tv Options Action CNBC November 4, 2022 5:30pm-6:00pm EDT
it is friday, and that means it is time for "options action." i'm melissa lee live in times square with the fed decision and jobs data behind us, investors spent friday confused. volatile trading higher on the day. similarly they're conflicting signals down to the sector level to explain how industrials and gold are related and the economy ultimately comes down to the consumer, so we're taking a look at a way to go big box. with us carter worth and mike
khouw. before trades let's talk about market stocks rallying all three indices climbing h higher, 1.3% s&p and nasdaq ended a two-week winning streak carter, what did you make of this action? >> that's the thing, just as you described those items, it was something for everyone bulls can sake solace in various characterists on the week, and bears of course the same i think what's important is we are starting to get some dispersion which allows for opportunity for those who are doing either individual stock picking or etf choices >> yeah. brian, what did you think? >> i think i look at the s&p 500, and options traded there, and we've really seen put sellers, meaning people are willing to just sort of take their insurance bets off, 3,500
on the s&p i haven't seen that kind of amount of put selling since 2008, 2009 so that tells me when i typically see something like that, the market's going to move big. either there's big bull bets being made and they're going to squeeze the shorts out of the market, and the market's going to be up look, up 10%, or not many people have protection on the downside, and we get some catalyst event that's bad wekt s we could see the vix we haven't seen that capitulation it's setting up now that people are taking share insurance off it could happen. i think a big move is coming in the next couple months. >> in term of capitulation we've seed for many shows that we need to see the generals come down. we're seeing apple come down the last five days wonder field goal that's a sign of weakness ahead. >> there are a couple things all of that put selling had an
interesting dynamic on options prices it depressed the prices for downside put, certainly relative to call, and that indicated there was a significant bid for calls. it wasn't thing a ra gat of implied volatility, the options across the board and strikes declining as a result of put selling. it was the puts that went down relative to calls, which suggested that there's a lot of sort of resonant fear that people are going to miss the rally, that any minute the fed's going to come out and say, no, all is well. we're going to go back to zero interest rates, and the first thing you've got to do is race out and start buying risk assets so it propels people to buy that upside also interesting brian spoke about the 2008-2009 period you should remember what happened we went into a bear market experienced the lows, the early lows in the last quarter of 2008 but the s&p actually hit its total lows in march of 2009, six months later
so i think people need to prepare themselves that, you know, it's not going to be as simple for us to get out of this, essentially, that we're not just going to get an all-clear all of a sudden. i don't think that's going to happen. >> let's get to industrials now. the xli has had a rough year along with the broader markets and the chart master says they're not pointing to a turnaround any time soon carter >> the issue here, industrials -- all sectors are having a bad year, but industrials have really come to life very short-term in fact, since september 30, the industrial sector's up 15% s&p up 5 and we're thinking the spread is just too wide. let's look at a couple comparative charts and go from there. what do we know. this is a 60-day comparative chart. what you can see is divergence in the orange and blue line.
what if we pull this cyberattack do a 90-day comparative chart? what you've got here is the same sequence but a little bit further back xli on a 90-day comparative pace is is up 9%. s&p down almost 2.5. another way to look at this is instead of two license, one line this is the ratio chart, relative to spy. now, look at the next it ration. where is it? it's a rally to a very difficult level. this is what the rotation is, money coming out of apple, coming out of whatever it is, and doing into so-called old-fashioned names. but this opportunity's already been exploited final chart, xli itself. we're not quite back to that downtrend line
we're awfully close. if you have gains in this, we would sell calls or trim, and on any further strength we'd sell it all. >> mike, what's your trade on industrials? >> pretty interesting to think that industrials have been outperforming so significantly when you take a look at the rate market, that's not what you're seeing, that you should be going into anything cyclical the opposite there's a consensus we're heading into an economic slowdown, perhaps a recession. why industrials? they are off 11% from all-time highs. it's pretty remarkable but as we were just talking about, implied volatilities, particularly for calls remain elevated i think you do want to sell upside calls way don't recommend selling upside calls naked so i'm looking to a call spread you want to keep it short. what i mean by short is short dated. options decay more rapidly as
you can praising approaches. that's true for selling outright options whether it's -- that's going to be true for call spreads. also, look for area of resistance, and carter's done that for us and identified that we're coming up to a critical level here the final thing i would say is when i'm selling call spreads i try to look for situation where is i can collect at least 30% of the distance between spreads in premium. i was looking out to the december 2nd weekly options. i was looking at the $95.98 call spread i could collect $1.10 premium. and that sets up pretty favorably, and also here you can see we're looking out about 30 days from today, just a little bit less, so try to keep it inside of a month. the idea being if we do see weakness, we'll have opportunities to take profits. >> ryan, what's your take on the
trade? >> i'm with both carter and mike on this, that industrials to me seem a little bit overbought when we looked at a lot of industrial names the only true industrial name we hold is cater pillar otherwise we rotated to defense type names those are the kind of names i would want to own in industrials. playing a short bet or bearish bet seems to make sense on the general bucket of xli, and i would be alongside with it, taking some call premium with call elevated premiums right now seems like the right place i like this trait from both a directional and operational standpoint. >> let's pivot to a single stock. ryan is taking a look at one staples name that could be a bunk bet brian, what are you looking at >> costco is one of those bulk names. consumer staples is an area we've continued to rotate and
overweigh enter as we enter the bear market. one thing i'm looking at in costco would be selling a put. taking in premium. short dated, because i think premiums are somewhat elevated, but we're getting so much movement in the market, it's a dangerous time like i talked about. we could see pretty big moves in the market costco is one name i'm looking at november, when i look midday, that was trading for 9 bucks to break even to 66 downside. i have to be willing to own costco, but this is a way to allocate to consumer staples, take in premium. when you look at that, that's almost 2% premium return on your money in two weeks that's pretty big. i'm keeping it short dated carter can speak to the technicals they don't look great for the stock. i'm staying short dated. hopefully it stays in a couple weeks, i take the premium in and costco's number up 8% last
month, 10% the month before. they're passing to buck to consumers. i like that. can feel fundamentally good about it option somewhere if there's one place to do it, it would be consumer staple type names. >> what do you think of the chart, carter? >> brian referenced there, it's heavy. doesn't act well i think we have some charts here we might be able to look at them what we know is this is the god in the consumer staple place of all of the operators, whether it's coke, walmart, procter, this is one that's had the greatest earnings growth rate, sales, everything, and yet it's always expensive but look at that chart that has all the elements of a top. another it ration would be to put in converging trend lines. same chart i think the risk here is that this is just generally rerated lower from its very sort of rich valuation. >> is this one in the holly
index, mike? i can't remember. >> it is yes, this is a holly index name. this is a staple stock people are sensitive i think to rising prices, that includes grocery prices costco is a way to mitigate that i am with carter, though at 35 times this thing is pricey what's interesting here is the expiration that brian has chosen by looking out only to november expiration, he's avoiding a critical cat lalyst that's comi up first week of december, and that's earnings. i think if we get the break lower that carter is looking for, that is probably going to be the catalyst that does it either that for a real washout for equities but at the very least he is collect a reasonable amount of premium. more than 2% of the strike at this point for something so short dated is an attractive level. >> brian, last word to you on this one >> you got to stay short dated
any time i'm selling a put, i'm looking to take premium over the next couple of weeks don't fall in love just because i'm saying i like costco doesn't mean i need to own it through january. keep it short dated, sell the put, keep the premium. keep it simple. still to come, should consolidation have you banking on bullion for everything "options action" check out our website and newsletter much more "options action" after this thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading.
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where smart investors get smarter℠. merger madness takes center stage. the amount of gold soaring nearly 20% today after receiving a $5 billion joint offer deems in new offer superior. professor khouw, ask a great question, why aren't you, too? mike, tell us how to do that. >> it's an interesting situation. it is not as if capital has become cheaper over the course of time since we saw gold fields making that bid several months ago, and yet here we are with two other competitors indicatin they want to get in on the
action nobody knows the industry better than its own participants. let's look at the fundamental drives obviously we have been seeing rising rates with rising rates we've gotten a rising dollar. that's usually not so good on commodity prices also with recession looming that's not good. still 11% or so industrial use for gold, and of course we've seen just several years now of inflation rising costs, miners have rising input costs, and these are not really a great recipe however, i think we should be taking a look at some of the good things, too first of all, as i was just talking about, those that know the industry best seem to be interest in the acquiring assets, and i think that is interesting. also, i think this cost-price spread, that is what it costs to miners to cost and produce gold versus what they're selling it for, that cost is unlikely to narrow much further. some of their costs are starting to level off and may decline,
including energy and labor, and of course if rates do level off, as we're hearing in the previous half hour be the dollar is topped out here, there is a potential for gold to go up, so if costs are going down and the price of good or product you sell is going up, that's a good situation. finally, the miners are in good financial situation. although not as cheap as the market this sector is trading around 21 times. that's not ludicrous when you think of them in a cycle i was taking a look at the fact that options are elevated in premium. thinking maybe the rate picture, the dollar picture is going to take until the end of the year to play out. i was looking at a cal spread reversal this is a trade i like to use when i think the levels of options places are high. and i also have identified an area where i wouldn't mind getting long and also we might be in the bottoming formation, may have just missed a little bit of the opportunity, and we did see that with that 10% rise
i was looking at the $21.25 call spread risk reversal, selling the 21 strike put and selling an upside around 29 or so the objective is to spend as close to zero premium if you can get it, get near upside participation, if we do get a rally, not have gdx, in the neighborhood of more than 10%. if it gave back all of today's gains you would get to own it at the price it was trading before that happened. >> carter, you like gdx, don't you? >> i do. let's look at some stats, charts, things that might reveal further insight. first thing we have on the screen -- and the color scheme is important gdx was up in september. every single aggregate known was down every index from transport to
semiconductors gdx up in september, october, now in november. you cannot find a aggregate, not one, that is now having three months -- november's early in the going, up. it was showing signs before the news comes out let's look at two gdx charts this is a simple downtrend and simple arrow drawn second and final chart, another way to draw the lines, a reversal of sorts. buyers. >> brian, what's your take on the trade and gdx? >> if there's a true versele coming, the only thing i would say is maybe leg into this options spread in other words, options 101 lesson, you don't have to put a spread on where you sell the put, buy the call, and sell a further upside call. i might buy the call, wait for further movement, because the market is having a ton of movement lots of movement in the metals area and anti fiat current si.
sell the downside put to see if there's a pullback or wait to sell the further upside call, wait for to it happen and then sell the call. be patient with the trade, put the first buy call on and see what happens from that point up next we're taking a look ckone of motorcycle's tech trades "options action" back in two
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. welcome back to "options action." time to take a look back at one of our past trades a few weeks back, mike and carter laid out a way to play microsoft. >> we've gone below that low, kicked back to it, and that's where you fail. >> i was looking at the december call spread. you could sell that for about $2.05, more than 30% of the distance between the strikes >> since then, the stock dropped more than 6%, putting this trade firmly in the green.
so, mike, what do you do now >> the risk/reward relationship changed remarkably you want to take profits on this i think if we get an uptick in the stock at this point you can be comfortable putting on another trade like that if you get a chance. >> carter, what do you think of the chart here >> you know, it -- talk about a wipeout. the real message is this is the risk for things like apple that haven't done this. microsoft, just wouldn't do it. >> okay. it's time to take am tweets here first fan asks with the recent tread in xom, what do you think about entering a november 25110/105 put credit spread? >> our producers gave us a heads up about this tweet. i look up the prices you're risking $3.50 to make $1 $1.50, so i don't love the risk reward having said that, i like exxon
mobil. microsoft, exxon mobil, those two switch off every decade going back to the '90s on who's in favor right now, i think the 2020s, it's exxon mobil so i like a bullish trade, maybe not that particular spread look for something a little different. >> mike, you like exxon as well? >> not really, not for a decade certainly. this is not a multidecade trade as far as i'm concerned. this is sort of steep and uncorrected. that's carter's language, not mine, but we were pairing some of our energy exposure today. >> steep and uncorrected is that a good thing couldn't that be a good thing? aren't there god-like charts in the market that are steep and uncorrected? >> that's right, it's a good thing, but there's too many of a good thing like 25 cookies or 25 drinks let's look at two charts we're right back to a former high, and even if you're bullish, before exceeding a former high, typically you'll contend with it.
what we know also, and you can see how well defined these lines are, i think we back away here a bit -- either back away a lot or a bit. but the third and only other choice, straight up and out, i don't think that's a reality i would also point out that if you look on a trailing six-month basis, you can look at the actual s&p 500 sector and then the equal weight sector, which is eliminating the big effect o exxon and -- the actual sector doubled the performance of the -- which is to say, yes, exxon and chevron have done well. >> 25 cookies or 25 drinks that puts it into perspective. up next, the final call.
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>> brian >> costco, but stay near dated. >> happy birthday. buy gdx. >> thank you that does it for us on "options action." see you next friday at 50.:3 meantime, don' my mission is simple, to make you money i'm here to level the playing field for all investors. there is 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 money. my job is not just to entertain but educate and teach you so-call me at 800-743-cnbc or tweet me @jimcramer. today we got still one mor