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tv   Options Action  CNBC  November 6, 2022 6:00am-6:30am EST

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-- captions by vitac -- it is friday, and that means it is time for options action. i'm melissa lee live at the nasdaq market site in times square with the fed decision and now jobs data behind us investors spent friday confused. the volatile trade session snapping various weekly winning streaks. similarly there are conflicting signals right now down to the sector level we'll game down two of them to explain how industrials and geld are related. and the economy ultimately comes down to the consumer with us tonight as always carter worth and mike khouw
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let's talk about today's market action stocks rallying to closeout this week the jump higher didn't save stocks from posting weekly losses across the board. the dow snapping a four-week winning streak while the s&p and nasdaq a two week winning streak >> it was something for everyone, right? bulls can take solace in various characters on the week and bears of course the same i think what's important we are starting to get some dispersion, which allows for opportunity for those who are doing either individual stock picking or etf choices. >> brian, what'd you think >> i think what i'm looking at i look at the s&p 500 and the oscillators trading there and we've really seen put sellers meaning people are willing to take their insurance bets off, sell a put on the down side. let's call it 3500 on the s&p,
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now i haven't seen that amount of put selling since 2008, 2009. so what that tells me when i typically see something like that, the market's going to move big. either there's really big options being made and all of a sudden the market is going to be up and they'll say oh, look it's up 10% or not many people have effect to the down side we haven't seen the capitulation and it's setting up now people are taking their insurance off, that could happen. i think a big move is coming over the next couple of months in this market >> in terms of capitulation we've said for many shows we need to see the generals come down we've seen apple down 8% for the past days. >> all of that put selling had
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an interesting dynamic on options prices it depressed the prices for down side puts certainly relative to calls and actually indicated there was a certain bid for calls. the price of options across the board the and across strikes that was declining as a result of put selling, it was just the puts that went down relative to calls, which suggested there's a lot of resident fear people are going to miss the rally, any minute the fed is going to come out and say all is well, we're going to go back to interest rates and the first thing you've got to do is race out and start buying risk assets again it's also interesting brian spoke about the 2008, 2000 # period because you should remember what happened there we went into a bear market we really experienced the lows, the early lows in the last quarter of 2008. but the s&p actually hit its total lows in march 2009, six
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months later i think people need to prepare themselves it's not going as to be as simple for us to get out of this essentially, we're not 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 tough year in the broader markets. carter >> the issue here industrials -- i mean all sectors are having a bad year but industrials are really come to life very short term in fact, since september 3rd the industrial sector is up 15%, s&p up 5%. and we think the spread is too wide let's look at couple of comparative chart. this is a 60-day comparative chart. industrials are this point on a 60 day trailing down 4.6%, s&p
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down 11.6% what if we pull this back and 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 basis is up almost 8%, s&p down 2.5% another way to look at this is actually instead of two lines, one line this is simply a ratio chart and we're now high above the 150-moving day average and at any point in a decade where is it? a rally to a difficult level coming out of apple, whatever it is and going into so-called old-fashioned names. but this opportunity has already been exploited final chart xli itself while we're not quite back to
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that down trend line we're waffly close if you have gains in this you'd either sell calls or trim and on any further strength you'd sell it all >> mike, what's your trade here on industrials >> pretty interesting to think industrials have been outperforming so significantly when you take at the rate market that's not what we're seeing you should be going into anything cyclical in fact, quite the opposite. i think there's a consensus now that we're probably heading into an economic slow down, very possibly a recession, so why would we be buying industrials these things are only off 11% from their all-time highs. as we were talking about implied volatilities particularly for calls remain elevated. so i think you do want to sell up side calls. i'm going to be looking to a call spread. couple things when you're thinking about selling premiums in general, you want to keep it short. and what i mean by short is
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shoert dated because options decay more rapidly that's going to be true for call spreads. also try to look for areas of resistance and carter's down that for us and identified when i'm selling call spreads i try to look for situations where i could collect at least 30% of the distance in the strikes in premium. so in this case i was looking out to the december 2nd weekly options. i could collect $1.10 in premium, about 37% or so and that sets up pretty favorably. if we do see opportunities
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>> i'm with carter on this industrials to me seem a little overbought the only industrial name we had was caterpillar. otherwise we rotated more into defense company type names those kind of names is what i would want to own in industrials, so playing a short bet or a bearish bet seems to make sense on the general bucket of xli and i would be alongside with it taking some call premium in with call elevated premiums right now seems like the right play so i really like this trade from the directional and optional standpoint of the call spread that might be selling >> let's pivot now to a single stock. brian, what are you looking at >> yeah, costco is one of those bulk names and consumer staples is an area we've continued to rotate overweight as we enter this bear
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market over the last half year so one thing i'm looking at it in costco is selling a put i think premiums are somewhat elevated but we're getting so much movement in the market it's a dangerous time right now like i talked about we could see pretty big moves in the market costco is one name i'm looking at break even for 66 or so on the down side. below there i have to be willing to own costco, allocates consumer staples and take in some premium that's almost 2% premium return on your money in just two weeks, so that's pretty big, and i'm keeping it short dated because carter can probably speak to the technicals they don't look so great for the stock right now. hopefully this stock stays in there the next couple of weeks i'm taking some allocation for consumer staples, and costco up
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8% last month, up 10% the month before so they're passing the buck onto consumers. i can feel fundamental about it. if there's one place to do it it would be consumer staple >> what do you think of the chart, carter? >> brian referenced it's heavy i think we have some charts and we might be able to look at them what we know is this is the god in the consumer staple space of all the operators whether it's coke, proctor. this is the one that's had the greatest earnings growth rate, sales, everything but yet always expensive. another iteration would be put in converging trend lines, same chart. so i think the risk here is just generally rerated lower from its very rich valuation. >> is this one in the holly
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index, mike? i can't remember >> it is this is a holly index name and like brian i agree this is a stipple stock. people are really sensitive to rising prices. that includes grocery prices costco has a way to mitigate that i am with carter, though, at 25 times this thing is pricey what's interesting here is the expiration bray an has chosen. he's avoiding a critical catalyst coming up in the first week of december or just after it i think it might be december 8th and that's earnings. i think if we get the break lower that is probably going to be the catalyst that does it at the very least he is collecting more premium, more than 2% of the strike for something so short dated as an attractive level >> brian, last word to you on
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this one >> anytime i'm selling a put i'm looking to take some premium over the next couple of weeks and then i get out of the trade and move onto something else just because i say i like costco doesn't mean i should earn it short dated. >> should consolidation in the industry have you banking on bullying check out our website and newsletter there's a lot more options action right after this. >> calling all options action fans reach into your pocket, grab your phone and tweet us your question on options action if it's nice we'll answer it on-air when options action returns.
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tripping over each other why aren't you, too. >> yet here we are with two other competitors indicating they want to get in on the action nobody knows the industry better than its own participants. let's take a look at the fundamental drivers. first of all we've been seeing rising rates with rising rates we've gotten a rising dollar. that is usually not so good on a relative basis for commodity prices the precious metals not as much but still 11% or so industrial use for gold and of course we've seen just several years now of inflation, rising costs these are not really a great recipe however, i think we should take 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 interested in quiring assets and i think that is interesting.
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also i think this cost spread, that spread is unlikely to narrow much further from here. first of all, some of their costs are starting to level off and possibly may decline including energy and labor and of course if rates do level off as we were hearing in the previous half hour, and the dollar sort of topped out here there is a potential of course for gold to go up. so if costs are goingdown and the price of the good you sell or product you sell is going up, that's a good situation. and finally the minors are in relatively good condition, although not as cheap as the market necessarily this sector is probably trading around 21 times. that's not ludicrous when you sort of think of them in a cycle. i was thinking of the fact options were elevated in premium, also the rate picture, the dollar picture is going to take at least until the owned of the year to play a little more this is a trade i like to use
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when i think the levels of options prices are relatively high and identified an area and also we might be in that bottom formation and we may have just missed a bit of the opportunity and we did see that with the 10% rise i was looking at the 21, 25 call spread risk reversal, selling the 21 sfrtrike put and sellingn up strike call around 29 or so the objective here is to spend as close to zero premium if you can get it near up side premium if we can get a rally. in this case it would be in the neighborhood of more than 10%. essentially if it gave back all of today's gains you would be able to own it essentially at the price it was trading before all that happened. >> carter, you like gdx, don't you? >> i do.
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the first thing we have the on the screen and the color scheme is important gdx was up in september. every single aggregate was down, every s&p sector, from russell to transports to semiconductors gdx was up in september, up in october and now up in november you cannot find an agruget up -- it was showing signs before the news comes out let's look at two gdx charts this a very simple down trend and another arrow drawn. another way to draw the lines, a reversal of sorts. >> brian, what's your take on the trade? >> if there's a true reversal coming lag into this options spread you don't have to put a spread
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on where you sell a put what i might do is buy the call now, wait for some movement because the market is having tons of movement, so lots of movement in the metals area. we get that movement i would wait to maybe sell the down side put to see if there's a pull back or wait to sell that further up side call, wait for that break out to happen and then sell the call so be patient with the trade and put the first by call on up next we're taking a look at one of mike's tech trades options action back in two 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. 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
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welcome back to options action time to take a look back at one of our past trades a couple weeks back carter laid out a way to play microsoft. >> we broke out from that low and kicked back to it but that's where you usually sell >> i was looking at the december call spread and you could sell that call spread for more than $2.05. >> since then the stock has dropped more than 6% putting this trade firmly in the green
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what do you do now. >> the risk reward on this one has changed remarkably i think if we get any up tick on the stock at this point i think you can be comfortable putting on another trade if you get a chance >> carter, what do you think of the chart here >> talk about a wipeout. the real message is this is the risk for things like apple that haven't done this. i microsoft i wouldn't do it >> it's time to take some tweets here our first fan asks what do you think about entering a november 25, 110/105 put credit spread. what do you tell this person >> i looked at the prices on it and i don't love the risk reward on that particular spread. having said that i do like exxonmobil we own that for clients. look at microsoft, exxonmobil,
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those two actually switch-off every decade going back to the '90s who's in favor. right now in the 2020s it's exxonmobil >> 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. and 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, carter aren't there god-like charts in the market steep and uncorrected. >> there's such a thing as too much of a good thing as you know you want to sometimes stop so let's look at two charts of the xle. the issue here 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
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see here how well-defined these lines are. i think we back away a bit and 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 this if you look on a trailing six-month basis you can look at the actual s&p 500 and their sector and then the equal weight sector which is then eliminating a big effect of exxon and chevron and kanako the actual sector has doubled the performance, which is to say yes there are things like exxon and chevron that have done so well but they seem a little stretched. >> 25 cookies or 25 trades that really puts it in perspective. up next the final call
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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. time for the final call. carter >> gdx and gld, sell xpy
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