tv Options Action CNBC October 23, 2022 6:00am-6:30am EDT
early interviews in the garage in reseda, where the 16-year-old boy discovers the thrill of being in the spotlight. and for the next 30 years, he was director and star of "the barry minkow show" -- a long-running series of dirty "the barry minkow show" -- a long-running series of dirty deeds. -- captions by vitac -- it is friday and it's time for options action i'm frank holland in for melissa lee. the markets log in their best week since june as investors temper their fed fears we'll give you plays for apple, google, and microsoft. and speaking of earnings netflix turned in a stellar performance this week, which means we should manage our trade from last week right now. we'll explain what to do next. with me tonight carter worth, the chart master, mike khouw before we get to tonight's trades let's get a quick
assessment of the week's overall market action. carter, what's your take >> in many ways it was more of sort of the same yields were up gold down though recovering a bit. and s&p putting on a good week, and yet here too we're basically the same level where we were in june not much happened. it's going to really get down to whether the earnings can deliver next week. >> dennis? >> yeah, nothing like a 2.5% broad market rally on a friday to make everybody feel like it's summertime even though it's not. an options show the vix is still priced to 30 the market was up today. the vix was pretty much unchanged down about 60. implies a 2% move per day. that's what we've been getting options are pretty fairly priced right here >> mike, you getting those summertime vibes, too?
>> no, i don't think i am really look, first of all, we had so much bearish sentiment coming into this week i think, you know, just anything that didn't have bad news in it was likely going to create some support for the market we saw a couple things come in this week including you mention netflix, obviously the results were quite good there. and that kind of thing is going to lend some support everybody's looking for maybe a bit of green shoots you could say, and of course everyone's also holding out some hope that the fed sort of takes its foot off the break a little bit i'm not sure they're really going to do that they're certainly not going to do it in my view by the next meeting. i think even weak markets and i think that's what we're in, will see solid weeks and that's what we got >> all right, hold onto your hat. next week is a big one for earnings what do you look at for apple,
google, and microsoft? >> let's get right to. the first one, apple, continues to be the one that acts the best despite all being down there's a table we can look at to put it into context year to date of apple versus microsoft versus google tells the tale call it 30% for the other two, down plus minus, where google is essentially -- i mean apple is down half that let's look at a chart that depicts that table so you'll see here a comparative chart and the laggards of course microsoft and google are almost frick and frac, you can't see any difference and there's apple, however, standing out if we look at the three companies, the three charts individually this really gets to it what do we know about where we are in relation to where we've been microsoft's june low is annotated there. that's the line. and we broke below that low and kick back and thrown back to it,
but that's where you usually fail look at google it's the exact same circumstance we bridge the june low we rally back to the level from which the stock broke down, by definition level of overhead supply and then finally by counter distinction look at apple. of course apple never got anywhere near its june low and what we know from here is if and as the others fail having rallied back to the break point were apple were to join them there's no way equities can go up, s&p, by virtue of the weight these stocks are for index >> mike, let's kick things off with microsoft >> this is a tough one, of course, because when i think of tech companies i like we're not actually long any tech companies. we're long principly energy, for example, is one of the areas that we are long but when i look at microsoft this is a company that does seem to be at least in terms of
execution, executing exceptionally well we're looking at year on year 10% revenue. they're in cloud they're in hybrid cloud perhaps more importantly with their teams product they're basically able to adapt to a changing work environment. i think the struggle for them is that we are in a contracting multiple environment and concerns about declining earnings environment so i think where this creates some pressure for microsoft is 25, 26 times earnings on a trailing basis where we are that's still a significant premium to the s&p right now trading around 17. one of the things that is not depressed though are options premia going into earnings options premia are about two standards deeds above their standard norms i think that creates some opportunity. with the stock trading around 238 i was looking at the december 2nd weekly 250, 145
call spread. more than 40% between the distance of the strikes, and that call at the time i was looking at it was almost 3% out of the money now, the stock did rally until the end of the day if you're looking to put on a trade like this you want to ensure you adjust your strikes accordingly. when you can put on an up side credit spread, collect the difference on the strikes going into a catalyst like this when options premia are above their averages are they are in this case, i think that's a good setup. >> you're trading two of the other biggest names in the space, apple and microsoft start us off with apple. >> the thing with apple what they're expanding it's moved away from the phone cycles and moved into different sort of services you can only see the pumpkin this year on apple tv so they have a lock on that. the trades i like looking at
apple going back to what carter said on a best behaving stock is how well it can behave, and looking at a trade where you go out to the marketplace and you buy the 145 call and you sell the 175 call against it but you do it two times against it, so it may seem odd you're selling two up side calls against this, however if you look at the break evens on this trade it's close to $200 on the stock and that gives apple a $3 trillion market cap. probably you'll get taken out of the trade but there's a big space there, you know, that green period immediate on the chart right now shows you where the trade is profitable. so be cautious of selling two up side calls, but they're so far-out of the money the demand for up side calls so-so strong in the marketplace right now it's really a structured trade and the structure of that trade where people are out reaching for calls on apple to participate that allows you to
sell the up side call on what arguably could be an overpriced option >> what do you think >> he sort of hit it on the head selling naked calls is a strategy i think can be dangerousane a lot of instances. we have seen stocks especially the meme stocks really rip if there's any stock where that's less likely to occur apple has to be in it. we're talking about the largest company in the world right now outside of saudi oil, are guess. but this is a situation where getting to the upper ranges really quickly that's what makes a setup like this intriguing this is a popular trade. if you owned apple, you owned it from higher levels you might consider putting this structure on instead of purchasing additional stock, and then of course you won't have that naked exposure to the up side if you're already long the stock as well and you layer this
on top of it >> can you give us your google trade this time? >> the trade i'm looking at google is kind of the opposite than what i said with apple. if it doesn't behave well, if things really do fall apart you can go out and you can sell one of the google $100 puts for about 4.5, and then you can go buy three of the $90 yeah, you'll lose money if google goes down from 100 to 90. you're going to get longer and longer volatility in google so it's like you're long the vix of google it's kind of like a tail risky-type trade you can see the rate of acceleration, the rate of profitability once you pass below that 90 strike it's pretty dramatic this is trade you can put on for $0 you're paying roughly $1.5 for
the other three. if you're wrong and we all want the market to go higher, if the market goes up higher you're really not losing money on this trade if you hold it up to expiration >> all right, mike, i see you eyeballing this trade a little bit. what do you think? >> you're making a bet there's three possible things that happen one is that the stock stays here, goes higher, no harm, no foul but if it breaks lower it's likely to break significantly lower, and i kind of like the trade setup for that this is a company that has a great deal of cash on their balance sheet, net on a net net basis over $100 billion. it's not a trade we discussed i think maybe on the show ever, and it's one of the creative things that people should contemplate if they're thinking about making bearish bets in a market like this >> all right, carter, i know you're always watching the
charts how do the charts look on this one? >> again, so the issue the ones broken below their june lows versus apple here's the thing about these stocks as it relates to the market we know that the nasdaq 100, right, has had a total positive return for 13 years in a row until this year. we're now down, of course. there's no other index that's managed that in history, and we're going to have a down here. and interestingly at the mid-year point when you look at polls still half of respondents would say, you know what, i think they would recover they're not recovering and the big question is what if they get meaningfully worse next week in response to earnings >> thatis the question coming up it's not just the fed impacting the power of the u.s. dollar, it's also japan's yen. we'll explain. and for everything options action, check out our website and newsletter there's much more after this break. stay with us >> calling all options action
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get started with fast speeds and advanced security together for $69.99 a month for 12 months. plus find out how to get up to a $650 prepaid card with a qualifying bundle. good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back. all right, welcome back to options action there's more powering macro moves than just the fed. you've been looking at the correlation between the japanese
yen and the u.s. dollar. >> the biggest event in the past five days is what went on with the japanese yen the fascinating thing about this you can see those parallel lines, the yen has been weakening. up is weak of course in the case of this chart. and you often get technical setups just before fundamentals come out that's why a stock setting up at breakout juncture, their earnings cause the breakout. so there was intervention on the part of the boj, and you can see the yen faltered it briefly went above and then faltered there were buyers stepping in for the yen. the question is the dollar we have done a couple dollar trades in the past and i want to look at that again the next chart is the u, p, which is an etf of investco that tracks the index we know up is up, up is strong,
dollar strength. we went up through the top of channel, very well-defined channel. those are mathematically parallel lines and now we've fallen back into it. there's another way to draw the line's final chart this is basically the uup again, but you see here the sequencing. after a strong advance you get a counter trend and reasserts itself to a new high we're in the process of a counter trend and i don't think it's over, so we're playing for lower dollar >> all right, carter is looking at the counter trend moves mike, you're looking at this move in the yen for a way to play this u.s. dollar. take us through your trade >> there are etfs that track the yen specifically but i think uup options are probably an easier and better way to play it. one of the reasons for that is it's going to be a bit tighter and that's obviously a positive.
the other thing of course going to affect the dollar relative to other currencies is what our central bank is doing relative to what other central banks are doing. right now we know there's about a 75 basis price hike priced in with near certainty for november of course there's a lot of conversations going on about whether or not they're talking about poderating potentially either the pace of these hikes or the size of these hikes i think a 75 basis hike in december this week was about a coin toss, 50-50 in any case if they slow the rate hikes or if they suspend them even briefly starting in december because i think november is already a lock, then potentially as other central banks at least hold steady or maybe even tighten themselves, that would cause some weakness in the dollar on a relative basis. now, in the same way that we see in many places options prices being slightly elevated, if you look at the prices outright for uup options you're going to
think they don't look that expensive. on a relative basis they are actually above average and and that's one of the reasons i'm looking to use a spread, and s' more specifically looking out to the december -- when uup was trading about 3015 today you could spend about 90 secents to buy that put spread. so the amount of decay your paying for this is close to zero, a nickel really the idea being that uup is like a currency not likely going to move a great deal it's just going to move a lot on a relative basis to itself and that is to say currencies don't move a lot so we're using a put spread not needing to in order
to profit. >> you guys at home can't see this dennis was like furiously taking notes on this one. so dennis, what's your take on mike's trade >> my take on mike's trade is it's a great trade and one of the things is i don't know if i was seriously taking notes on, but currency doesn't move much. that's one of the younger guys think. currencies have the ability to move a great deal. we've moved into a new era in currency trading you look at what happened in england with the gilts and with the pound a month ago. i think currency trading and volatility is going to return to currencies i think as certain countries move out of stimulus and into tightening, when others can, some can't, you're going to see drastic moves. i can tell you this in my years of doing this, the biggest unwinds and the biggest shocks to markets i've ever seen of any
currency trades. so it could be something like the new zealand currency or australian dollar. when they go sideways, they go sideways really quickly so having options trades on in these things is the absolute best way of doing it you limit your risk because like i said it's one of those jumps we're seeing and trading over. you can look at like the european vix is higher -- is lower than the u.s. vix and they have a war going on over there the whole global decentralization of it, options is a way to go i like mike's trade. i like to bet on it. if he was wrong in an error of his youth he's stopped out on the trade. >> i think he's calling you a young one. he's mentioned the years >> i'm not that young. i started in the business only a couple years behind dennis, actually i think we're both in our 50s.
maybe i'm in my early 50s and he's in his mid to late 50s. if i got that wrong, dennis, i apologize. we did see the swiss devalue the franc. you have essentially policy makers that can make these unil unilateral determinations that have a sharp impact. many central banks are moving in parallel and some of that increased volatility dennis is talking about in currency pairs is priced into options but i think he's right some of the biggest fortunes that have ever been made in the options markets and future markets are in currencies, and that may yet happen again. up next a twitter question a look back combination. what to do with last week's netflix trade. right now more options action. we're right back in two minutes. stay with us
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the stock popped after earnings and is now up around 25% this week so we're going to go to one of the young guys here. mike, how do you manage this one? >> we target a move up to 280, close today at 289 i think we take the money and run. >> on this friday show september 23rd you laid out an inexpensive tail risk trade that looked way out through the beginning of next year. what's your position now >> my position is leave it on. if you look at the pnl of this trade it pays a lot of money if the market craps out trading roughly around the same price. that big green blob on the left-hand side will hopefully provide some sleep at night. >> the rubutal >> there is no rebuttal. >> carter, anything else
all right, hold on, wait a minute i know you guys thought we were finished but we have time for one more look back already in the green after earnings mike, what do we do with that one? >> still long halaberten and devon energy so i think you stick with this trade. >> carter, you're up first >> there's always rallies. the market by all accounts is not in good shape. >> dennis? >> i'm going to go with the young gun mike khouw i like his exposure to microsoft via his spread >> i'm going to put on a put spread uup short dollar.
>> that does it for us on options action we'll be back next friday 5:30 p.m. eastern do not go anywhere mad money with jim cramer starts right now. - [presenter] the following is a presentation sponsored by trusted luminess. - i have a lot of problem spots, redness, fine lines, dark spots. and now with the breeze, all that's changed. the breeze advanced foundation is amazing. it gives you skincare and makeup all in one. it's like a thin veil, but it has extraordinary coverage. at my age, all the other makeups made me look older. it was uneven, you'd have to layer them yourself. it never quite came out the way i wanted it to. the great thing about the breeze is it does your blending for you. i love the way the luminess smooths out my rough skin texture.