tv Options Action CNBC May 13, 2022 5:30pm-6:00pm EDT
ahead on oa, cathie wood's ark etf -- can you use options to play safely for rebounds? plus, is it time to go long on some of these other beaten down stocks we are driving into it in just a few. those are hints and check out today's big bounce stocks rallying. the dow jumping 466-points and the nasdaq surging nearly 4% higher while tech has been hit hard over the last few weeks, tony is
detailing a trade on one etf that he thinks has seen enough punishment tony, what are you looking at? >> looking at cathie wood's ark fund which is down 78% since the february highs i think for traders looking for opportunities, this is now the time to pull the trigger for this etf we take a look at the chart here, what the most important level to pay attention to is $35. that's where the etf broke out in november of 2017. well before we were sitting here talking about cathie wood. the last time being the pandemic low. so the fact that we've pulled all the way back to those levels is now a time to potentially see long exposure in this fund i think we can use options to structure a simple way to gain some long exposure, but also provide some downside protection so the simple option strategy i want to use here is to go out to june of 2023, which is about one
year from now and i'm looking t buy the $43 call the options that are just about a dollar in the money. earlier today, i can pay about $10.45 for this one-year option to purchase the etf at $43 that gives me a premium of about 23% of the etf's value so in putting up a fraction of the capital giving me downside protection while giving the unlimited upside over the next year and about a month or so for this particular bounce >> mike, what's your take on this trade we have seen some of the components of ark certainly have bounces and investors getting into some of them like hood. what's your take on this trade and ark? >> well, the person that would say is that we saw actually a flurry of bullish activity on the options in ark around midweek. so just as it was taking the worst punishment, we did see people going in and buying calls, not as long dated as the
ones tony is talking about, but we did see it. i think really what was going on here is there was a lot of beta in this name i think people with looking at this as a potential opportunity to get upside leverage on a bounce that said, you know, i still think there's potentially a lot of trouble in several of these names. it's true that they have fallen a great deal, but i don't necessarily think all the punishment is over we take a look at a name like hood that's one of the names you mentioned. that's a company i still think faces serious questions. tesla's obviously the largest constituent and one that from an operational standpoint is doing exce exceptionally well but the valuation remains rich there i don't necessarily think despite this big bounce we're quite out of the woods yet for ark. >> carter, your take
>> the genone fund bounced as much or the fxi, the china, what we saw is the synchronized bounce in almost anything that was deeply bought. and so theematically it's about whether there's money flow very bad week. there's a little money flow in today. >> so, tony, find a word and if you can address what carter was pointing out in terms of you know, why did you choose ark over these measures of risk sentiment. >> it all comes down to the level that it traded down to the opening print on yesterday was $35. that's the breakout level i was referring to back to 2017 think about how far these stocks that are in this particular etf have come since 2017 in terms of revenues, eps. i think valuations here look attractive for some upside going out a full year. only spending 23% of the etf's
value near the bottom. >> well, the roller coaster ride for stocks has left virtually no area of the market untouched, but if you're hoping to use options to dip your toes back in without risking capital, the other traders have some names. carter, what are you watching? >> we thought wed try to maybe hammer home this point about what can security is it's the set up. take a look at a few here. this is a comparative chart of ford motor versus intuit now, it's two colors two lines. one has nothing to do with the other. but they're identical. how identical? let's look at the next two charts the first one is ford itself high of 13.50. sorry, closed at a high of 25. a 53% decline. over the course of four, five, six months look at intuit exactly the same
53% decline. a high of 7.17 closed at 371. look at the chart where we started. sometimes it's about money flow. you get down to a certain amount, a bounce but again, it's not about what the difference is. >> thanks for that, carter so mike, you've got a trade on ford which by the way, got a double downgrade just this week from wells fargo to sell >> yeah, so this is an interesting case so you know, when we think about something like ark, we're talking about high flying names sort of future economy types of stocks ford, of course, is an old name and a legacy economy type stock. the thing is that it is trading at quite a big discount right now. it's tradings earnings still they do sell the most popular and a very high margin
vehicle in the f-150 they have the lightning coming out. these are oversubscribed they're basically going to sell every one of them they can build. and i think people are discounting basically the run off for ice automotive here's something else to think about. at the current valuation, ford is trading at $470,000 enterprise value per electric vehicle sold that's just for their electric vehicle business compare that to about 780,000 in enterprise value for tesla so to me, i think this one seems pretty cheap that said because i don't think all the damage is done necessarily, like tony, i'm inclined to go out in time and dip my toe in the water by buying longer dated calls. i was looking out to january 2023 i was looking at the, those jan 13 calls the stock was about 12.5 up a buck today. those are in the money now those would cost about $2.40
they represent 100 shares apiece so it's 2400 bucks in total. but this is a way to essentially get some upside exposure if you're so inclined i do own the stock i own january calls. mine are higher strike though because i got into them arguably a little early >> tony, what's your take on this trade >> yeah, i think for traders that missed out when ford was trading in that 13 to $14 range before it ripped higher, here is your opportunity to get back into long exposure here for ford as mike said, the lightning is really where i think the largest value that we can see from ford going forward right now. if you look at valuations, the fact that you have this 50% pullback really gives you quite an incredible opportunity here it's now trading at six times next year's earnings that's about a 30% discount to its long-term historical average. while i don't think it's going to be anywhere near tesla's valuations just because it's not the same from a tech and battery type company, but i think there's a lot you can catch up here from a valuations
perspective. this is a stock that belongs in the 20s range so using a call option like mike is using gives you upside exposure. unlimited upside exposure and that's really what you're looking for with an option strategy trying to pick a bottom here >> the other stock carter highlighted. intuit it. what's the trade there >> this is an interesting case if we take a look at its valuation going back to september '94, nearly 30 years ago, the average value is about 36 right now, it's trading 29 time forward earnings estimate. we're talking about a company that's been growing eps at doub digits not super high, but maybe 20%. eps growth this is growth at a reasonable price. why are we seeing that because they cater to small businesses and small business creations have been high so you've got a good underlying business a cheaper than average
valuation. we have a situation where a lot of these stocks have been oversold and this is a less risky way to get i think long any stock than going after the high flyers, which i think could have more damage so i'm going to use a very similar and simple trade structure. just looking out to january when the stock was trading around 37 or so. i was looking at the january 3.83 calls those cost $51.51 apiece these are expensive options because it's an expensive stock, but when you consider this is going to be representing 100 shares of stock, which would cost your $38,000, this is considerably less than that. and the important point here is that if the market does continue to decline, if we start to see today's exuberance turn into next week's frustration and disappointment, this is not going to decline at quite the same rate if we see further weakness of course, it's not going to participate quite as much either, but that's sort of the
nature of using options. you get a little convexity, you can limit your risk and i think this is one way to do it >> tony, you like this trade >> yeah, because i think one thing that's underappreciated about it is the recent transition that this firm has made to a cloud based sass model. you combine that with 21% profit margins and the fact it's trading around the 26 to 29 times next year's earnings, i think this is relatively cheap for this type of company especially if you look at their peers. so the fact you pulled back to this very important technical level, $360 yesterday, that is the opportunity that i see to get upside exposure and mike is using out of the money call option one because the stock is very expensive. so the lessen the cost of the call option, you can buy slightly out of the money one. here, he's risking 14% of the stock's value going out to january 2023 reducing your downside risk in a
stock like this that is still expensive from a price perspective, it's not necessarily cheap from a valuations perspective he's referring to using a convexity to your favor. because he has a slightly out of the money call option here, if the stock continues to decline from here, the delta on this particular option is going to reduce and have lower downside exposure as it continues to fall >> carter, final word. >> funny you mentioned about the downgrade. wells fargo downgrades and same day morgan stanley upgrades it what do we do? some to 23 some have price targets of 18. stick with the charts. >> okay. coming up, we're taking a look back on one of tony's trades that's deep in the green through two weeks of red for everything options action, check out our website. while you're there, sign up for our newsletter much more right after this
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welcome back >> given the week's volatility, i think there's a lot of interest if you will in finding some level of safety and by looking at a name like t mobile which is generally speaking a more defensive name and the fact that it's reported earnings and the stock is down almost 7% here today, i think this is really an opportunity potentially to take advantage of some of this weakness sell some volatility and
potentially again, find a bit of safety in defense. going out to the june 3rd expiration and selling a 118, 124, and collecting about $3.17. >> there is still some time left on this trade, but it's seeing nice profits already tony, what are you doing now >> it's doing exactly what we're expecting. trading between the 124 and 133 range and we've seen implied volatilities at this time, if you've traded mull principle contracts, i think it's time to close half the position and keep the remaining half open towards expiration and hopefully collect the full $3.17 >> up next, we are hitting some of your most pressing options questions of this week do not go anywhere more oio aiocongp.ptnsctn mi u
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welcome back time to answer some of your most burning questions. a fan has a question for the chart master what do you think about berkshire hathaway b specifically carter >> well, that's exactly what it is we have a chart that talk about the context of just your question the plot of a trend line is the point of a moving average. you can draw a trend line or automate the process the stock has sold off gently and quietly to trend to it's 200-day moving average, to its actual trend line and in principle, it's a selloff to a level of support where rebound potential is high. i'm a buyer. >> mike, what do you think >> look, i mean, this is a company that has a really stable cash flow positive business and it has a big war chest and hasn't been able to deploy it.
i think if there are any names that you would look at in an environment like this as a way to start looking for exposure, this would be it >> here's our next question. i have been buying shares of semietf soxl from the 30s down to 19s i want to sell calls against them, but i'm not sure how to approach it. what strategy do you recommend when selling options tony >> rule of thumb is we have go out roughly 30 days and sell about a 15 delta covered call. the reason we use such a low delta is because you want to prioritize capital appreciation of the underlying etf in this particular case. over income because that's a primary risk that you're taking when you're owning this etf. you want to make sure you're paid for for the upside, but the one thing i'll say is when you're trading a leveraged etf, these are products not meant for long-term holding so if you have the opportunity to get out of these trades, do them quickly.
>> good advice our next viewer asks, the dollar index near highs it should crack at some point. i noticed there are etfs that have liquidity issues. that's the best play here with options? mike >> yeah, so i can understand if you're looking at udm. the open interest is not that huge probably 22, 23,000. uup though actually does have a lot of options activity. there's almost a quarter million open interest in there and for the most part, the bid ask spreads are reasonably tight here's an important point though when you're looking at the options market, sometimes you'll see that the spreads are narrow and sometimes they're going to be wider you can always use limit orders in that case and if you're looking to make a bearish bet, you can keep it simple because currencies don't move that much so you don't have to spend a great deal of premium. i was looking out to september those 28 strike puts those only cost a little over 70 cents a contract so this is one of those
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. welcome back time for more tweets our next viewers asks, tlt is near lows. what's the best options play in case it bounces? carter >> that's right. so in the event that yields start to come off tlt is your trade. the i shares 20 etf and so what i would do is buy the 116 calls for june and sell the 118s that's a max gain of two bucks and put those on for 90 cents so more than double your money. and remember, tlt was at 118 a day today.
it can jump there in a second. >> mike, your thoughts >> you know, obviously we have gdp data coming out weaker than expected we've got the pce data right after that that could cause a bounce. second week in june, you've got to cpi data. that could cause a bounce. we've got inflation at 8%. ten-year at 3% those don't reconcile. those bounces if we get them are going to be very short-term. >> our next viewer asks in your humble opinion, what is the best way to play this market? option spreads, leap options or butterflies? tony >> i think it really depends on your level in respect to options. if you're a beginner, buying long dated leaps are great ways to get long side exposure with some downside protection as you get more experience, you can start taking a look at spreads and this particular
environment, i would look at selling shorted dated options against some longer dated leaps that you purchased and take advantage of the elevated implied volatility that these short dated options currently see in the market. >> our next viewer asks further upside for netflix and amazon? good question. mike >> you know, i'm not surprised to see these two get a big bounce in here, but i'm not convinced about either one of these two. first of all, amazon, had one of the best retail environments we've seen in a long time and their results were terrible. as for netflix, we were seeing a net sub loss so my question would be you've got netflix, amazon, but why not disney and google/alphabet if i was going to play in the space, i'd rather have the latter two than the former two >> carter, what do you think >> to some extent, these are beta trades. singing out names that are some of the most bombed out
it could be ford, intuit, biotech. they're all going to go up together if it is the current bounce >> so in the same bucket tony, would you agree with that? >> a few weeks ago, i took an amazon short on earning and i had a price target of 20,,000 t the downside so i'm not a buyer of amazon, but netflix, we were a buyer of that yesterday in the 160s because this is a stock relatively that got hit very hard on subscriptions, not revenue and earnings so i'm a buyer of netflix, not of amazon. >> all right time now for the final call. carter >> ford and intuit for bounces >> tony. >> trying to catch a falling knife here with ark. buying a long dated call option on cathie wood >> mike. >> not every stock is cheap yet,
but some are intuit and ford. >> that does it for us we'll see you back here next friday at 5:30 eastern time. do not go anywhere "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'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 other people want to make friends. i'm just trying to make you some money. my job isn't just to entertain but to educate and teach you so call me at 1-800-743-cnbc. or tweet me @jimcramer. we're in the eye of the storm. only when we got down almost 20% from our highs did we reel liza the storm wasn't that violent. we're dealing with a