tv Options Action CNBC October 29, 2021 5:30pm-6:00pm EDT
carter worth is checking in on marriott how do the charts look we are obviously having some difficulty with carter's audio, so, mike, what do you see for marriott >> the first thing i would say is we know obviously the direction that carter was going to take with this. one of the things we have seen is good relative strength in marriott lately. anybody following the stock -- and we can probably pull up a chart right now, we will see that the stock has done quite well in recent weeks one of the reasons for this is that people are looking to the long end of the recovery from the pandemic we have seen a rev par improving in some markets, notably asia, although that's not true
everywhere the multiple right now about 33 times forward earnings you might think that's relatively high, but here is an important point. the shares the company is expected to make in full year 2022 would be the highest eps in the company's history. if you looked further out to 2023 which is trying to read the tea leaves, but for those trying to forecast, they are forecasting $6.75 per share. that would reflect nearly 30% year on year eps growth which gets us to the multiple where the stock is presently training. as we look at earnings, right now the options market is implying a move of just under 5% that's significantly higher than what the stock has averaged historically what that suggests is that
"options action"s are similarly elevated we want to take advantage of that situation by looking for a way to sell premium. taking advantage of the fact we see strength in the stock and that the options premiums are relatively elevated, one of the things we can try to do is give ourselves near upside exposure but recognize those could suggest there is some uncertainty and risks. specifically i was looking to the december 3 weekly option i was looking at the 1.65, 1.75 call spread reversal we would be buying the call spread and selling the 1.45 puts to help finance it that would be about a $1 debit if you held that trade to ex-first, then you would need it to be above that $1.65 strike
point by the dollar you made with earnings upcoming you may see what we refer to as ball succumbing o suck coming out of that. this is a way to get upside exposure and looking to the december 3 weekly expiration in the event the news is not that great, you will not have the stock put to you until it gets to around the $1.45 level that gives us a little bit of buffer, protection in the event it goes back to that level also, if carter was here to talk about his charts, he might point out that this recent strength came up from $1:42 to $1.43. >> carter is back. what do you say about these charts >> this is an unloved stock that
analysts cover on the street they believe in 12 months it will be trading lower than it is now. but i think the setup is good technically and let's look at simple charts. you see marriott, no drawings, no lines, no judgments by me second chart, now we put in the lines. what do we know? a setup that history has seen over and over. we have to play the hand that's dealt and that is we are setting up the prospects of finally moving above basically it's pre-covid high the next chart is longer term much the setup is important. you talk about a stock that basically is up 3% from its pre-covid level with the s&p up 35%. hilton has already started to break out. the final chart, one other way to draw the line it's often fundamentals that
resolve technical patterns i think the setup is bullish and i think you want to be long into earnings >> nadine, would you agree and where would you put the trade? >> our low end is $1.54 so that gives you plenty below that for risk management. i like the premium is positive paying a little up for protection as michael said when you think about some of the fundamentals, what are some of the events that could make you money. basically travel restrictions are lifted in early november, and vaccine for younger kids what we need to hear from management, which i think is critical is not just the rev par trends as michael was talking about, but they have reason
ability to increase average rates, labor and input costs we need to see that happen, need to see if the cancellation rates are positive in terms of momentum so people are not canceling as much as they did during delta and see what they are doing with share purchases with the stock down here, we need to see them repurchasing shares so let's see if they did. let's go to the second read on consumer spending nadine, why are you charging into mastercard, especially post earnings >> mastercard has taken a hit at 5% on the heel of visa's cautious comments about not returning to 2019 levels to mid 2023 we saw both visa and mastercard decline. it is our view they were being
overly cautious. mastercard's key statistics they provided shows that the delta variant temporarily pressured results. we can see mastercard tracking ahead. we can also see versus 2019 levels, they are over 30% ahead on switch volumes, switch transactions and improving on across the border volumes. in 2019 the stock is up 22% so that's solid, but versus cross border transactions, they were higher than that, in the 30s, which gets hit when travel is halted or depressed. the company is tracking ahead. and they can provide a bit of an inflation hedge. if gas costs more at the pump, that will be reflected in their
numbers. inflation, if it continues to accelerate, but if it remains sticky or goes down, you will still see these prices benefiting mastercard. near term events, just like marriott, key term events, the u.s. is opening its borders to travelers from 33 countries in early november and will receive further updates from management as well as buy now, pay later trends and the fda is doing their approval for pfizer for younger kids people will take their kids on vacation if they feel a little safer. look to augment a position in mastercard with strategy our framework estimates there is about 4% downside but over 10% upside that's 2.1 odds in our favor options have gotten more expensive than a month ago
so we want to take advantage sell both the put and the call the put being about 1.6% down from today's closing level so that would be the 330 level and give us about 5.78 .3% from the closing level so we would receive about $12.13 and able to capture more until the stock is pulled away that strategy protects over a third of the downside and potentially captures some of the upside we do that to protect our position and also get some upside >> mike, what do you think >> this is interesting we haven't talked about this kind of strategy too often on the show, but i think it makes a lot of sense one of the important things to think about is a stock can be
lower, higher or in the same place in the future. if you own a stock as nadine does, and looks to enhance the returns more and you would be comfortable purchasing more of those shares at a discounted stock price, that's when this diagonal strangle against your shares can make sense. this is something being a little more creative. it has to line up with your fundamental view and your willingness to purchase additional stock i also think the range for mastercard is limited. it has not held up relative to the market recently. but i like the trade structure and can see why she is looking at this. >> still to come, another edition of why so bad is good. we are focusing on amgen trading isn't just a hobby. it's your future. so you don't lose sight of the big picture,
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♪ welcome back our action continues next week carter you have a bunch of interesting charts here. >> a couple tables and charts. amgen is a prominent name and a dog. i think it has been such a dog it's so bad it's good. first the table. look at the two-year performance. this is a comparative chart much you are talking about a spread that's health care at 40%, amgen
flat now the next chart, a five-year chart. this is getting to be an epic sort of spread, one of the biggest stocks intersecter -- five-year spread almost double. you can see where the paths diverge of late. third and final comparison chart. of late amgen is down some 27% from peak. i think that's the tune. -- opportunity here is the chart itself next chart you can see they are down 27% from its peak just four or five months ago that sell-off is down to trend final chart. you are literally down to the penny to the well-defined uptrend in effect for the past ten years.
it has bounced there before and we think it bounces there again. >> mike, what is your take >> obviously, one of the side effects of this stock's weakness has been the valuation -- certainly taking a look at price to earnings is getting down to low levels in fact it's trading a little over 14 times right now, getting close to 10 year lows. just because the pe of a stock is low doesn't necessarily mean it is a great time to buy it sometimes it can be indicative in a cyclical that you are near an anticipated top in a cycle. but take a look at amgen and the range traded over time any 60 or 90-day hoelgd lding pd your returns would have been 2%
and 3% respectively and you would have been up about 63% of the time however, if you only purchased the stock when the valuation was between 14 and 15 times earning, that calculus change is pretty dramatic those figures look closer to 6% and change and 7.5% and profitable nearly 80% of the time when you look at that, one of the things you do get when you try to buy a stock at the lower end of its historic valuation range is you give yourself a downside buffer. perhaps you are getting to a level where the stock can't have a whole lot more damage done but bearing in mind there could be a signal, particularly about half the market multiple, you can still mitigate your risk i was looking to december at the call spread. when i was looking at it
earlier, you could spend about $6.95. net-net you will spend about 5.75 or so to put this trade on. the stock was trading just under 2.07 as of close so the extrinsic premium is only about 1.5% of the current stock price. essentially that's the premium you are paying to have insurance below the long call strike that also is going to reduce how much the stock needs to rise before you see profit. now the company is going to be reporting on tuesday if we see some disappointment or good news, that's likely when we are going to see it. i think this is a way we could take advantage of the fact that options premiums are surprisingly lowest specially the way the stock moved the last three quarters those weren't too good
but the stock has traded poorly going into this earning. i think we can say it isn't as if the street is overly optimistic >> nadine, what is your take on the trade? >> i think mike and carter are right here our trading range is about 2.04 to 2.10. a fair fight, 1.50 up and down it's muddling there. this means people are more worried than not but in terms of fundamentals, people are hating the fact that this thing has been difficult. they have missed their numbers the last two quarters so management needs to deliver. that gets to the asim trias well -- asim tri as well the threat from bristol myers,
update on the pipeline maybe they would repurchase shares and show people they believe in what they are doing there are lots of ways to move this up, but in terms of our trade it's muddling in the middle up next soul searching on the trade from last week we will be back in two this is the kind of card that has america talking. with it, people with medicare are getting all in one coverage for their doctor visits, hospital care, prescription drugs, and more.
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the 2850, 2870 call spread that expired in november. you could collect a little over $6 for that call spread. that's a little over the distance of the call spread. kind of that sweet spot. >> carter, why don't you take us through what the stock has done since. >> playing for a catalyst or earnings event and breakdown ended being the opposite which is something unfortunate if you are a short. what was coming foreshadowed by the strength and topping formation would reveal the news was going to be bad rather than the opposite today it went back up and inched above it it is the best loss situation. just get out >> mike, what would you do >> those results were spectacular. consider this.
this company is trading at less than 12 times its 2022 eps estimates. the company is flat cheap now that we know how things are going for them here is another interesting thing. on the first morning after they reported earnings, you could have bought that call spread back for about $11.50. if you heard that, would you have purchased a put spread on it >> probably not. if you don't want the put spread you should probably cover the call spread. >> nadine? >> we have been long a lot of large tech we were on closing bell last week microsoft, google. in terms of somebody who can have lots of ways to make money through not just ad spend but other places, we don't like to short those names. the names trading poorly, facebook, twitter, amazon after
the earnings call. we like those mo iren a bearish formation. those in a bullish formation are harder to short. >> up next your questions and final call n minutes until we bo. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. 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. ♪♪ there's software. and then there's industrial grade software, forged from decades of industrial experience and insights. meet honeywell forge. analytical software that connects assets and people to deliver a cybersecure record of your entire operation. so that everyone,
welcome back to "options action." time for tweets. our first -- >> carter, what do you think >> this is something that is very much in the process of bottoming. we know in two weeks it went up 22% and now is down 12%. the bottom is well-formed, forming, stick with the trade. time for the final call.
carter worth, next to you. >> earnings next week, amgen and marriott long. >> nadine? >> sell a put, sell a call and mastercard 205, 225 >> see you next friday for more. >> "mad money" starts now. my mission is simple to make you money. i'm here to level the playing field for all investors. there's 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. welcome to cramerica i'm just trying to make you some money. my job is not just to entertain you but to educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. let's say you told me
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