tv Options Action CNBC December 17, 2022 6:00am-6:30am EST
♪♪ ♪♪ -- captions by vitac -- right now on "options action," rough week on wall street major averages riding a three-day losing streak. ahead, we're breaking down the trades and rates retail casinos and china plus, the shipping blues shares of fedex grounded 30% will earnings help the stock take flight? we'll build a strategy ahead of next week's results. and later, a call to action on call of duty. actvision waits to found out the fate of its deal with microsoft. i'm melissa lee. this is "options action.
on the desk tonight, carter worth, mike khouw, and tim seymour. we begin with a monster week in the options market today was expirations day for more than $2.5 million worth of trades and the activity on tuesday, wednesday, and thursday were off the charts. take a look at some of the notable stock names -- tesla, nvidia, macy's and more. investment-grade corporate bonds. let's drill down first on macy's tomorrow is supe saturday in what could be a break for retailers who are swimming in inventory. super saturday is tomorrow after a promising fall it's been a long december, so, mike, what you are seeing there? >> as you would expect on a week line this one, we did see
a lot of bearish activity but there were a couple spots with launch bullish bets in the retail space macy's is one of those names we saw a buyer of the january 23-25 call spreads the company is going to be reporting after that expiration. we get a lot of retails sales data ahead of that i think what's going on here is there is some optimism, some people hoping for a retail bounce this is a way somebody's able to risk less and going out and buying a million share of stock, which is how much this trade represents to make a bullish bet. >> carter, what do the charts say to you >> if there ever were a gambling chip i would say that it that way, macy's is it. the price is the same as 1995, but consider the fact it was $4 on the covid low it hit $38 this year in january. here it is at $20. this is beta, this is speculation. some people think it will go out of business. but the truth is, we've worked into a wedge, you can see it
there. i would do nothing here and then wait for a resolution and then go with the move, which is to say you break out above that line, get long you break out below, get short >> now, let's get to the emerging market etf, the eem, the promise of china loosening covid restrictions, now being met with an explosion of cases, empty city streets and a hording of medicine. check out this chart after trending higher in the third quarter, the action turned lower this week. how did the technicals hold up here >> it's a huge ricochet, but all that really happened, we went right to the downtrentd line in effect for the past two years. emerging markets have underperformed the s&p since 2010, almost straight down but the rally, here and now rally -- you can see the arrow, simply returns us to a lower level, i'm a seller. >> i ran a hedge fund. the things congress pointed out are really indisputable. this was outperforming the s&p
eight years since 2010 since then, continued to make lower lows what are the things you could be thinking that make that different? rally 28% from may of '21 into september/october-ish. it doesn't have to go straight down although it has gone down 9% i think china, yes, china, is your friend. we're getting upgrades on china gdp growth china going from 4% to 4.5% is a boom for emerging markets. i actually like this trade i have been playing em >> now, let's get to a gaming stock melco. mike, what are traders saying about this one >> yeah, this is one of the single stocks that also saw some outside trading activity we saw big purchases of the
january 12 calls you'll take a look at the chart, you'll notice we're getting to a difficult level. this is up more than 30% off the lows i'm kind of with tim here. i think that some of this re-opening trade, this is certainly going to be one of the beneficiaries. this is a way somebody can risk less purchasing the stock. but notice the volatility priced into these things. 90 cents doesn't sound like a lot for an options contract, but remember, you're dealing with a $12 stock. given the kinds of moves we're seeing, i can understand why this institutional trader is playing to the long side in this risk mitigated way tim, you on this one >> i was selling some of those calls last week, so looking at the january, looking at the move on the stock, it's almost tripled. look, i think it's going to continue to go higher, but i think we're going to see volatility into the new year, and frankly, this is a little bit of risk management and yield enhancement. i have half the position committed to upside calls. i do think you have a case here where you're going to continue to see the stock move higher as
we get into next year, it has been a great run >> this is a week we saw a fed decision and huge focus on interest rates mike, you noted a big trade in the interest rate. what's the call? >> we obviously had a big bounce off the bomb lqed closed around 109 one of the big trades we saw was a call diagonal, the january 12 march 11 call diagonal bought march 11, told january 112. basically this is a trader who's inclined to reduce their risk on the long side, probably thinks that lqd's run is coming close to topping out for the course of the next month or so, and then it's risking a relatively small amount to continue to hold a long position there after. but it's probably serving as a bit of substitute given the long move we have had >> carter? >> that's right. given the move we have had does educe exposure, and by all accounts, i think that's the
smart play if you look at a chart here you'll see the very definition of a rally to a difficult level. well defined lows from which you break, you return to the level which you broke, you're at a difficult level. trim, reduce, take measures. >> still to come, some reporting results next week. we're laying out the trades next 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. 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.
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please ignore that. td ameritrade. award-winning customer service that has your back. welcome back to "options action." not a ton of earnings next week last week as we head into the holidays a couple notable names that could give us a read of the consumer before the holidays we're talking about nike and fedex. mikey, let's start off -- mike, let's start off with the options setup ahead of nike. i tried to combine the two mikey on nike. >> mikey likes it. >> mikey likes it. mikey does own it. we own nike in the fund, just the equity as it happens, i think there's probably a better way to play this one going into earnings using options, but the fund doesn't allow us to use in that one it is cheaper though not entirely cheap
they are definitely still posting some decent top line growth, but i will say that right now the street's looking for probably 8.2 to 8.4% net income margins, that is definitely towards the lower end of the range the average is about 200 basis points higher over the course of the of the last ten years or so. what i was thinking here, to make a bullish bet on a stock that's not terribly cheap, but if they manage to achieve the growth they're expecting for full year 2023 is to buy a call spread i was looking at the january i was looking at the january 105 120 call spread. something important to take a look at is how much the options market is expecting this one to move around next weekend it's quite a lot, about 8%, well above the 5% the company historically averaged. >> carter, what does the chart look like? >> well, it's a tough space. if you look at adidas and puma and nike, they have been under real pressure. consider the fact that nike from
its peak was down 54%. the s&p down only 27 here's the thing, as this thing from puma entity, nike is turning, the chart we have here, i think it's very clear, we have a clear move above a downtrend, and it doesn't matter what you call it, head and shoulders, that's what a bottom looks like. you have a bad group and one that's starting to separate from the group, nike versus puma. >> pumas on today? >> boots it's nasty. >> this is a company that worked through significant inventory issues you are going to hear about the fx impact on the company, and it's going to be 800 or 900 points in terms of the growth on the top line currency basis you're getting 18% to 20% you're getting north america to continue grow. in terms of margin pressures coming through this quarter, that's it.
four to five years out, these guys are delivering 20% free cash flow, they're going to be giving back to investors >> how about china >> i think we've priced in -- and nike's so interesting because it's given us so many reads into china, different point in the last few years, especially early covid as we got through it, and i think we're going to continue to see the headlines. but nike right now, north america is a lot more important. they're getting a lot of growth hrk growth around the world cup in latin america can't say it's not important north america, more important. >> mike, last word here. >> this is a situation, and i think he really hit on it there when he was talking about currency head winds. even if we saw constant currency increases of 15%, that just indicate there remains good demand for product, and from my perspective, a little bit of discounting, they should be able to work off inventory issues if those are numbers we get >> michael, let's move on to fedex even with just the
potential for the repeat of last quarter's disastrous results, you're hedging here? >> i am. this is another name we own and have owned, unfortunately. probably the worst single-performing stock we held all year it is tempting when you see stocks fall like this to think you can run out and pick them up cheap, and if you own the stock, as we do, you're going into earnings hoping for something good, i think it might also make some sense to plan for something bad. the company is having some real operational challenges in europe, and they are the ones that are telling us how it is. and it isn't that good so, despite the fact that if you're just taking a look at historical numbers, maybe it looks cheap, they are facing material head winds, i think hedging makes sense here what's remarkable to me, given the huge move we saw with the last earnings, earnings this week is actually not that big, so i would actually, if you own the stock, you would consider -- that giving you meaningful downside
protection and if you're not in the stock and you're inclined to lean on the short side, this is a way to do it and risk a relatively small amount of stock price in the process. >> so, carter, the chart is so bad it's what? >> so bad it's bad >> it's bad. >> all right >> so here's the thing a marquee name like nike, of course remarkably, the exact same decline from its peak it dropped 54% identity cal to nike but this is where their paths diverge. fedex is not bombing and healing. that quarterly drop epic kind of thing -- and we almost rallied back from the kill zone, the point from which it plunged. just would not fool with this. >> kill zone >> that sounds scary i have to think downward revisions are coming for a company that's been materially misguided and haven't been able to equate their business a lot of things that are broken. i think freight and express are
more broken, i think ground's been better. this is a stock, also, that tends to lead the s&p multiple times. look back over the last five years. gave you a lot of leadership on the way down in 2008 when the fed started moving up on rates it started coming out well ahead of the s&p when the economy was re-accelerating. i don't see why you're going to see this get out of its own way next year in terms of cyclical -- cyclical dynamics analysts will be downgrading, and i think it's multiples -- excuse me, a couple quarters away before you trust this company again. >> mike, you have a position in fedex which you have and you're using as options strategy to hedge. why not just sell the position outright if it's kill zone and so bad it's bad and all these negative things? >> so, our investment process doesn't involve only me. i am sort of the head investment guy, but i'm not the only one in our process. we have a quant team, other
people who are involve in the our security selection process i can tell you there have been some heated conversations about this stock in particular, and probably a few sleepless nights as well. but you know what? if you're hedged you can actually potentially have it both ways if the options prices are amenable >> true. up next, we're plugging into activision as their deal with microsoft remains paused our next guest says this one could be back to level up. more "options action" right after this
welcome back to "options action." the fate of microsoft's $68.7 million deal to acquire activision blizzard is hanging in limbo regulatory churn doesn't mean your profits have to wait. here to deliver today's call seat is kevin of kevin and kelly. how are you playing this one into the new year? >> if you like a stock like microsoft does with activision it's got to be based off the fundamentals and saw the most recent earnings with activision was a beat and aboutivision even said
their most recent call of duty is the fastest selling of that franchise. if we go back 15 years, if you remember, when jim transferred to the stanford officer in "the office," they were playing "call of duty. it's a great franchise that's going to build, and will also come out with another edition next year. you also have net cash on the balance sheet to the tune of $9 which is expected to grow to $13 next year. and also, think about this there's a catalyst in front of us of microsoft potentially purchasing this stock for about $95 a share, and they can do that because there's a weak ftc merger complaint, where the ftc is basically saying, hey, wait, we don't think this merger should go through, because sony, which owns 70% of the hardware market could be hurt by microsoft xbox having exclusivity to the franchise.
they said, sony has 200 titles exclusive to them. xbox has 59. by making it 60, how is that going to hurt sony as well as we'll let sony have the call of duty franchise you valls that upside catalyst there and we also have a strong product pipeline diablo is coming out next year the stock has a lot of catalyst behind it. we think there's a great opportunity here to do a covered call strategy, where investors can go out and purchase this stock today at a significant discount to the microsoft offer, but also to the operating fundamentals where it's worth about $80 to $100 a share. you can go out, buy the stock today, and then also sell the january 27 call for about $2.40, so your all in will be 73 or 75, so you can collect a bunch of options premium while it plays out in the court, which is
expected to close middle of next year >> quick question, kevin the thing that you said to me at the beginning was merry christmas in hawaiian? >> yes, yes. >> are you in hawaii >> merry christmas to you. >> are you in hawaii or are you hawaiian >> no, i'm in denver, but it's sunny out today, really sunny in denver, and this trade is very sunny, so it all kind of packages in to one >> okay, there's a first for everything, including merry christmas in hawaiian on "options action. carter, your thoughts on all this >> sure. first, there's nothing better than selling covered calls, of course but the street is all over the place. their target's at 95, there are targets at 82, big south side firm so there's a big debate. but there is a chart, as i think is often the case, it's almost all technical. here's the thing i didn't manipulate those lines. they're touching like magnets. we have a stock that continues
to respond as it ascends to the uptrend line and since its speak in 2021 continues down we're in the decision moment i think it breaks out to the upside >> mike? >> yeah, so, you know, when you're using a covered call strategy, one of the things i typically like to see is the implied volatility of the action is well above what is realized recently, and that of course is the case here, but there's a reason for that, and that's one of the things that kevin was alluding to. this is a deal name. and the thing is that if we get some transparency on the outcome of that deal, whether or not it's going to be shut down or it's going to happen, it could move very sharply to the upside or potentially sharply to the downside, and that is one of the situations where i might favor actually owning the money calls and selling something closer to the deal price, which is 95 bucks. >> kevin kelly, aloha out there. up next, tweets and the final call male announcer: or
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welcome back to "options action." time to take some tweets our first asks, what's your take on airbnb march 80 puts? carter >> well, it's one of the worst charts in the market, and think you will double your money, if not better than that it's an absolute mess. hovering ominously at its prior low of june. remember, the stock ipo'd two years ago at 68. first print at double, and now effectively there's no memory, no support below you can crash here >> wow that was direct. our next tweet says, i recently purchased a risk reversal where i brought a roughly at the money call and partially financed with a 25 delta put both expiring in february. do you have any rules on how to manage the trade, parameters on when to close this? mike, what's your take
>> i cover the put when i'm collecting less than 1% of the strok price per month, and as far as the call is concerned, i'd adjust or roll up when you get to 60 delta or later >> by the way, i didn't know how to say merry christmas in hawaiian, but tim apparently lived in the hawaii and told me that's what it meant thank goodness for tim joined us here after fast. appreciate it for many reasons time now for the final call. the more you know, you know, that rainbow tim seymour? >> mahalo. ultimately this is a case in the market -- i think there are a lot of these companies that i have been selling upside calls especially blue chip companies i don't want to trade through. but after a big run, and i know we pulled back, but there's a strategy i'm doing on selling. >> carter braxton worth? >> want to be sure to own gold and silver and gold miners in any portfolio. >> all right, mike khouw >> i like vertical call spreads in some of the retail names,
including also discretionary like nike, and i would hedge my bets in fedex also with a vertical spread, put spread in this case, though. that does it for us in "options action. we are back next friday. "mad money" with jim cramer starts right now - [announcer] the following program is a paid advertisement for the nuwave oxypure zero smart air purifier, sponsored by nuwave, llc. right now, in your home, you and your family are at risk of breathing in billions of tiny, dangerous particles and contaminants, tied to symptoms like allergies, sleep issues, trouble breathing, and chronic fatigue, and are linked to even more serious conditions, like asthma, heart disease, cancer, and even death. the epa warns that the air inside your home can be up to five times more contaminated than the air outside. in fact, studies show that even cooking one family dinner can expose you to contaminants equal to the most polluted city
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