Skip to main content

tv   Options Action  CNBC  February 5, 2022 6:00am-6:31am EST

6:00 am
h a lot of money and he's able to move around freely within china, but that's about it. he will be a fugitive from the united states for the rest of his life. and the united states will never stop looking for him. -- captions by vitac -- it's friday and that means it's time for options action i'm melissa lee in times square. we've got a big show ahead here's what's coming up. up and down, plus and minus. newton's third law of motion for many things in life there are polar opposite pairings. tonight we look at not one but two of those such pairings and the eye popping market action we're currently witnessing amazon and google, gold and oil. find out which of each carter and mike think is the better to
6:01 am
side with and how. plus after the biggest one day drop in value in the history of the u.s. stock market who could blame tommy zhang for making a play for matchup it's time to risk less, to make more "options actions" starts right now. >> it's been a busy week of big tech earnings. alphabet and amazon seem to get all the love, both companies surging after reporting, but did they both really deserve it? carter, start to unpack this idea for us. >> yeah, i mean so much going on for starters two weeks ago we were playing google the down side looking for a netflix-type drop, a facebook-type drop and indeed it did the opposite we're looking for a pairs trade of google relative to amazon
6:02 am
these are ratio charts you're going to see now the first chart it's just looking at one stock versus the other, divide it if you will, and the direction of the line is all you need to know so this is google's relative performance to amazon. and google's been outperforming as amazon's gone sideways, that's obvious and then it broke out of this formation. and then with today's strengthening fallen back into the formation. now, look at the next chart. the same ratio just a bit longer term and then look indeed at the next chart, just another way to draw the lines. meaning google has been under amazon for the better part of 7, 8 years and it's really coming to life now. and then two more. same chart you would call it a head and shoulders bottom or call it a rounding bottom, but either way as a bet in terms of 3, 6, 9 months out google looking at the relative performance chart is likely to
6:03 am
be the winner. that's the thinking. >> all right mike, you've got pretty strong take on this what is it >> yeah, i mean, first of all this has been a pretty extraordinary quarter. if we think about the trudizal faang names what we used to call facebook, apple, amazon and google a couple of these have changed their names but the ticker remains the same apple moved close to 7% off their earnings we saw both alphabet and amazon going substantially higher today. facebook now known as meta obviously fell considerably. but when i take a look at amazon and alphabet, i find it really extraordinary what's going on here i find, you know, the enthusiasm from the street on amazon's results in particular to be quite puzzling to me why is that? >> so what's alphabet give us? they give us about $22.5 billion
6:04 am
in net income. what did amazon give us? well, at first blush $14.3 billion, not bad except $11.8 billion of that is from rivian. if you take a look at their net income excluding that rivian impact is $2.5 billion so it's more of a 65% decline year on year versus their net operating income a year ago. google, on the other hand, 65% increase so to me when you take a look at one of these making nine times what the other one is they obviously are in a lot of the same businesses. some of them are very good and strong businesses. some of them are clearly not as good, and amazon is the one carrying the weight of some of the businesses that are not profitable so i would be inclined to fade amazon i go long google. you can choose a number of ways. if you fade it you could sell it and do a structure similar to the one i'm recommending on
6:05 am
google and what i'm recommending on google is that after the earnings came out we saw options premiums decline you can buy longer data call options and sell some near data ones against it. normally you'd see a lot of implied volatility coming out of those near data ones but because we've been seeing stocks move so much it's not actually down as much as you might think. actually the term structure of one month options and three month options is practically the same i was looking at the may 3,000 calls and selling the march 3150s against it now, net, net you have to bear in mind these are expensive stocks so the options are similarly going to be expensive, be about $110. now, that's about a $10,000, $11,000 fraid for the home gamers to think about because each contract represents 100 shares that might be a little bit chunkier than some might be
6:06 am
inclined to do it. my inclination here is to believe the move in google but maybe not so much in amazon. >> tommy, what is your take on this trade >> yeah, so i certainly agree with this both on the fundamental and technical perspective because if you look at alphabet trading 21 times next year's earnings given the picture mike was just talking about that eps growth we've seen from alphabet i think it's trading at a substantial discount to where it should be trading probably 25, 26 times next year's earnings i'm not as bothered by amazon's valuations as mike is but i am bothered by amazon's chart if you look at the stock it's been in the slightly upward trend. and during that time it's been underperforming its sector, losing ground. and the earnings announcement we saw yesterday that didn't rally the stock does not change that story at all if anything i think the $3,200
6:07 am
amazon is currently trading for is a temporary top here for the stock. if you look at the fact alphabet over that same period has been outperforming the sector technically speaking i think you have a strong case both on the fundamental and technical side as far as mike's trade on the diagonal amazon is an expensive stock. but it's only 3.6% of the stock's value. you are getting leverage using a call diagonal like this i think is a great way to play for a bounce higher or break out for alphabet >> quickly on amazon specifically tony had mentioned how the stock had been fallow, and for some that is the argument to be in amazon, but it has been in fact a fallow stock and due for some sort of catch up what's your take >> if you think of the precondition before the fallow period, huge rule, double went
6:08 am
from 1,500 to 3,500 and then the fallow resting period, that's often the setup for a break up except it broke down instead so even though it recovered a lot, all it did on this week's recovery was return it to where it was simply three weeks prior. the chart is broken. >> all right, let's stick with big tech now meta platforms missing the mark on earnings and plummeting more than 20% this may be the time to give the social stock a poke. tony, what are you seeing? >> i do think it's time to start turning that around and reversing my opinion on this and focus lez on the user story that knocked the stock down on earnings and focus more on the revenues and profits here for meta because if we first take a look at the long-term chart, and this is a chart carter actually setup, this is a chart of the stock from 2012 lows is to where
6:09 am
it is today. and what you see is a pull back to the trend line. and that is an opportunity i see for meta to potentially rally from here. what you see it's pulled back to roughly around the 225 level, which is where the stock was trading back in july 2018. now, in 2018 facebook or meta made about $22 pillion in profits. right now it's made about double that, 39 billion so the stock is trading at roughly half the valuation it was trading at back in july 2018 so i think the fact the stock is currently trading at 14 times next year's earnings is extremely cheap and the revenue growth supports the stock being substantially higher from here i think it's tworth taking a bit of risk and use a stock replacement strategy or a strategy similar to a stock replacement strategy diagonal,
6:10 am
similar to what mark is using. i'm going out to the march, july, 230, 265 call diagonal spending about $26 for the july 230 call options these are call options that are slightly in the money to reduce the amount of time decay i'm paying for these and i'm selling the march 265s for about $3.60 net net here i'm paying about $20.60 here which is just under 10% of the stock's value >> mike, what's your take on the trade? >> yeah, i mean obviously i like the structure because it's one i was just talking about, and, you know, i actually do like playing facebook for a bounce here look, in the short-term we know the markets are a voting machine, and in the long run they're a weighing machine and if you weigh basically the money generating capabilities of meta, if you have to kind of like this one on the long side i mean, $10.2 billion i think
6:11 am
for the quarter is what they did. by the way, i want to keep digging on amazon, i guess is four times what amazon did, slight decline year on year. this is obviously a company immensely profitable and trading quite cheap in my view >> all right, let's get a check on shares of peloton the shares are surging in the after hour session wall street journal reporting amazon has approached the company about a potential take over amazon is telling cnbc it has no comment on this report we haven't heard back yet from peloton but the stock is higher by 31% right now mike, what do you think? >> oh, sure, by all means buy peloton. that would have knocked your net income down another 10%. so instead of making 2.5 your net operating for the quarter would have been about 2.25 that's par for the course there. we did see a lot of options in peloton. it was above average today, nearly 100,000 calls traded, and obviously this is good news for peloton shareholders but another
6:12 am
reason to avoid amazon >> mike is not in a pro-amazon mood tonight to put it politely. carter, how does the peloton chart look >> i mean, let's stay with the things a little bit funny. i can picture my grandmother on her exercise bike, and listen, there's nothing new here that's it. >> all right well-said. all right, for everything options action check out our website, sign-up for our newsletter here's what's coming up next still to come, bear trades part 2 we'll look at a couple of commodities on contradictory courses. then we'll stop with the alliterations, promise plus calling all options actions fans reach into 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. thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience.
6:13 am
with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back.
6:14 am
6:15 am
♪ ♪ ♪ ♪ welcome back to "options action" and our second pair trade of the night oils had a monster climb up more than 63% over the past year. but the chartmaster says it ma be finally time to throw in the towel and pick up a golden fleece carter, take it away >> so we're looking at oil versus gold. in this instance we're not going to look at some ratio charts, just the absolute charts themselves so first chart here we looked at this at the top of the hour. this is the formation that oil
6:16 am
has been in, and it's a fascinating thing in the sense that it has touched the upper and lower band to the penny repeatedly like a pin ball machine and stopped and gone the other way. so one could say it's fundamentals of course i'll argue it's almost all technicals and what we know is we're up against the upper band all of the stories are bullish but often when everyone is aware of something it's right to take the road less traveled so we're making the bet to fade oil here now, there is an etf for a fund you can use, the next chart. it's symbol uso, and you'll see it's the exact same formation. so you can actually trade this if you don't have a commodity account where you can trade crude. now, as to cold the third and final chart, in a way the most important or fascinating dynamic this week is not so much the movement in big stocks
6:17 am
stocks often move when they have good or bad earnings it's not so much the extension of crude oil crude oil has been going up for weeks and months it's the ability of gold to hang in, to remain literally in the face of real rates rising the way they did not only in the u.s. but around the globe. so our hunch is this formation which continues to form, right, converging lines, obviously has to be resolved at some point you get to the end of the runway and i think consensus is it's going to break down my hunch is it'll do the exact opposite >> mike, how do you trade this >> yeah, so, we'll touch on the last one first so just taking a look at gold, you know, you have a situation where technically it looks like it's going to, you know, basically make a move, either higher or lower carter's bet is that it's higher i'm inclined to agree. but if you get into a situation like this where you have this kind of a binary outcome, this
6:18 am
is one of those situations where options can serve you very well. and what's interesting is that if you take a look at gold or if you look at the etf that tracks it, gld, which you'll notice is three month after money implied volatility is less than 15%. what that means is you can essentially buy an at the money call option trading at 169, i was looking at the june 170s those were a little $5 or put differently a little over 3% of the value of the etf and if uthink this thing is going to move sharply at some point in the near future because it's about the resolve this moment of tension, then 3% isn't a great deal to risk if you're inclined to bet that to the up side so that's the way i would play gold now, looking to oil this one's a little bit trickier. i was a member of the new york market exchange. i traded a lot of oil and gas options back in the day. the thing about the energies is in my experience they always tend to move farther than you
6:19 am
think they will. both to the up side and to the down side. now, from a fundamentals standpoint i realize there's a lot of people who were quite bullish on it still. nevertheless, it is always going to continue to look bullish until it doesn't so if you're trying to pick a moment where you're either going to, you know, take your profits, which i don't think will be a bad move here or make a bearish bet. i wouldn't be inclined to make a bearish bet by necessarily going short, but here we could use a put diagonal to make that bet and obviously limit the risk this isn't a hugely bearish bet but a moderate bearish bet notice, by the way, that's about 10% of the strike. so considerably more expensive than options on gld. and then selling the near data against it to help offset the decay in that relatively large outlay of premium as a percentage of the value. but i do believe that gld has
6:20 am
reached a moment of tension, and i think the precious metals along slb, by the way, are probably going to see their chance to shine some time soon >> tony, what's your take on these trades >> yeah, so if you look at oil i certainly agree with carter's charts i think we're near a temporary top, and i think we're due for a reversal so if you look at mike's put diagonal spread here it is as you said a mildly bearish trade. the short strike here is around 59 that's the break out level we've seen here on us oil recently my long-term views for oil is quite bullish based on fundmental factors when you look at gold this has been trading into this major apex that carter brought up for about 18 months or so. so while i agree that we're going to get a break out i'm not necessarily convinced it's going to break out higher per se, but this is very sensitive from a
6:21 am
timing perspective because long is put options on the uso and long to call options on gld. so this is a very time sensitive because he's got time decay on both sides that is something to consider. and one other thing if you are trading this as a pairs trade gld is about 2.5 times uso in terms of price you need to buy five contracts to two contracts of gld. coming up next we're taking your tweets. there's more options action in two.
6:22 am
6:23 am
it's time for the ultimate sleep number event on the sleep number 360 smart bed. what if i sleep hot? ...or cold? no problem, the sleep number 360 smart bed is temperature balancing so you both sleep just right. and it senses your movements and automatically adjusts to keep you both effortlessly comfortable. so, you can really promise better sleep? yes! you'll know exactly how well you slept, night after night. we take care of the science. all you have to do is sleep. don't miss our weekend special. save 50% on the sleep number 360 limited edition smart bed. plus, 0% interest for 48 months on all smart beds. ends monday. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center.
6:24 am
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 ♪ welcome back to options action, time to take your tweets our first viewer is betting a bet on one casino name czrs looks prime a for a bounce. what do you say? >> ceasers has seen multiple compression here the line in the sand here is that $82 level i like going out to march looking at maybe the 80, 95 call
6:25 am
spread, reducing the cost of a particular trade, reducing the amount of premium that you're paying for a break out here. but the fundamentals look quite compelling >> our next viewer is eyeing a monster merger i think activation with earnings in the microsoft purchase will rise i was looking to sell the mar 87 call and buy the june 80 call for a cost about 3 shares. your thoughts on this one. >> the all cash deal that microsoft offered is $95 a share. that's a 25% discount to the deal price that's quite remarkable, and i think maybe some people are concerned about anti-trust issues i don't think that's really in play on the gaming side they'll be the third largest. that's one of the points the microsoft ceo was expecting on it, not expecting basically a whole lot of push back i basically like the idea buying some at the premium call and our earnings are going to be reported in may, so i like the
6:26 am
trade structure and am i a buyer of activision. i think the deal is going to happen >> carter, what are your thoughts on either of these charts >> i will say this once a stock is in play you're betting on an outcome largely known but not 100% known so it's off the table, if you will microsoft, on the other hand, it's just sort of a pair of twos >> a pair of twos. and just for the poker illiterate like myself that's bad, right all right, okay. up next, final call. it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. 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.
6:27 am
ah, they're getting so smart. choose the app that fits your investing style. ♪♪ we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car. whether it's a year old or a few years old. we wanna buy your car. so go to carvana and enter your license plate answer a few questions. and our techno wizardry calculates your car's value and gives you a real offer in seconds. when you're ready, we'll come to you, pay you on the spot and pick up your car, that's it. so ditch the old way of selling your car, and say hello to the new way at carvana.
6:28 am
6:29 am
♪♪ ♪♪ ♪♪ final call, carter tony >> meta call diagonal spread >> mike? >> buy now, google not amazon. >> all right, that does it for
6:30 am
us here on options action. we're off for the next two weeks. cnbc brings you live coverage oof the 2022 winter olympic, but keep an eye on our twitter account for bonus content. meantime don't go anywhere mad money with jim cramer starts right now. >> announcer: this is a paid advertisement for csn. >> you know, many times, i've been out here with a new coin release, and i have asked for a drum roll. and in all honesty, in the past, it's really just been nothing but hyperbole. but this time, i really would like a drum roll. i don't think i'm gonna get one, but i really think i should have one. this is, i think, the singular most important numismatic event certainly of the last quarter century, perhaps in my entire professional career, in terms of interest, in terms of


info Stream Only

Uploaded by TV Archive on