tv Options Action CNBC November 11, 2022 5:30pm-6:00pm EST
it is friday happy friday it also means it's time for "options action. i'm sara eisen in for melissa lee live from times square after yesterday's huge rally markets were a little more mellow this time around. so is today a little bit of a pause or followthrough that refreshes or just the big bounce just a blip maybe? we'll help prepare you with options. and then one sector that is sure to pull back after similar upside spree, asset managers we're going to look at how to play that. and it's still earnings season we are working around one name
that's done and another still to come, disney and home depot. carter worth and mike with brian in let's talk about the week's market action because it was a wow. the s&p 500 capped off its best week since june by adding 1% today. the nasdaq nearly doubled that with close to a 2% gain and an 8% gain for the week the best week since march >> typically things that were the worst. we know the most shorted stocks up the most like the ark fund or such areas as you've mentioned like technology. but the question is, is it the beginning of something more enduring or a ricochet my hunt is you fade the move >> fade the move why? you thought it was unhealthy >> there are two types of moves, action that's developmental and action that's exploitative
hundreds of stocks up 30%, 40% off of their october lows. those kinds of moves are not sustainable. impes use-- impetuous comes to mind >> chase it or fade it, brian? >> you have to be concerned about how much volatility is still in the marketplace we can now get a bull market all of a sudden i think this was one of the top ten biggest gains. three mark the end of a bear mark but seven were in the middle of a bear market. certainly we had a lot of euphoria with the ten-year dropping below 4% that was bullish for people to rotate into growth stocks as we trade large cap value names we saw a lot of rotation where names were down 3% to 5% at one point today that are very low, volatile kind of stock names, health care sector, energy sector plays moving higher, technology moving higher certainly the rotation to play
the upside i wouldn't short right into it right away valuations can get lifted. >> there was a huge short squeeze. where -- what did the options market tell you? >> we talk about it last week. we saw people selling. they squeezed the market out i expected a move of 5% given the way options were trading short got squeezed as the call buyers squeezed and pushed people right ou. >> mike? >> the big news was the inflation data was better than the survey numbers and the move in the ten-year rate lower is probably overdone if people are doing that on an unflags basis real rates are still negative in
some instances i think consumers whose wages have not gone up at the same rate are going to be squeezed a bit and ultimately we're going to see some pressure on discretionary spending as a result and ours is an economy that has long depended on consumers to bail it out in the past i don't think they will be as able to do that. rising credit balances and i don't like to be bearish on the market i was saying this on a call earlier today. we all do better when the market rallies. we want to seep the economy do well i have a feeling we're probably going to start running into resistance up around 4100 in the s&p. that seems like it's the upper end to me. >> everybody is eyeing the 4100 level. one area of the market that has seen quite a run higher during the last month, maybe too high carter what have you found? >> that's right.
talking about impetuous and impu impulsive, just consider this table. let's marvel at this this is change from the october low. and that's basically four weeks ago. blackrock, not a small thing, 50%. invesco, you see the numbers the spy up 14. you could say what's wrong with that pushing it too far, if you do too much exertion in the gym you either rest or have a coronary the next chart or two. this is the instance, a chart of the russell 3000 asset managers like state street, northern trust and so forth a beautiful down trend line. you can see it here. it's all technical we've overshot sequencing calls for a check back before going higher
now that's the aggregate take a look at this. this is the same with the moving average. and so sequencing would typically be a check back and then basing and going again. let's look at black rock this stock is 750. it drops to 500. then back to 750 that's a 40% at the kleine p/e high or low? what we know is overbought condition exists and that's what this is. i'm a seller of blk. >> i feel you are super sassy tonight, carter. i like it. mike, what's the trade on bl blackrock? >> they earn revenue as a function of the market level as the market has declined so have their revenues. if you look at next year's estimated earnings, it looks cheap on a trailing basis and
probably at 15 or 16 times but it's trading nearly 24 times next year's estimated earnings asset prices have declined carter has identified an area of resistance and i'm looking at selling a call spread. identify an area of resistance because selling a call spread is something a bet is not going to happen and he's betting it's not going to go higher you want to keep your eye out for things like catalysts because that's when the fundamentals catch up with the technicals and we begin to understand why price action is behaving the way it is they've already reported earnings the other thing is generally speaking when you are selling options, you are looking to collect to keep it short dated i was looking out to december, the call spread and when i looked at that earlier today
with the stock around 800, we like to try to sell call spreads when we can collect as much as 40% of the distance between the strikes and premium and here we are getting better than that >> brian, is that a good trade >> it makes sense given the run. according to carter's chart, markets can go up and down at the same time almost, if you look at that blackrock trade and the chart there. taking profits after a big run makes a lot of sense i think the reason we've seen this rotation into the asset manager, and maybe i'm biased, but i think when you saw the yield curve go inverted we saw this big rotation out of those big banks. stocks that we own for clients asset managers, insurance companies do better in this higher interest rate environment, flatter yield curve environment. i think that's why you've seen this rally that's why i like it being a call spread not an outright call
in this case >> let's turn to disney. the entertainment giant planning to freeze hiring and cut jobs according to an internal memo object stained by alex sherman the shares coming back from a rough few months a few key factors that might keep the name frozen brian, let it go maybe, let it go >> when you look at disney it bounced off the low just recently and the news we had on jobs cuts. we saw jobs cuts coming from the netflix and other streamers of the world, get better profit margin, maybe get some growth out of that way. this might be a bear trap. disney still has all the competition of the other streamers plus potentially the parks are great. when you look at it when the cpi
number came out, people didn't talk about average hourly earnings went down so less earnings for people and higher inflation, to me, does not spell good for consumer discretionary. that's why we've rotated out of some of the names into names more consumer staples like costco disney, i want to play it long side or protect myself and i can do that with a spread looking out to a december option, the $90 spread selling the $85 strike for a little over $1 i'm only paying $1 this can pay out $4. 4 to 1 risk/reward ratio seems really good. options are relatively cheap and this is a good way, a cheap way to play to the down side. >> on the other hand, carter, the market has rewarded stocks and companies for cost cuts and
hiring freezes, as perverse as that is. >> sometimes that sets a lull. >> to drop in gap on your earnings, when you start to recover that move, you go back to a level where people who took the loss would love to be made whole. the further it rallies, the closer you get to 100. sellers from below, whoever nailed it two days ago at 86, you show them 100. i just bought this at 86 memory from above and below is immediately ahead. >> mike, what's the strategy >> this is a company i like what they do and i was hoping they had figured a way out of the
pan pandemic there are still a lot of problems here. if you bought eight years ago you've essentially gone nowhere in the meantime and we got out of our position today. >> despite strong results at the theme park, i guess the market doesn't like the streaming losses grab your hammer we are hitting the retail earnings with a look at one name that could come out of the woodwork with game and for everything "options action" check out our newsletter calling all "options action" fans, reach into your pocket, grab your phone and tweet us grab your phone and tweet us your question. thinkorswim® by td ameritrade
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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." a big week of retail earnings on deck and one name catching our traders' eye, home depot, the home improvement chain seeing a big move higher this week up nearly 12% if you think the stock is building up for even more gains, mike has a way to play it. mike, what are you doing >> home depot will be announcing earnings along with lowe's we do own lowe's i'm looking at home depot which is typically the better operator they have higher retail sales per square foot than lowe's does and a much higher concentration of sales to professionals. now i think an important thing to remember about home depot, this is a company that got a lot
of full forward, i think, during the pandemic we had a booming real estate market, a booming home builder market fueled in large part by very low rates those tail winds have become head winds and that's hit the stock hard i would point out as we take a look at this thing that right now relative to the s&p trading at a very low multiple historically this is traded at a significant premium to the s&p multiple. right now trading at less than 17 times earnings. that is a question what will earnings be? we'll learn about that next week that does give us a little bit of a potential upsidek kick if the news turns out to be okay. possibly home improvement will be a little bit less rate sensitive than the home builders themselves would be. i'm not inclined to buy the stock because i think there is the potential for some risk if
we see discretionary spending drop the way i'm looking at plays this is with a call diagonal and specifically i was looking out to january buying very close to at the money call that was the 315 calls and selling the calls that expire a week from today against it now the reason that i want to sell those calls is because typically after a catalyst like earnings come out options premiums that will be somewhat elevated going into it, you are going to see some of the premium come out and that's going to be offset somewhat by those calls i would be selling to -- that expire a week from today the other reason that i am looking at the 330s is because on average when we have seen the company perform well out of earnings, we've seen the stock rise about 5.6% in the month following. of course these expire a week away targeting a move of 5%, 6% to the upside from here >> it's interesting because it has been pretty rate sensitive
along with the home builders i know you are looking for it to be better, mike carter what do the charts tell you on home depot >> it's had a beating and yet i like it here there are three charts all identical and all one year in time frame here is the first one, no drawings, no judgments, no annotations. what do we know? we know that the stock market has a june low and so does home depot but the stock market makes a new low in october home depot does not. look at the next chart, another way to draw the lines, it's not only did it not make a low it's a triple bottom and it has moved above the down trend line and then finally the same chart just using the 150 day moving average which is mathematically about to flatten. this has all the elements of a bearish to bullish reversal and one other way to draw the lines would be like that very developmental >> is that a buy for you, brian,
on that developmental bullish pattern that he just made? >> i think so. it is compelling if the market still has more room to go to the upside, sara, you mentioned interest rates, lower now below 4% if they continue to stay that way over this next week, earnings comes out and the market gets more momentum to the upside there could be that in store for home depot and buying an at the money call has been my favorite trade you get enough movement to the upside you're only risking the premium of the call making it attractive to own the call and that's a great way to play the upside i like mike's call here. next up, going gold and reflecting on a shiny miner's ustang pl, ki your tweets live.
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remember last week carter and mike laid out a way to play the miners >> i was taking a look at the fact options were elevated in premium, also thinking that maybe the rate picture, the dollar picture, will take at least until the end of the year to play out more i was looking at a cost reversal, a trade i like to use when i think the levels of options prices are relatively high and i have identified an area i wouldn't mind getting long and also we might be in the bottoming formation and may have missed the opportunity and we saw that with the 10% rise i was looking at the 2125 call spread risk reversal >> gdx up nearly 25% putting it solidly in the green mike, what do you do now >> the news we got this week basically took this up almost to the short strike the thing to do here, and i didn't think we would be taking profits this quickly, but that's obviously better than having to wait a long time that's probably what you should
be doing because there isn't that much more upside than the trade. we've made all the money that can be made here i don't like being short down side puts if the news on the rate an inflation front should push rates in the other direction. >> carter, your dollar chart, you see more weakness andthat should be good for gold. >> we sent out a note today to right calls against long positions which is to say it's a big move to a difficult level. not as extreme as a black rock where we would go short but sometimes it's good to take measures and so trim and/or sell calls against existing longs time to take some sweets become on october 14 mike advised buying a tesla december 200/150 put spread when tesla was 205.
do you hold, close or roll to january, mike? >> we obviously have been on a roller coaster here. i think that tesla will have a hard time really breaking out here i think also options premiums are elevated so rather than rolling this to another long put spread i might roll it to a short call credit spread to the upside, probably short, maybe the 210 strike and pick something in there depending on what your risk tolerance is to how wide that's going to be. january might be long. >> our next fan says this is about retail earnings next week looking for walmart not to change much after earnings and looking to buy the december 9 $145 call for a cost of about 2 shares what do you make of this strategy the company reports earnings next week. >> i think he meant $2 per share. options are implying a 5% move
after earnings last quarter we saw the stock move 5%. the quarter before we saw it go down 11, 12% i think there will be a move using calls to play it mitigates your risk. i like owning a call spread. we owned walmart for clients and when i was looking at this trade here, that call was trading for about $3 maybe i would spread that off by selling a higher strike call against it to play to the upside i like owning stocks like this that are things we need rather than things that we want mike's tesla things that we want not what we need a walmart to the upside makes sense. it's had a huge run. 20% off its lows >> and $2 because 2 shares would $be300. up next we have the final trade.
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>> brian >> if you're looking to get short, buy the put spread in disney and play to the down side >> mike? >> buy depot into earnings >> thank you very much have a great weekend we're back next fridayt 30 a5: 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 help you make some money. my job is not just to entertain, educate, teach how this business works so-call me at 800-743-cnbc or