up let's put some lines in. that's the point at which relative performance peaked. it's early june. we're now late october massive underperformance here's another way to drought lines. you can see it here, which is to say, we've made new highs absolute, yes. but we're still below where we were as far back as june now, one in particular looks as though it's going to come to life so facebook. you can draw the lines any way you want i think a good way to draw them is this way. a well-defined ascending wedge the presumption is, after having bounced perfectly three times off the rising trend line that we are in the position to get a breakout i like facebook here
it is just below its july 27th high we'll make the bet it will speed that up. >> mike, what's your trade >> so i'm basically looking at a call calendar here, specifically the november/january 180 call calendar you can spend three bucks to buy the january calls and sell the novembers against it to make your bullish bet we have earnings coming up in facebook that first week and do we know we have a catalyst we just talked about this, options previews get elevated. you would like to be a seller. this implies a move under 5% they've had larger moves than that historically, but recent it hasn't been. the moves have been much more muted recently and actually there are other reasons that might be true too we have a lot of we'll call it negative publicity about whether facebook and some of these other names are deserving a little bit more let's say investigation, shall we say i think those things mean that you're going to have slightly
elevated options premiums. it might mute some of the moves in the meantime, so we like to be a seller of those but own the calls longer term. >> mike's got a few weeks until earnings and he's also got a little more time for november expiration if this stock were to move up even slightly to that 180 strike, this train is a fantastic setup. at the end of the day, he's trying to own january options above the money, it would be a new all-time high, it would be a breakout, that is a beautiful chart, for half of what they're offered at right now i think that's a great trade to try to figure out how to finance longer dated calls so the other thing, it gives you optionality too, if you think this thing is going to explode, if it gets up to the 180 strike, you'll gain deltas on that longer dated january you can always cover november and have an outright call or turn it into a vertical call spread that's the way to play it ahead of earnings.
>> it's a tough environment we have with the vix below ten to look for setups in the options world where you get to collect to k this is one of them. you do own options but the longer dated ones won't decay as rapidly. assuming the earnings move was muted and you wanted to remaim short these through that catalyst, those will see the premiums come in quickly that's how you'll make most of your money >> the key is, look, we just talked about what is a breakout for procter & gamble procter & gamble has nothing to do with facebook breakouts are well-defined moments in time. make the bet a question out there send a tweet check out our website, firstname.lastname@example.org we have more than 100,000 subscribers to our super cool newsletter, what are you waiting for? here's what's coming up next that's what's happened to financials since earnings. if you're worried, we've got a way to get paid to protect your bank stocks. plus, talk about a shocker
the trades for tesla have stalled but they have a way to manage their losses, they'll explain how when "options action" returns. i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.
so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." it was the big bank beatdown as
financials sold off after expecting better results citi and wells fargo falling morgan stanley and goldman sachs are out with earnings next tuesday. if you're worried they would follow a similar fate, how would you protect yourself dan? dan is over at the plaza with this dan. >> it's a pretty popular trade to be long banks, in what people think to be a deregulated environment, a rising rate environment. we have to talk about goldman, their report before the opening on tuesday, options market implying a 2.5% move it's moved about 2.5% in the last two quarters, but this stock has acted down right awful. this stock is down about 40 basis points on the year we know the xlf is up 14%, the s&p is up 14%. something's going on here. the thing to me is if you're hanging out with this stock and you think it has the potential to go higher, but when you look at the reaction that wells fargo had today, almost down 3%, the
way citi and jpmorgan reacted, and you're worried about something worse going on at goldman, maybe it has to do with lack of regulation or no tax plan, to me goldman sachs is the worst performing one it's really lagged the whole group. why would you consider a collar and what is a collar in this instance it's selling out of the money call and using the proceeds, the premium you receive for selling that call to buy a downside put you would do this because in this situation in particular, goldman sachs has rallied 11% since the beginning of september. into this earnings event, so i would say expectations have been rising despite the underperformance the other reason is you don't really want to pay for protection again, the stock hasn't performed this year. so why buy puts and reduce -- you're basically making it that much harder to make money. then the last one, you're selling that call to finance the put here you're willing to give up a certain amount of upside to have a certain amount of downside protection let's go real quickly to the chart and trying to figure out how we might choose our strikes here
i mean, look this is that 11% rally it's come back a little bit this week, not acting particularly well i think back near 225 is the level you would maybe want some downside put protection. let's talk about the trade here today. goldman sachs was trading at 239. you could look at november expiration and you could buy the november 225, 250 calendar, paying nothing for it. you're selling one of the november, versus 100 shares of stock, you're selling one of the november 250 calls at $2 and using those proceeds to buy one of the november 225 puts for about $2 you have up to $11 of upside between the current stock price, 239, and 250, up the november expiration then you have downside at the level of the put strike that you own, but you're protected below that that's what you call a collar. i would say something pretty nasty is going on in goldman sachs, that underperformance for a company often considered best of breed, it's really lagging a lot of its peers to me it makes sense, if you
want to stay long and have some time to have some protection but still participate to the upside, a collar makes sense >> i like the trade here one of the things you look for when you're looking at a collar, buying that downside protection, selling off some of the upside, obviously, that you could have by doing that, you're trying to look for some symmetry around where the stock is currently trading. we're pretty close to having that this still provides you with 5% worth of upside, up to that short call strike. i would make this point. they're going to announce earnings next week these options expire on the 17th of november. what does that mean? if the stock declines let's call it 3% from where it's currently trading right now, this trade will appreciate even though you're not getting to that put strike on the other hand, if it does rally, and you don't want to try to pay to take it off, you can carry that all the way to november expiration and you'll still have 5% to the upside. how you decide to manage it gives you flexibility. if you have an earnings
pullback, and i made a bullish bet on jpmorgan, we saw how that turned out, not so great maybe this makes a decent amount of sense in that context >> there's two things, the bigger subject of banks in general, and do rates go higher, because it's a bad operating environment for almost all these, we've seen that to think the consensus we were going to go to 3 1/4 on the ten-year bond, we're at 2,.3, 2.2, not only the general but the specific, if you compare goldman to morgan stanley, its most direct competitors, goldman is well below its march high goldman is just not performing well, the things dan was talking about at the plasma. >> we think about sort of commercial lending as one of the spaces that's obviously going to
benefit from the rate picture. morgan stanley is benefiting from asset management as asset prices have risen, that's benefitted their business. goldman sachs is caught a little bit in the middle there and has been dependent on trading revenues >> he ever wonder how we figure >> still ahead the electric slide. putting cone carter's buller bet. they've got a way to get your money back much more "options action"s after this you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too.
wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to look back at our open trades carter said a month ago that tesla was going to be rev up the trade didn't go exactly as planned. here's what we need. >> on "options action," it's how we make speedy profits, risk less and make more that's exactly what khouw and carter tried to do with tesla. >> tesla for a breakout, it will move to new highs. >> buying the stock, 100 shares would put him back nearly 40 grand. to spend less, mike, instead, mike, why don't you just take it from here. >> happy to, melissa so let's break this down so spend less, i bought the november 380 strike call for $23.60 now i need it to rise by more
than the cost of the trade you're probably thinking, i thought this show was about risking less and making more you would be right to cut my costs, i sold the 430 strike call for 760 creating my call spread. for a moment i thought i had died and went to options heaven. let's get back to the trade. by selling that higher strake call i made making money easier and here's how between the 23.60 i spent on buying that lower strike call and the 760 i collected selling the higher strike call, i cut the total cost of the trade down to 16 bucks. now instead of needing tesla to trade above 43.60 by november, it rises by 396 by november expiration cue the clever movie clip. >> surely you can't be serious.
>> i am serious, and don't call me shirley >> since i sold that call my profits are capped at 430. how did we do on this one? >> mike, since the time of the trade tesla's shares have fallen more than 5%, making this trade a bust now "options action" fans far and wide want to know one thing. what will co-and carter do now >> tesla is down 9% from its high >> this is the exact same setup we're talking about for facebook, for netflix. we've got 0 to push this down the road and stick with it the presumption is ultimately
new highs. >> it obviously didn't work out in our favor the stock is down 10%, call it 35 bucks off its highs we risked considerably less than that that's what affords us the possibility, sell out of this trade and push out door longer dated one. >> dan >> it's interesting, i think carter said, the chart a few weeks ago looked exactly like facebook the fact that facebook got through that negative news over the last few weeks, facebook looks to me like a far better bet than tesla >> i'll just tell you, we've done a lot of work on this, it's a just a probabilities thing a certain percentage of stocks do break out you can't control the ones that don't. >> right, right. moving on, three weeks ago dan said that amd was headed higher. >> i want to target that earnings event, target the potential for a move back to those prior highs just below 16. i want to give myself room down to that up trend you could buy the 13 1/2 strike call in october for 55 cents that breaks even at 14.05. and really gives me plenty of room back up towards those prior highs. >> since the time of the trade, amd has rallied more than 6% it still hasn't hit those highs that dan was after how are you managing this? >> what did i say, i'm targeting that earnings event.
that earnings event is set for october 24th this was a regular expiration. next friday will not capture the earnings event the stock is a dollar higher with calls that you would have bought when the stock was 13.15 at 55 cents are now worth 83 cents or so i'm going to roll those out to october 27, weekly expiration, going to catch the earnings and those 14 1/2 calls, so a dollar higher now, cost about 70 cents. that's going to give me that leverage to the move i'm defining my risk, i've reduced my costs basis and i'm still participating. up next, the final call from the options desk stay tuned i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late.
td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. time now for the final call. last words from the option pit carter >> i make the bet facebook
breaks out to new highs. >> mike khouw. >> take advantage of decay and use call calendars >> dan nathan. >> amd, calls, roll them out in the next week, up and down >> our time has expired. i'm melissa lee. thanks for watching. check out the website. have a great weekend don't go anywhere, "mad money" with jim cramer is up next >> announcer: the following program is a paid advertisement for the hd mirrorcam, brought to you by inventel products, llc. yep, they're out there, driving recklessly, causing accidents, and driving up your insurance rates! this is a show about car accidents... ...classic cars... ...and the hd mirrorcam, the personal security camera for your car. this is... "accidents caught on camera" with the hd mirrorcam. today, we're going to hear from people who h