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tv   Options Action  CNBC  September 9, 2022 5:30pm-6:00pm EDT

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stomach right now on options action, the energy trait has been running at low-power this week, the sector underperforming the major averages. now is the time to get bullish. plus, time to send your strong dollars on an investing trip abroad. one of our traders says you should be doing just that. later, looking back at apple's big week, from the iphone reveal to a big trade. as always, it is friday and we are taking your tweets. i am melissa lee. on the desk tonight, carter worth, and bonawyn eison. let's get right to it. the energy sector has garnered
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a lot of attention since the beginning of the summer. so, carter, what are you looking at? >> to your point, sort of a dull week for energy shares, but of course, it is the only one that has had a really good year, up some 45%. let's look at a few charts and figure it out together. the first is, simply, a relative strength line or ratio. it is the performance of energy versus the s&p 500. what we know, of course, is energy, having underperformed badly in 2018 to 2020. that pattern, in and of itself, has all the hallmarks of a bearish to bullish reversal. whatever you want to call it. i think there is more to go. let's look at energy itself. the next is a five year chart of the xle. that is the etf that matches the actual sector from standard
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& poor's. we know, just at the beginning of this year, they were able to break out to new highs and fell back to trent. now, we are reproaching the highs. to my mind, that is set up well to break out. then, the here and now chart, third and final. this is xle again. it is very well defined, a minor uptrend, in effect, since the june july low. we have bounced off that trend line well, repeatedly. in my mind, we go higher. >> mike, what's the trade? >> i think one thing we should say is that the days of $50 per barrel crude are not on the horizon for us. when we look at xle, the etf, it is a tale of two stocks, in particular. exxon, which represents about 24% of it, and chevron, which is about 21%. when we look at exxon, from their most recent results, we see that they are operating %
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very well. they are accelerating their buybacks, at this point. i think that is a good sign. then, you take a look at chevron. this is a company that is trying to focus their time and attention pretty heavily on the basin, and why that is important on the natural gas side is because they don't have the same kinds of problems that utica has in terms of building pipelines and getting natural gas out of there. just being in texas, if they are going to ship out to plants on the texas coast. if you take a look at the overall sector, we are looking at 11 1/2 to 11.8%. very reasonably priced. we don't think there are near- term headwinds for energy. the trade i am looking at is when i often look to in situations where i think there could be some downside, potentially, that i don't want to have exposure to. the november call spread reversal, buying the $80 strike
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calls and financing that in part with the sale of the strike put. the idea here is to get about 10% upside participation between now and november, while avoiding a 10% downside. of course, this will behave a little bit like the shares of xle in the near term. as it approaches, it will look more like the chart you see on your screen, with limited exposure to the downside. >> bono, we know how you feel about xle, because it was your final trade on fast money. what do you think about mike's trade? >> clearly, it is a high conviction trade. but again, down 10%, i don't know how much into a declining market will reverse to that upside. we've talked a lot about capital discipline, free cash flow yield, all those underlying fundamentals also speak to mike's point. i like the set up. >> carter, what is the oil
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chart look like? >> of course, oil is where the bid has been. you've got the spike in oil to $130 a barrel. wall street is predicting it will go the opposite way. i like oil a lot. it is down. it is hated now, and i think it's a lot of upside potential. >> mike, did you think about putting on an oil trade? >> yeah, oih is different because it's not as directly exposed to oil. they are, essentially, their reserves. it is a more direct play, rather than taking a look at the mid stream and downstream companies, which have potential different impacts. the united states is the largest oil producer, but the second largest is russia. that situation is not going to get immediately resolved. oil prices have been depressed, and that eventually has to reverse. we have seen some decline in consumer demand, certainly, transportation, fuel demand is
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lower than it was a year ago. actually, to some extent, as prices decline, we might see some reversals in the meantime. all of those things suggest that the weakness we have seen recently has come to an end. >> u.s. markets snapping a three-week losing streak. as bono reminds us, the rest of the world is still gripped by recessionary pressures. what are you looking at? >> as you mentioned, there is a tug-of-war between whether people believe we are on the precipice of a new bull market, or a declining market. i'm not going to get into the workings of that, but what i will offer is, if you are in the camp of wanting to own the u.s. market, i would look at a way to balance that out in an area that i don't think is much debate about whether they are in a worse situation. from an inflation standpoint and a growth standpoint.
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i am looking at efa. what i'm doing is looking out to the year end. the 60-the 55 put spread. you can buy that for a dollar 20. you can buy this deck for $2.09. you will sell the 55 put at about $.88. you will spend about a dollar and $.21. what you are getting is protection. it has bounced off the $60 level once or twice. you will get exposure, downside exposure, to all of the geopolitical risks that are going on with russia and ukraine, and how the natural gas situation might play off. all of that is enveloped in this trade. for those bullish on the u.s. market, you have to take chips off the table somewhere, and i think this is a good way to hedge your port folio, if you don't want to do it in the
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domestic u.s. market. >> obviously, it is been an under performer relative to the s&p 500. it runs at about 80%. what we know is that it is developed markets, europe, asia, far east, and the issue is, is it better or worse using it as a hedge than the s&p 500? on that score, it is worse. >> it's worse. what would you say that before we get to mike? >> typically, the u.s. consumer market has outperformed over any timeframe that you have looked at, so i don't agree with carter. i think it is worse, and that is the way i -- you put on a trade that lets you profit if efa rolls over. >> any economic pressures you think the united states is facing now, europe is facing them far worse.
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that is just the reality. in developed asia, they have some problems too. if you are going to be short any developed market, it's not the u.s. market. as a hedge against a long u.s. trade, i like it a lot. still to come, a powerful rally over the last few months in the utilities. can you profit from this power play? stick around and find out. there is much more options action, right after this
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welcome back to options action. despite headlines of power shortages out west, utility stocks have had a decent summer run. professor thinks there is a longer-term trend there to plug into, mike. >> just taking a look at what's going on in the markets, generally, there is a lot to like about utilities. for one thing, if we are in a rising rate environment, that means you probably want to be in what we call short duration equities. utilities qualify in this area. they are a higher yield, by and large, nearly double the dividend yield for the s&p. that is an attractive element. we are entering a volatile time of year, and the market is exhibiting significant volatility as well. utilities tend to have lower volatility. that makes them an interesting place to invest, additionally.
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the important thing to think about too, are powered situation in the united states is transitioning to renewables. it is transitioning to electric vehicles. as we think about that, really, from an economic standpoint, in terms of capital investment, in terms of tax, utilities are the space that are most ideally positioned to take advantage of that. looking at x lu, which is the proxy for utilities i am taking a look at now, i am bullish, but of course, it is kind of difficult, i imagine, given the performance we have seen for people to chase it here. for that reason, i was looking at using a call spread. i was, specifically, looking out to november, and i was looking at the 75 to 80 call spread. this one is slightly in the money. you will have less of a standstill rate of decay, because that 75 strike is away from the current level of xlu.
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if you own xlu you get the dividend, and if you own call options, you do not. of course, if you own xlu, you could consider selling those 82 strike calls as well. >> carter, last night, you floored us with your stat on utilities over time. >> sure. that was fun. we can talk about that stat again. i have some charts. we can roll through them fairly quickly. i think they make sense, at least, to my eye. here is the first one. no charts, no drawings. if you see the second iteratio , basically, utilities are toying with the prospects of raking out. there, you see it. look at the next iteration. it is a head and shoulders bottom, or you can call it a cup and handle.
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we can keep rolling through the charts. it has all the elements of something that is poised to break out. what you are referring to, melissa, which is a fascinating thing, is that utilities are generally boring. they are low beta. they are conservative. after all, they have allowed rates of return, the government controls them. the incredible thing is, if you go back to 1997, 25 years, the s&p has doubled the performance of the utilities sector, but if you look at the total return s&p, and the total return sector, they are dead even. it is very humbling for all of us trying to pick winners and find actionable things, when utilities and dividends have done as well as the s&p. >> can you imagine? put it all in utilities. not to mention, all of the commission, the fees you are
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paying to trade. bonawyn eison, what are your thoughts on utilities and mike's trades, specifically? >> i will always add, risk of return is better as well. i think mike's trade makes a lot of sense. you look at the risk reward, and you say, typically, i can look at one to three types of payoff. he gave three disclaimers. one about the dividends with the call, which was excellently done. second, that you have that in the money call, so considering you are already two dollars in the money, it is low risk reward. low beta. a positive type of situation you want to be in, particularly, in this market environment. >> mike, last word. >> that is really getting right to it. over the past 25 years, this has not been a sector we have thought of as having much growth opportunity, but there is no question we are going to see a transformation in the way
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energy is delivered in this country. this is really the industry that will be at the forefront of it. regulated or not, it will be a beneficiary. >> up next, with this week's iphone event behind us, we are calling inur o apple trade from a few weeks ago. find out what to do with it next. more options action, in just a few. salute to veterans patriot day terry bradshaw: hi, i'm terry bradshaw rocky bleier: and i'm rocky bleier. col. greg gadson: and i'm col. greg gadson. terry bradshaw: on this patriot day, our heartfelt thanks, to all of our military veterans
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and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim® web. because platforms this innovative aren't just made for traders -they're made by them. thinkorswim® by td ameritrade welcome back to options action. in the middle of last month, carter and mike turned sour on apple, not expecting even this week's iphone event to deliver much of a pop. since then, the stock is down more than 5%. mike and carter, what do we do here? carter, how do the charts look at this point? >> well, it is kind of in no man's land, to be fair. if it does drop, as it has dropped to the extent it has, you really buy it just because it has dropped. that is no technique.
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at the same time, stay short. it has come down a long way. it is important, yet again, on a week over week basis, apple underperformed. it was up 1.2% of the week. that is pretty poor, compared to the s&p up 3.3%. my hunch is to leave apple alone. it is not at a juncture where making a big make a lot of sense. >> mike, what do you think? >> the trade we were taking a look at for apple was a put spread. it has run down to a level where it is trying to take money off the table with that put spread. i would say that the stock's performance this week, given the announcement they made, is pretty poor. you would hope that something like that would propel it to outperformance. it didn't. i wouldn't be a buyer here. despite the fact that it has been tough to bet against this company for a number of years. >> i mean, a lot of investors
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think that apple is the end all be all when it comes to defensive stocks. it has a lot of cash on the balance sheet. it has dividends. it is an executor, in terms of delivering. yet, here we are. it does seem like it is more of an apple specific problem, because of the relevance to big cap tech this week. >> no arguing against any of those points you have made. i will say, probably, from a slightly different lens here, if you are owning the index of the s&p, overall, you are already quite long a bit of apple. adding to that existing position, and going over the name doesn't make a lot of sense. i don't need to tell you that i think the market is headed lower. i have been that way for quite some time here. on a relative basis, yes, i like apple a lot more than i like other pockets of the market, but again, that is a relative value trade. if i were to buy it, i would be selling something else.
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just here, looking to own apple, i don't see a compelling reason to own it at this level or these valuations. >> mike. >> that's the other thing, in terms of valuations, this name -- and i think we previously mentioned companies like microsoft -- undeservedly, traded at big discounts to the market overall. it no longer does. you need to continue to see them execute, which the company does very well. they do sell expensive products. consumers have been stretched. we are seeing some rising delinquencies and places. it suggests to me that capacity for consumers to go out and buy the latest and greatest, in this case, the iphone 14, is not unlimited. it is possible we could see a disappointment. maybe that is one of the reasons why they priced it where they did. >> yeah, even if they are keeping prices the same. carter, so goes apple, so is big cap tech, so goes s&p 500? >> there is a bit of that. 7.2%, now down to 7%. apple,
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obviously, informs the market. there is a lot of autocorrelation. not so good for tech this week. if you, in fact, look at the equal weight s&p technology sector, versus the actual, it underperformed. tech is just not a place i think you want to be overweight. >> pockets of tech, bonawyn eison? are there pockets of tech that you like? >> sure. if you look at defense, certain names. here is the thing. the thing that will save you in tech right now, in terms of performance, is also the thing that can help you the most. take docusign, for example. that stock was down 50% year to date before it got revision, in terms of guidance or a reaffirmation of guidance, when people really thought this thing was going to roll over. i'm not a proponent of going
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out and playing the highest data pockets of the market. yes, on the flipside of that is, that is where you are seeing these one day to one week moves that can, actually, make your entire year. but, that is a game of roulette. we are here to make decisions based on fundamentals and technical analysis. right now, i don't think that is upported in the pocket of the market that presents the most opportunity. with reward comes risk, and i'm willing to take that piece of the risk. >> up next, we a ainreskg your questions on unexpected stock pops, and much more. be right back.
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prices and there are few higher prices than fertilizer prices right now. of course, this company is not very high-priced. if you think about it in terms of capital yield, right now, about 20% free cash flow yield is what you are looking at verses 2023, free cash of about 4.1 billion. i do like this despite the fact i think prices are probably going to have to come down a little bit. >> our next one asks, things to watch for on the s&p 500. >> so many levels and they are all key, i suppose. i would cite the following, there is an unfilled gap above. 4218 three point 8% rise from where we close today. there is an unfilled gap below. 3796. both are, quote, in play. those are levels, but the upside and downside i have been very aware of. >> final call time, kick us off.
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>> i think it is a pretty compelling hedging trade. >> carter? >> i want to buy excel you facilities and energy, xle. >> mike? >> i like both of those and i think you can use either call spread risk reversals or call spreads to make those bets. that does it for us, crypto night in america starts right now. hello, everybody. i am brian sullivan, kim is off again tonight. tonight, but coin topping achy level, we will tackle this back above 20,000 on chancery, plus let's make a deal. sky bridge capital, they are teaming up. anthony is with us tonight, then to the merge, the


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