tv Options Action CNBC December 5, 2020 6:00am-6:30am EST
she ever does. >> "you should be in prison for a long time. and i hope that you never do this again to anyone. and i hope, actually, that you this again to anyone. and i hope, actually, that you have a miserable life." happy friday it's time for "options action." we have a great show coming up for you. >> announcer: if kwur you're new here tonight, a big welcome to you. for a variety of reasons, interest in options trading is exploding. this game can get very complicated very quickly but if you are ready to take it to the next level, this is the place to be. if you are a regular viewer, you know there's always somethin in the show for everyone tonight, the volatility mystery from the future. two opposing ways to play the
semisector, and how to keep digging when at the end of a mine it's time to risk less to make more "options action" starts now. >> as we just mentioned. interest in options trading seems to keep growing by the day. so ba pisani has some interesting color on at least part of the reason why hi, bo >> good to see you options trading has become the new sports betting millions staying at home have discovered trieding, and it's in tandem with an increase in equity trading showing no signs of letting up. the trends are amazing. trading in equity options hit new highs in november continuing a trend that began earlier in the year equity options trading is 50% above behalf year's levels year-to-date on all of the options platforms. much of the activity has occurred in out of the money call options with much of it in
day trading. in other words buying in the morning and getting out in the afternoon analysts say that might make some sense for example, if you're a retail trader and only have a limited amount of money to invest, buying options at $1 or $2 may make more sense than buying a tesla or amazon or apple or even an apple equity and trading stock throughout the day. if the stock moves 5%, the value may also move a similar percent so you can make the same percentage with much less outlay of capital now, importantly, what could go wrong? everybody saying what could go wrong? the markets have been in an up trend. if that reverses, this type of trading will not be profitable there's also, by the way, melissa, considerabl speculation that this kind of day trading may have a limited shelf life regardless of the market trends. many doing this now are younger and may have to start paying back student loans soon. for example. or when the pandemic is over
those staying at home will probably go back to work. but it's certainly a lot of fun seeing all of this retail activity melissa, back to you >> great that so many out there are participating in the market, that's for sure. thank you, bob pisani. it also seems dangerous. what are the thoughts on the surge that we're seeing, mike? >> we actually talked about some of this type of flow earlier when we saw this earnings disappointment there was a lot of activity when people were buying short-dated calls and the stock fell. a lot of people made multiples of their money within a day. but you could potentially lose everything you are betting if you are making those short directional bets of course, as bob was rightly pointing out, when people are going to work usually you're not day trading from your desk. you can do that from there
but not at work. people are becoming smart about options investing. ultimately i think volumes will stay more elevated now that there are more market participants. >> we have seen trends that were already in place prior to the pandemic really take cold during the pandemic, tony this is probably one as well. we have already seen an explosion in interest in the options market and activity. tony. >> oh, sorry yeah. this is very interesting because sports betting are similar in nature if you look at the way that sportsbook -- >> i think we are having problems with tony >> -- are fairly -- is really far out of the money call options are -- can you hear me >> yes we gotcha. >> sorry so these are more like lottery
tickets than binary events which most sports bettors are used to. the call options are unsubstantial in the long run. if people are looking to build a portfolio, i recommend they actually watch shows like "options action," because the type of trades we highlight here are typically a lot of spreads, tending to be more binary-type outcomes sports bettors are more used to rather than the lottery tickets. >> carter, words of advice to the newbies out there? >> you heard what bob said, it's all about one day. in and out. do it the options action way >> hedges, what better place to start. carter, set us up with this. >> right so the thinking here is that a little too hot
a little too crowded a little too popular, a little too far above trend. look at the first chart. three comparative lines. you are looking at the stocks index. tech sector and s&p. stocks year-to-date up 51, tech up 37, s&p up 15. basically three-fold increase. over the general market. what about the chart itself? next chart xox itself. the steady or uptrend. yet the trend line, pretty far abore trend. look at next chart put it in a channel. we're at top of the channel. doesn't mean this has to crash just means if you're long it's time for trail ereduce exposure and new money. final short. final chart. this channel is not the one-year chart, just looking at this is the entire bull market since the '09 low. you see a pinball, we've bounced within this range as we've ascended now we've come out through the top of the range
extended, crowded, far along, take measures. >> all right so, mike, what's a trade >> yeah. so looking at the semis as carter pointed out, since the election, 10%. march lows 40,%. past two years about 90% the sector we thought of being cyclical it's come from multiple expanse. the p multiple of this particular sector outperform that of the broader market significantly. so that's where a lot of the out performance is coming from granted, there are secular tail winds. 5g, expansion in p.r., gaming, work from home actually potentially good reasons some companies will do better, but feels a little rich, extended to me we can take advantage of the fact implied volatility in areas has come in a lot. looking at smh, looking to hedge or take a risk mitigated bayish
position out to february, 200 puts price the just over $500 2.5% looking at those saying, that's some bit out of the money. doesn't have to go through the strike to be profitable if smh rolls over before then just trading a single put option we have opportunity to spread or roll or something like that. giving ourselves flexibility keeping the trade fairly simple and giving ourts time for this to play out. >> what if one out there is still looking for a way to get in on the semi surge tony's got a name that could be right for a breakout when reporting earnings next week tony >> yeah. look at broadcom it's actually positioned really well i think for 2021 especially were the growth of 5g phones and devices. look at the broadcom business itself, a very solid business. in 2020 expecting to generate about $11 billion from free cash
flow management executing pretty well on expanding into higher margin software businesses now making up about a quarter of their revenue and for all of those reasons it's trading at a very reasonable 18 times forward earning. a reasonable valuation and about 3.75% dividend yield one of the strongest within the semiconductor space. i kind of agree with carter's assessment that semis are overextended a little, not too concerned about broadcom as a business and next week i think will report a solid earnings here look at the chart for broadcom a pretty steady uptrend over the last roughly eight or nine months but it's a stock that actually underperformed the smh sector over the past couple of months i think earnings catalyst next week is potentially what it could mean to catch up here. so look at earnings announcement so far, the options market implying about 5.8% move while
over the last eight quarters the is to stock only moved about 4.2%. doesn't move a lot on earnings the trade structure i'm utilizing taking advantage implied volatilities for broadcom are fairly elevated an going out to january and selling a put spread here and specifically selling the 410, 390 put spread here collecting about $20.70 to sell the january 410s and paying about $11.70 for the january 3 90s. net-net collecting about $9 on a $20 wide credit spread which is about 45%. so a fair amount of income for the risks i'm taking, therefore, this credit spread. >> mike, what do you make of the trade? >> yeah. so contrast what tony is doing to some of the activity that bob was talking about beginning of the show
day trader trying to buy calls, reaching, hoping a stock will move up in a short period of time if it sits there does nothing. goes up profits more quickly obviously. down side limiting risk to $11 a share, significantly less than if you bought it at current stock price. smh massively overperforming, not through for broadcom, i like the structure and the company as well. >> the chart, carter >> well, you know, just a touch on that again. put this into perspective. year-to-date, up 30% versus semis up 52. three-year basis, only 60% semis 130% five year, doubled performance of evague o yet it's a perfect
performance of one, three, five years. it's so old school to call it evaguo broadcom, the ticker it's confusing there. more, by the way than a weekly tv show check out "options action" and sign up for the newsletter here's what's coming up next. >> announcer: grap yob your hat investigating a volatility mystery. as was once said, you see, but you do not observe plus, calling on "options action" fans reach into your pockets, grab your phone and tweet us your question at "options action. if it's nice, we're answer it on-air when "options action" returns
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♪ ♪ ♪ ♪ welcome back to "fast money. just a few minutes ago we talked about explosion in activity and why it's happening now one reason volatility. oil, copper gold, going wild with potentially massive amount of stimulus on the way so is the dollar looking to protect your portfolio and aren't sure how, you're in luck the professor is here on "call
to action. mike, take it away. >> interesting looking at the vix, indices we look at. the spot vix dropped considerably since we saw the big highs back in march, and it is poised potentially to it drop below 20 before we get to christmas, but if you look at the longer-term vicks futures rer reremain elevated. why is that the case by the time six months rolls by, past the inauguration, by that time presumably that will be distributed. it's possible to me if we're looking a the situation that maybe what's going on is more macro. what we might be dealing with basically bealing with the cure rather than symptoms itself. take a look, as you pointed out, commodities like gold, another one of those places we see forward volatilities elevated.
gld, for example what other corresponds is actually rising prices spikes in oil, in natural gas, gold, silver, things like this, oftentimes that's accompanied by elevated forward volatility. see forward elevated volatility could be potentially bullish for the metal. of course, opposite side of that trade, the u.s. dollar of course, think about everything being done now to essentially deal with the situation we're in, a lot of that is potentially bearish by the dollar watching before, remember, carter and i outlined a bearish trade on uup you might wonder now that we've seen it decline we might unwind that position. i for one am not inclined to if you did not participate in that trade i'm looking out to june, 24-strike puts, spend for those a way to put on a bayish bet on the dollar. bear in mind if what's going on with our economy to basically
depress value of the dollar potentially going on in other economies in the basket of currencies you might see son a relative basis you my not get quite the move you expect if you do see upticks in things like inflation. i think the same things doing toee essential harto support the economy are bearish for the economy. >> and on track yearly performance, the worse, since 2017 carter you do you see down side ahead? >> sure. the point of putting that uup trade on and walking through the dollar charts just a week or so ago, at a critical juncture. '92 level on the bx index and broken hard. a break like this is hard to stop and really ultimately down to the levels seen in 2014. >> tony, what do you think of mike's trade and there are many, many ways to play a weak dollar, not just a rise in commodities.
>> yeah. absolutely so just a comment on the trade itself the fact if you did place that first trade this is a great example how to roll some of the profits from the march puts mike had into a further data put option here going out to june, and the fact as carter said, we broke $92 on the dixie, about 25 on the uup i think hoeded down to 23.5. particularly i like this trade, but to mike's comment earlier about the fact that if other currencies also debase and devalue their currencies you may not see dollar decline as much one of the things you can do and we have done here in "options action" is diversified this short dollar trade we have a long fcx trade, also in a similar vein, also long eem. i do agree you necessarily don't, shouldn't necessarily have all your eggs in one basket and short uup. look at long gold, long emerging
markets, scx, other ways to diversify this trade a comment on vix the term structure the reason you have spot vix so low here is because in the short run there's a lot of optimism with vaccines potentially two weeks away you have a peaceful transfer of power into the new year. consumer spending is strong here look towards three to six months out, equity markets i think are is priced to perfection. concerns whether consumer spending will continue at the same pace. from dliv kwaens ratdelinquencys and vaccines, three to six out on the vix you see elevated premiums. >> quick last word, mike >> yeah. one other thing to wait and see about, of course, most big equity market declines are basically coming from credit markets first. i think we'll see a much better window on what's going on there as we go into the new year than
lately when there's been a lot of support and basically deferrals and be things like that on paper. >> up next, as tony mentioned, big gains lately great news for one of our traders. tell you why, and what rock to look under next. plus, taking your tweets send us your questions at "options action. we're answer some of then on-air and be back after this. >> announcer: "options action" is responsibled by -- sink or swim by td ameritrade. before we. before we. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪
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focus on what matters to you with thinkorswim. ♪ welcome back to "options action." time to take a look back at what's our open trades. a few weeks back tony took a shine to gold trading. >> peaked around 2014 around $40, declined 90% down to $4 in less than two years and now one of the strongest stocks in the s&p 500 and on the verge of a massive breakout from my perspective i see upside target about $24 in the next two to three months. the tray structure looking to use going out to february giving me about 90 days' worth of time and buying the $20, $24 call vertical spending about $2 for the february call options and collecting 75 cents for the february $24 calls. >> that trade turned out to be
solid gold jumping well into the green. tony, expires in february. what are you doing to it >> yeah. like i said, my price target was $24. about 60, 90 days out exceeded that when you have a trade like this on a debit spread, exceeded upper strike you have two possible options first, take the profits and run. right now up about a little o r oveover 1 percen 100, 120%, or turn a small winner in a much larger winning by rolling it up i have so much time left here, looking at february 25 by 28 call verticals here, rolling it up to february 25, 28, trade it for $1.68 credit taking a 40 had% profit and debit spread for free. >> carter, this one still look good >> here's the thing. first of all, talking about a
home run stock on a tear. how much of a tear, though if you're simply looking at trend analysis, how far above whatever moving average you want, in my case 150, freeport has only in its history going back to mid-1990s been this far above its average. happened off the financial crisis in '09. just about this point gave back a good 20%, 25%. extend it. >> up next, tweets and "the final call." on options tradi >> announcer: "options action" is sponsored by, think or swim by td ameritrade. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn
>> i like broadcom going into earnings selling in january, 410, 390 put spread. >> mike? >> hedge your semi exposure with smh put spread and i don't think the dollar debasement is over. >> that does it for us see you back here next friday. "mad money" with jim cramer starts now. - [narrator] the following program is a paid presentation for the oxypure air purifier, brought to you by nuwave, llc. asthma and allergies are at an all time high, and it seems to get worse every year. it's not your imagination. allergy season continues to get longer and more intense as temperatures rise and airborne viruses are becoming an epidemic problem worldwide. with the changing environment and unseen dangerous air pollution surrounding all of us, you need clean air more than ever. if you suffer from mold, dust, pet dander, smoke, odors or sleeping problems, discover the nuwave oxypure air purifier,