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tv   Options Action  CNBC  December 6, 2019 5:30pm-6:00pm EST

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happy friday option action "options action" fans i'm tyler mathisen for melissa ree big show on dock and here is what's coming up. >> tonight on "options action." >> to infinity and beyond. >> stocks soar following the blowout jobs report. if you think there is room to run in the record rally mike khouw has the perfect which to play it. plus guy adami is finding much needed zen for the portfolio how he trades lulu lemon into next woke's earnings and later. >> know what can help you sort through the important issues
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>> what. >> orange mocha frappuccino. >> dan nathan says starbucks lays out a breakout. he tellsyou how to keep from getting roasted in the hot trade. "options action" starts now. >> welcome everybody let's get after it the dow surging more than 330 points today the s&p 500 erased losses the rally following a better than expected jobs report the records across the board, apple and alphabet, both hitting all-time highs and added to the red hot run and if you are betting on the bigger tech takeoff we have a way to play it in the money with mike khouw take it away, sir. >> you know it's interesting we got the payroll report today. obviously the markets responded very favorably to that but i think actually we got some
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clues that we had some significant strength in the market earlier this week when the trade news which was definitely not positive didn't knock the market down much further. we were talk bag this before we began the show that was news. if you consider that was one of the key stone elements propelling the market higher and suddenly pull that away you would have expected the market pulled sharply lower it didn't. in fact if closed, all things equal, relatively strongly that day. when you add positive news on top of that and get some sense maybe that internationally things the aren't as weak as everybody said, that creates this strength. in the midst of this obviously we continue to be despite the weak week's movement in at a lowell volatility environment we see options prices remain low. looking at the tech sector on a valuation basis we look on the price to earnings basis, it's getting a little bit heady here. but i think if i was worrying about anything i'd like look more on the price to sales
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bases. what are we trading 24 times forward at this point. but i think because options number one are relatively cheap. i think because every new high was preceded by new highs. that can't be a reason to sell just because we're at new highs. and we obviously have optimism into the holidays here i think you can keep trades in the space relatively simple. i was looking out to january you could guy the 88 calls for $1.65. the idea here is that you know we're not looking to take material downside risk because if the market pulse back we want to define how much risk we are taking this is not considerable risk. we are taking about 2 process% close to' ten when i looked early yerl today you may very well have an opportunity to monetize this trade even prior to expiration all it takes is rallying through the strike a bit. >> you can get 89.65. >> even if runs -- by spergs but if runs above 88 in the meantime you are seeing gains on the trade. spread if, roll it a lot you
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could do. >> you're saying there is a lot of optional. xlk is interesting because we now know the two top holding microsoft appear apple microsoft up 50% apple up 70% beth closing at all-time highs today. but followed by visa and master card some people think that's a fintech play when you think about it the xlk is an interesting instrument if you like mike's idea, you like the idea of playing for continued upside in the megacap name this is a great way to do it you define the risk to calm% of the etf price gnat biggest drivers of it are up so massively. i guess some of the fundamental drivers of the stories within it are still very much intact. >> guy. >> it's interesting, i mean you can make a cogent argument that there are names that are inexpensive. for example, texas instruments to me is the post-er child for what's going on. you have no earnings growth. you have a couple quarters of a lousy report yet the stock still demands a 23
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times forward multiple and people seem impev kwaus to to bad news in the space i'll use a dan nathan line knock yourself out if you want to continue to buy the stocks. and volatility is cheap enough it makes sense but we are five or so days away from president trump pulling the rip cord and going forth with the tariffs. and you know, a name like texan traeding 122 if pete does this december 15th that stock will be $100 so fast it makes your head spin it's amazing that people are turning a blind eye to all the negative out there it makes people like me look stupid but doesn't mean the problems doesn't exist. >> the tech trade may be heating up but a coffee stock has been on ice. starbucks got a could have even boost to all-time highs over the summer but the buzz wore off. coffee lovers dan nagen says something big could be crewing are prughing for the stock. >> we were talking about the
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megacap tech names making new highs every day and massively outperform the broader market. starbucks when this think was in july at all-time highs, was up 5 a% on the year and let's tell this story through pictures the chart there is basically january of 2019 through late july 2019. that was the day july 26th the stock gapped up 9% to the all-time high, nearly kissed 100 on better than expected global same store sales it was about as good as it could get. we also know the stock trades at a premium multiple what happened over the next few months the chart here is from the next day, july 27th the stock almost had a 20% peak to trough decline from the all-time highs i think investors were starting to think about what is the implications of slowing global growth, u.s. recession maybe getting focused on valuation these were things hitting the stock market back then here is the thing. let's look at the chart right now. you put the two together and you see it bounced off a
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couple times from the upfriend from the december lows now approaching what i think was an important technical level on the downside a few months ago which is now resistance. you know, right below 90 or so that looks like a really constructive chart to me and so i think about this with option premiums where they are not different than what mike was discussing that's implied volatility the price of options short dated in starbucks nearing 2019 lows what that says to me people wanting to make directional bets in individual names like this this is the way to do it with defined risk much like mike's trade, today when starbucks was trading at 86.30 you could look out to january expiration and buy the january 87.50 call for $1.50 breaking even at $89 up 3%. you risk 2% of the stock price and have about six weeks here is the think. i think even with the stock up 35% on the year which is pretty remarkable it's outperforming the s&p you could svee a push towards the highs either into
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the end of the year or possibly the new year that's my target, 100. earnings to be the end of january. i chose january spirpgs because you have a run up into it if you get a run back to mike's point about optionalty owning a call process spread it roll it up and out that sort of thing but i like the setup here. >> we're pausing here and because we have breaking news on the defamation case against elon musk jane wells with in l.a. with the details a lightning fast resolution. >> yeah, only took an hour elon musk is not liable for defamation he wins the case he is upstairs he says my faith in humanity is restored. vernon unsworth loses. he has a uk attorney and also talked about filing a suit in thailand as well but here in los angeles federal court elon musk wins he is found not libel.
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>> dan just outlined the dan's trade. >> i think this is right way to play this. this is the time when puts make sense options premiums are elevated, none of those things are true here. the idea is if you are committing new capital to the market you want to do that by buying stocks after they've had this kind of a run or do you want to take advantage of the fact that options are relatively cheap? get nearside -- you're going to have participating participation to the upside if it continues to rally. but if it proves to be the zineth for stocks you don't feel that bad because you risk a small amount relatively to going out and buying the stock i think this is absolutely the right way to play it. >> we are taking our first break for everything everything "options action" check out the website. "options action" and while there check out the news letter in the mean here is what's coming up zblrs shares of lulu lemon stretching higher this year and are mike khouw and mike
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adami giving you a namaste way to trade the stock into earnings next week. plus calling all "options action" fans reach into your pocket a grab your phone, and tweet us your question if it's nice, we'll answer it on air, when "options action" returns. ♪ pgss action sponsored by think or swim by td ameritrade ♪ ♪
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it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." every sports dynasty has to deal with adversity on the way to the top so does this stock after a year of big headlineses not all good nike broke out to an all-time high on the heels of a good news
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from goemtds but there is another big name coming for nike's crown up 90% this year. and the company reports earnings on wednesday so you know what that means >> option attention action tag team. >> the tag team. >> tom on tie. >> we sent the bad boys to the corner of the ring guy and mike at the plasma take it way. >> the break we licensed to eric clapton. i know this he wears lulu lemon. amongst many men that's one of the reasons to own lulu. that's going on. we talk about china and look what they did in quarter in china. china growth 68% 68% that's a real number also margins are improving in in environment. operating margins better than expected, comps, crazy, up 17% last quarter i don't mention valuation because it's very hard to make a
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cogent argument about valuation. but this is a stock that into earnings i think continues higher with that said, mr. clapton, i'm tapping in mike khouw. >> all right so i mean, let's think about the valuation for a second obviously we were talking about it the stock had a 90% run so far this year. and it's obviously very challenges to go out and commit new capital to stocks not only having such a profound move but trading at such a high multiple. the other thing is that right now options prices are actually also pretty high why is that? because we have earnings coming up next week the stock is implying a move of a little over 8% going out and buying call options, the idea we were talking about in starbucks not going to work so well here the other thing is in a situation like this there is obviously based on the price action, the valuation and based on the options premiums we know there are some high expectations maybe there is a way we can
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participate on further gains in the stock without risking a great deal this is what i was looking at. you could trade the december 2.50 call spread that's out of money call spread. buy the january. sell the decembers for 3.15. net-net, spending $1.85 consider that relative to the price of the stock. here is the idea this is seeing the best profits if the stock migrates up to 2.50 and remains profitable as long as it did doesn't blow out pattie 2.8 process the average analyst price target is 247 that would represent a good move we are talking about 230ish is about where we close today and 8% move to the upside gets you into the neighborhood and if it falls below that how much are you risking? 1.65 that's the kind of thing that we like being look the. >> come on back and assume
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paigen pose. >> paigen poes. >> i love this trade i'll tell you mike is using simple and smart math here basically taking the implied move in the options market between now and next friday $20 that's why he chooses that 2.50 strike and risking less than 1% of the stock price there is a lot of ways this trade makes money between now and december expiration without mike having to thread the needle the way you might think. this stock rallied 20% in a month. now you give it another 8.5% room to the upside pu if if g you get right you see the january call you own appreciate it i like the trade setup. >> the challenging thing in a case like lulu -- a lot of people buy the products. my wife is a huge fan of lulu lemon products the products are fairly pricey the stock is fairly pricey, both in terms of valuation and absolute dollar price. you run out and buy 100 shares
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that's 23,000. you could buy the contract which each wrun represents 100 and it could be worth more than that if mierp mierpgts to the upside and on the down side that's how much you risk. with it really rallying how can we anticipate at the stage if it has room to move. >> always the question. >> risk less, make more. that's the tag line. >> a line from hamilton. >> no out of "options action." hamilton might have ripped these guys quickly barclays initiated on november 25th 257 price target it gets there that tyler is the sweet spot that mike just choke of. >> all right, gentlemen taking a break. remember that big market selloff earlier this woke. seems like forever ago one of our traders is still spying some choppy trading into the year end we will break down the action on
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that one don't go anywhere much more "options action" is coming up next ♪ >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪ ♪ ♪
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[ electrical buzzing ] [ dramatic music ]
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ahhhh! -ahhhh! elliott? elliott. you came back! ♪ ♪ ♪ ♪
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♪ all right. welcome back to "options action." time loo look back at an open trade. last time the show aired last friday. >> no we had thanksgiving. >> we had thanksgiving that's why the show was usurped. >> two weeks ago, t. >> dan nathan two weeks ago laid out a way to protect the portfolio into the end of the year listen. >> if you enjoyed nice gains in the stock market this year but also have the memory of the q4 decline last year and saying to yourself how can i protect my portfolio or how can i profit from let's say a decline and unexpected decline in the s&p 500 between now and year end, you could look out to december 31st expiration options np they have them here call them the quarterly here with the stock
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the etf trading at 310 today you could look to buy the december 31st 310, 295 put spread paying $3 for that. >> the mechanic has seen big swings the s&p falling hard kicking off the week before surging back once again to all-time highs today. but plenty of more time for volatility before in trade expires. so dan what are you doing. >> this is exactly what you kind of put this trade on for, the sort of price action we had this woke i think it was interesting that peak to trough, the decline about 2.5% a lot of the declines over the last 18 months have been a little steeper to the tune of 5% that's really what that trade was targeting. for me i think you hold it it's lost a third of the virginia value be careful you are don't let it all erode and put a premium stop at some point on a trade like this but you may have different views. >> let's ask one right now let's talk about dan's trade joining us xp investment
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managing director bonowin he just handed in a big week from the market what do you think of the proposal. >> i've heard people refer to it as insurance think of it like that it's insurance. i watch his eyes no one likes to say insurance premiums but 80s cheap way to insure the portfolio and i like it well thought out and well laid out trade. >> what do you think. >> yeah, two things you the agut to think about putting insurance on the market. am i leaking for nearside protection which is what i think dan is getting or looking for the disaster protection. if you look for disaster protection sometimes you look for cheaper optionalty with a bigger payoff but isn't providing you near-term insurance. this one provides very near-term 310. >> bonowin what do you expect between now and the he want year. >> it's a binary situation we have the trade deal overhang and other news we continue to grind higher or
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do see real downside risk. i would think about maybe moving the strikes around to mitigate that. >> if the higher tariffs goo go into effect a weak from now. >> he naks a good point about moving strikes when we talk about the trades with, the hedging insurance trade. you want to do it tactically not frequently one thing i would say is that today, with the stock near 3.15 orders about $5 out of the money right now, you want to kind of hang out for a little bit. but to his point if you thought there was going to be some downward volatility you may want to move the strikes. and united states once again get in a position where you would basically get the max of sort of insurance. >> i make another quick point too with a trade like this it's possible to trade around it. let's bear in mind earlier had a draw down earlier this week. i put trades upon i took them off i mentioned i took some off off. i have the since put more back on again in a situation like this where you get the market pullback especially with a lot of things propelling higher don't be
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afraid to take profits when you have them and look for other tactical opportunities to reinitiate trade especially dealing with put spreads which aren't paying big if the market goes much lower. >> guy. >> i don't want to get in the 40 oh series of options but this was a perfect week watcher this dan to trade your whip you had -- you had a great opportunity this week to trade against that initial put position that's -- that's seasoned baseball stuff but dan's not in in head. they know what i'm talk bag. go to the oa website and read about that. >> i'll to be one of the people that does it folks we are taking a quick break. and bonowin thank you for being with us. when we come back we'll have the final call this piece is talking to me. yeah? >> announcer: options is sponsored by think or swim by td ameritrade i see best-in-class platforms and education. i see award-winning service, and a trade desk full of experts, available to answer your toughest questions.
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and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪
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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 ♪ and welcome back to "options action." guy, big week ahead what's on
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your radar next week. >> next week is interesting. but it's next sunday, the 15th of december when the potential for tariffs come into play all next week you'll see tweets pro and tweets con i think volatility in this environment is way too cheap i think the downside risk outweighs the upside my opinion i've been wrong. >> have you ever gone into a fed week with more anti-climatic than this. >> i don't think the fed is the issue. to your point no i don't think that's the case. people aren't watching that. people are watching the trade headlines. >> the trade thing let's move to the final calls dan what do you have. >> cheap premium we were talking about. the spy if you thought you want add december premiums move the strikes up and you get protection. >> mike you're next. >> yeah if you think xlk it's easier go out and buy call options lower risk in this environment. >> and mr. adami last word. >> see you tuesday >> tuesday i think it's tuesday. >> yes >> you're not here monday.
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>> not monday. >> my final calm is you know we talk about trading enjoy the weekend they are few and far between. we should grab a skroch right now that's my final call. >> all in that's my option. >> lulu lemon call spread. >> thankou vy ch yermu that does it for my mission is simple, to make you money i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer! welcome to "mad money. people want to make friends, i'm just trying to make you money. my job is to not just entertain, educate, teach call me. tweet me i love days like today and not just because the dow surged 337 points, s&p 500 jumped .19%, i love the action becaus


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