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tv   Options Action  CNBC  November 13, 2022 6:00am-6:30am EST

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>> despite what he thinks of himself, he is no more than anybody else that commits a crime, somebody that's decided that it's easier to bend the rules than to follow them. and there are consequences when that happens. -- captions by vitac -- it is friday happy friday it also means it's time for "options action. i'm sara eisen in for melissa lee live from the nasdaq market site iptimes 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 don't forget we are working around one name that's done and
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another that's to come that's disney and home depot with me tonight carter worth and mike khouw with a special appearance by brian stutland in new york city. welcome. 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 for the nasdaq since march, carter what do you make of the action >> 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 hunch is you fade the move. >> fade the move why? because you thought it was unhealthy or something >> well, there's two types of moves. action that's developmental and action that's exploitative
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hundreds of stocks up 30%, 40% off of their october lows. those kinds of moves are not sustainable. the words impetuous and impulsive come to mind rather than sustainable and enduring. >> what do you think brian, chase it or fade it? >> i mean, you have to be a little concerned how much volatility is still in this marketplace we can actually 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 there's rotation these last couple of days to play the
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upside i wouldn't short right into it right away with the ten-year below 4% valuations can get lifted a little >> there was a huge short squeeze. where -- what did the options market tell you as far as how many people were off sides here? >> we talked about it last week. we saw a tremendous amount of people selling puts and buying the up side call they squeezed the market out i expected a move of 5% given the way options were trading so it's not unusual to see this big move to the upside shorts definitely not squeezed here as those call buyers squeezed and pushed people right out. >> mike, what do you see next? >> 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 simply on an inflation basis. so the numbers are still quite high real rates are still negative in
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some instances, not in the 30-year mortgage perhaps but in a lot of other areas 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. we see 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 see the economy do well i have a feeling we're probably going to start running into resistance up around 4100 in the s&p. you know, i see a down trend and that seems like that's the upper end of that channel to me. >> everybody is eyeing the 4100 level on the s&p in the 200-day moving average let's turn to one area of the market that has seen quite a run higher during the last month, maybe too high carter
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what have you found? >> that's right. talking about impetuous and 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, up 50% invesco, up 51 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 let's look at the next chart or two. this is the instance, a chart of the russell 3000 asset managers those stocks listed plus many more like state street and northern trust and so forth. a beautiful down trend line. you can see it here. because as is so often the case it's all just technical, and then we've overshot. but sequencing typically calls for a check back before going
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higher now that's the aggregate take a look at this. this is the same aggregate and the 150-day moving average so with an overshoot like that sequencing would typically be a check back and then basing and going again. let's look at black rock how do we say this intellectually this stock is 750. it drops to 500. then back to 750 that's a 40% decline, and that's a 50% rise p/e high or low? that's a gain. 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 blackrock? >> yeah, so blackrock of course they earn their revenues 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 certainly cheap relative to the
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s&p at probably 15, 16 times but it's actually trading nearly 24 times next year's estimated earnings and that's because asset prices have declined and so too have their fees along with it. carter's identified an area of resistance, and i'm looking at selling a call spread. and that's one of the things you want to do is identify an area of resistanc 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 once we start hearing the data that supports it. 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, i was looking at the 700, 88
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call spread. 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. so certainly taking some profits after a big run like this makes a lot of sense i think the reason we've seen this rotation into the asset manager, and maybe i'm a little biased because i'm a portfolio manager myself 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 in some of these names. a little careful
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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 obtained by cnbc reporter alex sherman. the shares trying to climb back from a rough few months. actually had a rough day this week brian pointing to a few ke factors that might keep this 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. i think this might be a bear trap to some degree. disney still has all the competition of the other streamers plus potentially the parks are great. we saw a big pickup after covid, but when you look at it, when
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the cpi number came out one people didn't talk about is average hourly earnings went down year over year. 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 regular december option, look at the $90, 85 put 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 right now relative to the market where it was just a couple weeks ago. 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
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that is. >> as perverse as that is, and sometimes that's what sets a lull in the case of disney the setup here is drop and gap on your earnings down 12, 13%. 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, right? that's the nature of overhead supply the further it rallies, the closer you get to 100, seller from from above as well as sellers from below, whoeve 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 pandemic but the last earnings report
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sort of indicated that there's still a lot of problems here this is a company, by the way, if you bought the stock 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, at least strong bounce back in the business, i guess the market doesn't like the streaming losses guys, thank you. when we come back, 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 website and newsletter there's more options action right after a quick break. calling all "options action" fans, reach into your pocket, grab your phone and tweet us your question @optionsaction if it's nice we'll answer it on-air when "options action" returns.
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a million different ways i should be trading. look! what's up my trade dogs? you should be listening to me. you want to be rich like me? you want to trust me on this one. [inaudible] wow! yeah! it's time to take control of your investing education. cut through the noise with best-in-class education resources that match your preferred style of learning. learn your way. not theirs. td ameritrade. where smart investors get smarter℠. 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 next week along with
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lowes. 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 pull 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 pretty hard, down about 42%. 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 has typically traded at a significant premium to the s&p multiple right now trading at less than seven 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 upside kick if the news turns out to be okay.
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possibly home improvement will be a little bit less rate sensitive than the home builders themselves would be. at least that's my thinking here however, i'm not inclined to go out and buy the stock because i do think that there is a potential for some risk if we see discretionary spending drop. so the way i'm looking at playing this is with a call diagonal, and specifically i was looking out to january buying very close to the at the money call, that was the 315 calls and selling the november 330 calls which expire actually a week from today against it. now, the reason i want to sell those calls is because typically after a catalyst like earnings comes out, options premiums which are going to be typically somewhat elevated going into it, you're going to see some of that premium come out, and that's going to be offset somewhat by those calls that i would be selling to -- that expire a week from today the other reason that i am
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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 that's sort of the idea, targeting a move about 5%, 6% to the up side 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 maybe 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
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instead of a trend line 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 >> that the 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 over the last few weeks you're getting 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. up next we are going gold and reflecting on a shiny
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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. welcome back to "options action." time to take a look back on a
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gold trade remember last week carter and mike laid out a way to play the minors >> 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 call spread risk reversal. a trade i like to us 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 did see that with the 10 persh 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
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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 in this environment if the news on the rate, the inflation front should push rates in the other direction >> carter, your dollar chart, you see more weakness and that 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 blackrock where we would go short, but sometimes it's good to take measures and so trim and/or sell calls against existing longs that's the thing >> all right, time to take some tweets on tesla our first fan says back on october 14th mike advised buying a tesla december 200/150 put spread when tesla was 25
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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 extremely elevated, though 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 a little long dated, though. i'd probably look out to december expiration. >> our next fan says this is about retail earnings next week i was looking for wal-mart not to change much after earnings and looking to buy the december 9th $14 call for cost of about 2 shares what do you make of this strategy
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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 actually owning a call spread i think when i was looking at these kind of trades we owned wal-mart 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 definitely 2 because two shares would be like $300. up next we have the final trade. don't go anywhere.
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you ok, man? the internet is telling me a million different ways i should be trading. look! what's up my trade dogs? you should be listening to me. you want to be rich like me? you want to trust me on this one. [inaudible] wow! yeah! it's time to take control of your investing education. cut through the noise with best-in-class education resources that match your preferred style of learning. learn your way. not theirs. td ameritrade. where smart investors get smarter℠. time now for the "final call." carter >> if you're long lose your exposure sell short >> brian >> if you're looking to get
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short, buy the put spread in disney and play to the down side >> mike? >> buy depot into earnings >> good, very quick. thank you very much. that's going to do it for "options action. we're back next weekend at 5:30. mad money with jim cramer starts now. - tis a paid program for joint food with tamasteen, brought to you by nordic healthy living, a proud sponsor of the arthritis national research foundation. these statements have not been evaluated by the food and drug administration. this product is not intended to diagnose, treat, cure, or prevent any disease. (gentle bright music) - hello, i'm christine bullock. welcome viewers from across the country to "house call." today we're talking about your joints, what to do about those aching knees, shoulders, hips, and fingers. people often ask me what i think about the latest miracle pill cream or device


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