tv Options Action CNBC November 30, 2018 5:30pm-6:00pm EST
hannels. ( ♪ ) and your free wi-fi will start shortly. enjoy your flight mr. jones. world's best inflight entertainment. fly emirates. fly better. hey there, live at the nasdaq market site in times square the band is back together. we do a big show on deck here is what's coming up >> announcer: it's been a wild few months for the market. as wall street hopes for a year-end rally dan nathan says there is one group that could be left in the dust plus, at leisure stocks are soaring. >> you know i had been working out. >> announcer: but mike khouw stays there is one name that looks stretched. he gives us the trade. and later investors are piling into health care stocks. >> dr.
dr. >> doctor. >> and the chart master says there is a key group in the space that could see a bigger breakout it's time to risk less and make more the action begins now. >> and we start with the health care rally heating up in november the sector rallying nearly 7% for the best month in more than three years. the best performing sector of 2018 up 15% and the chart master says there is one group in the space that could see an even bigger breakout. let's go straight to carter over at the plasma with the checkup on the health care charts. >> we know in principle the defensive assets are acting well, staples, health care, utilities up big but in many ways in the case for health care it a catch up trade, having lagged so much over the preceding three years. let's look at the chart and get around to a trade here and i want to talk about biotech at the end xlv, the etf for health care and what you have on the top is the
one-year chart you see the xlv like the market of course sold off in october. everything sold off in october but what we know is it was an alpha generator, it's going straight up in the same time frame, relative to the peer group, the market, health care doing weapon its defense every characteristics kicking in a bad october, the worst in ten years. so pull this back a little further. this is the part that's interesting. while we are making new highs and all-time highs, what you see here is that of course this was just a massive period of underperformance for health care and what we do know, though, is that we we have finally gotten above the downtrend line best performer in the year, all in the context of something lagging the equity market since 2015 a few more charts. now, it's beta within health care health care is very defensive
asset. like managed care stocks, unh, has sleepy pharma names. biotek is not. but look at the relationship between the xlv, the health care sector and the ibb over the past year plus. and what we know is that either this is a trap or it's a catch-up trade and i'm making the bet it's a catch-up this divergence i think is an opportunity you can see the percentage change. let's move it back further here is a five-year the comparative chart we know is it overshoots and undershoots and bet is having undershot again it can play catch-up with the overall sector so a few charts on ibb and we are done no annotations or drawings by me here comes the annotations and drawings next chart look at this
over and over and over it has literally held the 100 level i mean precisely reliably, consistently week after week draw the lines another way, we found this well-defined level, ricochet nicely off that and i think we continue -- it's a beta trade within health care, ibb on the longside here and now. >> mike how are you trading biotech. >> one of the reasons it bounces off the 100 level is one of the rationales in the space in general has been the valuations of the underlying businesses biogen celgine. at relatively cheap multiples. in an viefrmt i feel ib that's a back stop. the options aren't expensive especially given how volatile in has been and other stocks have been recently. so i think we keep this trade simple looking out to january and looking at the $108.33 strike
calls that seems strange only because sometimes you get the stroik adjustments in a standard contract like any other. that's president nearest out of the money strike those cost you $4. you risk approximately 4% you have strike price. you have sometime until january irgs expiration. obviously if it runs you have the opportunity to roll it or spread process there are things you can do. but that's a simple way to make a bullish bet. >> the valueses are more attractive they have a lot of ka carbon the balance stheet. >> doing the outright call in a period where we may have volatility but after that may see a slowdown between christmas, new year's that sort of thing i think what mike is doing here if you were to see the stock go further in the money here with in strike option, you would look to make sell something out of the money, turn it into a vertical spread and then lower your break even level or your premium at risk. i like the idea of spending
about 2.5% of the yun lying -- 3% or so if you think about it if you are wrong it goes back to 100. the upside down down side is risking four in the long premium but you will be back at 102 if it goes south in the next couple weeks. >> that's the importance you know where you stand if it's wrong. there is so much authority at that level it would be very hard to really punch through to the downside. >> this call isn't -- if this happened to in the short term it's not worthless it's less than the $4 is it cost looking at this. this is sliltly in the money as of closing provides. that's basically the idea with the 100 being a $9 drop from the current closing price obviously you get an opportunity to risk a little less. and it's not decaying. >> say owe seeing a wild move pb, the xlf having a wild month. it's a case of the good, bad and ugly joon-pyo morgan and bank of
america in the good krlgt. morgan stanley and citi looking bad and all outugly like goldman sachs down 15% dan says there is a name on the list about to go from bad to worse. what railroad are you looking at. >> the scarey think about the graphic there is the ugly is really just down right ugly. we are not throwing g.e. in there yet. when you low back at the acceleration to the downside the household names we all know and a lot of people own and you definitely own them in the mutual funds and the 401(k)s the acceleration at this time of year in the names is making me a little bit nervous here for the financial stocks obviously they the caught a bid with the news out of the fed we know there is another fed meeting on december 19th and to me i think you have a situation where some of the initial enthusiasm could wear off over the next couple weeks, especially if nothing really big on the trade front abi think bank stocks close near the lows of the year
the underperformance i'll let carter talk to it -- has been horned ouz it's not pressing like goldman sachs or a deutsche bank but if we have anymore headlines out of those names i think you see the bad move into the ugly category citi bank i want to focused on they have the buy back people are focused on that and valuation. but it acts horrible down 20% from the 52-week highs maid in the q 1. 60 bucks where it bounced off an important level. if it goes through that in early 2019 you have a stock probably in the low 50s that's my guess. we have a five-year chart. you know what's important to me look how it comes back to the breakout level from 2007 this is a group that was supposed to benefit from deregulation, from fiscal stimulus, all this stuff about a global synchronized recovery and they aren't. they are telling you something about how i think the economy is in 2009.
listen it's a sifrp trade. look to december expiration catching the next fed meeting. you just focus on citigroup, the move back to 60 when it was trading today at 64.75 you could buy the december 64, 60 put for a dollar make up to three between 63 and 60. $1 is the max risk and you lose that dollar above 64 you risk 1.5% of the stock price to make a move the stock goes back to a level it was trading three weeks ago. >> when you normally look at financials one of the metrics we think about is the price to tangible book value when they get to one or there abouts or certainly if it's under the way citigroup would appear right now that's typically someplace you want to buy. but i think what we see in the price action of the stock is a real warning sign that maybe the book value isn't all that you think it is. i think financials have been trading this way whenever we hear concerns about potentially the end of this
credit cycle, that's the thing you have to look at. this is not just a dollar bill that's sitting there you can go and pick up. the value of that thing is potentially at risk. and that's the price action is telling us right now i do think this is definitely the structure to put on. and i can understand why you would do that. >> i mean, look, we know that it's not as big as tech but it's the most important sector. it's the life blood of the system and almost without exception american express being maybe one. the group doesn't act well it's regional banks, asset managers, broker dealers, insurance stocks and we're crossed back below 3%. you referred to that this is not a place to be. it never has been. it had six weeks at alpha after the presidential election. it's been underperforming for the past two years even as embraced by the street and citi bank is weaker it right one to go after. >> i think a lot of people are being lazy about this. a lot of financial market comment taters and analysts and
investors. they are looking at g.e. loog at goldman sachs. they're looking at deutsche bank and saying this is idiosyncratic to the names i go back and think about 2007 there was a lot of things idiosyncratic to certain names and once they start happening together things snowball a bit i'm not saying that happens. but i think there is potential for that in 2019. >> all right for everything "options action" check out the website. "options action".cnbc.com. check out the news letter. dan says it's all the rage here is what's coming up. >> investors are loving the at leisure stocks this year but mike khouw says there is a name looking worn out. he gives us the trade. plus calling all "options action"s fans reach in your pocket, grab your phone and tweet us your question at "options action. if it's nice, we'll answer it on
air when "options action" returns "options action" is sponsored by think or swim by td sponsored by think or swim by td ameritrade hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade
you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." retail ening november with another loss the third straight month in the red after a huge rally earlier in the year. dom chu is in the newsroom with more. >> there have been two and distinct chapter necessary the consumer story through 2018. in a little over the first half of the of the year the strength of consumer and rising consumer sentiment has played out in the retail landscape you just have to look at the chart of the spdr and equally weighted fund that deemphasizeds the the effects of massively weighted companies like amazon
through the latter part of summer a rice, a in the last three months a topping out that got embroid broiled in the market turn overnp a the laggard is luxury. tiffany an example after earnings topped out. just like michael kors tap evidentiary and those shares topped out as well the story has been more mixed with athletic apparel where under armour has been trending higher the better pastor year albeit off to press levels nike and law lieu lemon have seen efforts efforts fade as market pull back but still talking about nike up 20fers year to date under armour up 65% opinion lulu up 69 to 70% year to date. a key will be lieuly earnings report after the "closing bell." options markets are looking for
fireworks with price willing implying a possible 11% move in the shares up or down on the heels of the report. melissa, it may be one of the big tea leaves in determining the next leg for that at reece trade. back to you guys. >> dom, thanks have a great week dom mentioned lulu lemon reports earnings next week the stock is up 70%. how should you play it. >> let's kick it over to the yoga expert mike khouw for the call to action. >> they are not seeing me in yoga studios too often i'm not up for that. but i am interested in maybe fading the play general a little bit. and looking at a 1 x 2 put spread into earnings. as dom just discussed options are expensive. it's implying slightly over 11% move greater than average. whenever we see the implied move higher than it is it's options expensive. the other thing i'm looking at is this might be willing to get
long at a lower price. although maybe considerably lower given the rally the stock had since the beginning of the year and finally, i have a proprietary metric called the holly indicator if i look at credit card statements and if i see a store on there i'm assuming that it's still in favor if i don't for the first quarter in years i actually didn't have any lulu lemon charges on the american express bill i get concerned let's take a look at lulu lemon. we can see it's up substantially on the year, down a little bit from the highs let's think about how much it typically moves on earnings. when it makes a move to the downside it's pronounced about 11.5% on average the worst during the credit crisis, a decline of 30% and the second worst was 23% let's keep the levels in mind looking at the trade looking at a one week trade, the december 7th weekly 1309, 115, 1
x 2 put spread spending $6.50 selling two of the 115 puts for $1.65 each taking in 3.30 net-net spendth 3.20 a share if it declines down to 115 that's where i see the most possible profits at that point i'm long the stock. my profits trail off as the stock declines the downside break even is 103.20 that represents a 20 kplmgt 20% where the stock traded at the end of the business today. this is a way to take advantage of the elevated options premiums, make a bearish bet that profits on 11.5% decline if we see that and not risk a great deal in terms of premium if we don't. >> dan what do you think of the trade? >> interesting for the 19 x 2 and mike said worsts case you get long here. that's not the point the point of the trade is by selling two
preems is reduce the premium at risk i like the one week trade. the probability of that stock being down at the 103 level, where worst-case scenario where you have long and all that is slim, especially over the course of this one week but to me what's really interesting and carter can maybe speak to it. the 103 level would fill in the gap from june and it's had a couple of big gaps over the last year. >> that's the most important part of this chart you have a great ascent. a triple, 50 to 165. in the ascent in the past year you have three-quarterly bets. it's very hard you typically get two or three it's hard to get a fourth beat because obviously analysts move numbers up at some point even if it's good quarter it's not good enough to beat the newly revised or continually revised price target the risk is downside after a great ascent after a selloff 28% from the peak on october 1st, and then now it's kicked back of late,
back to sort of a declining trend line there is much more downside risk everything i see than upside. >> much more downside. what's the downside level you would look for. >> you can fill all three gaps if you really want to get excited. and dan referred to that but we have seen what can happen to certain, tiffany being an instance you can have an easy 10, 15% drop post a bad quarterly number. >> mike. >> what carter is saying is valuable intelligence. if you sit at home thinking i want to make the bearish bet but uncomfortable at 1093 long the stock. consider selling only one of those. that obviously would eliminate the possibility of losing any money at all or getting long the stock at all if the stock did decline that much. but those types of declines in the stock have been very, very rare 30%, 20% that's the most we have seen downside on earnings. doesn't mean it candidate be worse but that's the worst so far. >> still ahead, caterpillar one of the best performing dow
stocks this weeks up 11% but is it nothing more than a dead cat bounce? we explain plus a question for the traders. you do send us a question@"options action." if it's nice we will answer it live on air. much more options axe after this. >> announcer: "options action" is sponsored by think or swim by is sponsored by think or swim by td ameritrade. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work.no hidde. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪
xfinity mobile is a designed to save you money. even when you've got serious binging to do. wherever your phone takes you, your wireless bill is about to cost a whole lot less. use less data with a network that automatically connects you to the most wifi hotspots in millions of places and the best 4g lte everywhere else. saving you hundreds of dollars a year. and ask how you get xfinity mobile included with your internet. plus, get $200 back when you when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. so lionel, what does 24/5 mean to you?rade well, it means i can trade after the market closes. it's true. so all... evening long. ooh, so close. yes, but also all...
night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness to light. ♪ you're not gonna say it are you? welcome back to "options action." time to look back at open trades earlier this month mike and carter said caterpillar was heading for a breakdown. >> after this ricochet cat fails. could they bounce another day or two? sure this is a point at which i take the money and run. >> the december 130/135 call spread at the time i was looking at this you would collect $19.65, one third of the distance between the trikes. >> since that time they rally sold off and rallied again right
around the break even what do you do. >> if you haven't taken the trade off yet you stick with it because there could be further weakness i'd rather be long the put spread than short it and that's what you are in. >> carter. >> the initial selloff is the primary thing the sell i don't have is secondary. >> also earlier dan said the cloud stock adobe was looking gray. >> look at it sitting here at 235. down 15% in connection territory. this is an expensive stock just lake nvidia trades ten times the sales and 30 times expected earnings i see a gap down to 200 you could buy the december 235, 200 putted spread paying $8 for that buying one of the 235 put fudges for $10 selling one of the 200 puts at $2. >> well the stock initially tanked around 13% in the days following the trade. but has since rallied back what do you do, dan. >> it's not only rallied back but $10 above the level.
240 when we detailed the trade on november 17th and quickly down to 207. that put spread at one point was worth 22, $23 originally paid $$8 when you move that quickly to basically the strike to the downside you have to take it now the trade was initially targeting earnings which come in a couple of weeks. at this point it's worth about as the 39.50 originally cost eight. be careful here because just a little further and this thing is going to be worthless even before you get to the event. before you get to the event. >> up next, final call i don't know what's going on. before you get to the event. >> up next, final call i've done all sorts of r >> announcer: "options action" is sponsored by think or swim by is sponsored by think or swim by td ameritrade. td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade.
i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation?
it's just complicated. step-by-step options trading support from td ameritrade time for the final call. carter. >> ibb biotech on the long side for a catch up trade with the health care sector. >> michael khouw. >> i think you should buy calls in ibb in january and you don't have to wait until expiration. you can roll or spread those trades when you put them on. >> dan nagten. >> you can do all those things,
mike you know the bank stocks listen everybody wants to defend them i don't see any reason to own them you keep selling rallies. and citi bank is the one in the near term to go short. >> looks like the time is expired. catch usack bhere next friday at 5:30. don't go anywhere. "m "mad money" with jim cramer starts right now my mission is simple to make you money. i'm here to level the playing field for all investors. there is always more money to make and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica my job is not just to entertain but to teach you so call me at 1-800-cnbc or tweet me @jimcramer.