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tv   Options Action  CNBC  December 18, 2022 6:00am-6:31am EST

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some people might really kill themselves in despair, and some people might drink themselves to death in despair. or you pick yourself up, dust yourself off, and just keep going. yourself off, and just keep going. and that's what i've done. right now on "options action," rough week on wall street the 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. activision 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
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seymour. we begin with a monster week in the options market today was an expiration day for more than $2.5 trillion worth of trades and tuesday, wednesday and thursday activity was off the charts according to our traders. tesla, nvidia, warner brothers discovery coinbase and more. let's drill down first on macy's tomorrow is super saturday on what could be a make-or-break for retailers. super saturday is tomorrow after a promising fall it's been a long december, though, mike so what are you seeing there >> as you would expect on a week like this one we did see a lot of bearish activity in several places but there are a couple spots where people were making really large bullish bets in the
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retail space macy was one of these names. we saw another now the company is going to be reporting after that expiration but of course we've got a lot of retail sales data ahead of that. some people hoping for a little bit of a retail bounce here. this is a way someone is able to risk considerably less >> carter, what do the charts say to you. >> i mean if there ever were a gambling chip, i would say that macy's is it the price is the same as 1995, but consider the fact it was $4 on the covid low hit $38. here it is at $20. meaning 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
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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 hoarding of medicine check out this chart after trending higher in the third quarter, the action turned lower in the week. how do 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. remember in fact emerging markets have underperforme 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
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eight years up until 2010. since then, continued to make lows rallied -- what are the things you could be thinking that make that different a dollar that rallied 28% from may of '21 into september, octoberish remember china is more important for em than the u.s. economy is. i actually like this trade i've been playing from the long side for the last three weeks to a month and i'm going to continue to stay long. >> now let's get to another stock that's doubled in the last three weeks. mike, what are traders saying the about this one >> yeah, this is one of the single stocks that also saw some outside trading activity saw big purchases of the january
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12 calls you'll take a look at the chart, 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 some of this re-opening trade, this is 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, so that is a considerable amount of the current stock price. 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. 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. 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. this has been a great run. >> this is a week we saw a fed decision and huge focus on interest rates
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mike, you noted a big trade in the investment trade corporate bond what's the call here >> big bounce off the bomb lqed closed around 109 one of the big trades we saw was a call diagonal. the january 1/12, march 1/11 diagonal bought march 11, sold january 1/12 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 a subsstute given the long move we've had. >> carter? >> that's right. given the move we have had does one hedge or reduce 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
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of a rally to a difficult level. well defined lows from which you break, you return to level from which you broke. you are at a difficult level trim, reduce, take measures. >> all right still to come, some reporting results next week, so how should you play these stocks? we're laying out the trades next and for everything options action check out our website and newsletter there's much more right 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.
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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®.
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yes, i love you!! 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 as we head into the holidays a couple notable names that could give us a read of the consumer before the holidays they're on tap we're talking about nike and fedex. mikey, let's start off -- mike, let's start off with the options setup ahead of nike. 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 action, but the fund doesn't allow us to the use the options in that one. it is cheaper though not entirely cheap they are definitely still posting some decent top line
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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 in fact, the average is about 200 200 basis points higher over the course of the last ten years or so what i was thinking 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 look at the january 105, 120 call spread. that is slightly where the stock closed 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, act 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 pressure consider the fact that nike from its peak was down 54%. the s&p down only 27
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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 down trend. and it doesn't matter what you call it, a head and shoulders, that's what the bottom looks like you have a bad group and one that's starting to separate from the group, nike versus puma. >> you got nikes on? >> boots it's nasty. >> this is a company that worked through significant inventory issues you are going 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 but in constant currency basis you're getting 18% to 20%. you're getting north america to grow i think the worst in terms of margin pressure is coming
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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 points, especially early covid as we got through it, and i think we're going continue to see the headlines. but i think nike right now north america is a lot more important. they're getting a lot of growth and they had a lot of 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 hit on it there when he was talking about currency head winds. even if we saw constant increases of 15%, that just indicates there remains good demand for product, and from my perspective net a little discounting they should be able to work off their inventories issues if those are the numbers we've got. >> all right, mike, let's move
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onto 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 performing stock we held all year it is tempting when you see stocks fall like this 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 make some sense to plan for something bad. the company is having some real operational challenges in europe and they're theones 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. what's remarkable to me, given the huge move we saw with the last earnings, earnings this 7% implied move the stock has going into next week is actually not that big so i would actually if you own the stock, you would consider,
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it gives you meaningful down side protection. and if you're not in the stock and 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. >> 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% identical to nike 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 >> sounds scary. i have to agree i also think downward revisions are coming for a company that's been materially misgaded and haven't been able to equate their business i think freight and express are more broken.
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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 we were coming out of covid when the economy was truly accelerating i don't see why you're going to see this get out of its own way next year in terms of cyclical analysts will be downgrading, and i think it's multiples -- excuse me, a couple quarters away until 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 sell the position outright if it's kill zone and so bad it's bad and all these negative things? >> so, you know, our investment process doesn't involve only me. i am sort of the heaviest weight guy, but i am not the only one in our process we have a quantity team, other
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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 the game makers deal with microsoft remains paused our next guest says this one could be about to level up more "options action" right after this wim® 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 ♪♪♪ there's no going back.
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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?
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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." the fate of microsoft's $68.7 billion deal to acquire activision blizzard hangs in limbo. the regulatory turn doesn't mean your profits have to wait. here to deliver today's call sheet is kevin how are you playing this one into the new year? >> [ speaking non-english melissa. if you like a stock like microsoft does with activision it's got to be based off the
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fundamentals saw the mos recent earnings with activision was a beat they 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 that's 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 exclue sievety to the call of duty franchise. microsoft shot back and said, listen, sony has about 200
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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 so you also have that up side catalyst there, and then we have a strong product pipeline. where diablo 4 is going to come out next year. so the stock has a lot of catalyst behind it and it's fundamentally sound. we think there's a great opportunity here to do a covered call strategy, where investors can go out and purchase the 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 and sell the stock today and sell the january 27 call for about $2.40, so your
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all in 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 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. >> 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 sell 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 lines i didn't manipulate them we have a stock that continues to respond as it ascends to the
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line and since its peak in 2021 continues on the way down. 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 you're selling is well above what is realized recently. and that of course is the case here, and there's a reason for that and that is one of the things kevin was alluding to. this is a deal name. and the thing is if we get some transparency on the outcome of that deal whether or not it's going to be shutdown or it's going to happen, it could move sharply to the up side or sha sharply to the down side that is a situation i might consider earning some of the moneycalls and selling something close to the deal price which is $90 up next wave got tweets and the final call
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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 june remember the stock ipo'd exactly two years ago at 68. 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 bought a roughly at the money call and partially financed with a 25 delta put
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both expiring february do you have any rules on how to manage the trade, parameters when to close it. >> i cover the put when i'm collecting less than 1% of the stock price per month, and as far as the calls 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 live in the hawaii and told me that 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 loft these companies that i have been selling upside calls and especially blue chip companies i don't want to trade through. but after a big run, and i know we pulled back, but this is a strategy i'm doing on selling on fading strength. >> carter braxton worth? >> want to be sure to own gold and sill we are and gold miners in any portfolio. >> all right mike khouw >> i like vertical call spreads in some of the retail names, including discretionary like nike, and i would hedge my bets
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in fedex with a vertical spread, put spread in this case, though. >> all right, that does it for us here on "options action." we're back next friday at 5:30 p.m. eastern time. "mad money" with jim cramer starts right now >> i'm gonna need you all to humor me just for a second here. i want to go back a little bit. i'm going to go back to 2021. 2021 was one of the most historic years in numismatic history. and the -- kind of the headliner of that, if you will, was the change of the american silver eagle -- okay? -- 2021. the change of the american silver eagle from type i to type ii -- the old design to the new design. so, if we go back, 2020 was
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the last of the d si


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