tv Options Action CNBC July 11, 2009 6:00am-6:30am EDT
welce to "options action." yo front row seat to the smart money. i amelissa lee. herewhere the action is tonight. bankn it. which one of thes stocks will havethe biggest ven earnin. we'll give you the setup? gaga for google. withhe smart money watching big blue oeaings, we will tell you why. and called out. >> i want buy the july 11th put spread. >> not every tde works out, but uld redemption be in the palm of dan's hands? >> "options action" beginsight now. >> welcome to the show these are the oponction traders here on e desk and across the tion. in chicago the city of brherry love, philadelphia, a bearish chill taking hold of
stocks as mmer is heating up. the s&p 500 posting its fourth week of lsan the lowest level since may 1st, does this mean a rocky earnings season ahead? and the market moment of truth, nall he, confirmation of our massive rally begins on tuesdawhen goldman sac releases results. so far, investors want out of financials. e xlf is down for the week. curiously enough, though, tions traders, the group th called the sector's rally, not expectintoo much action next week. take aooat this a muchmaller move than we have typically seen in this unprecedented year. is armageddon f thble? >> not entel one of the tngs we saw this week, antoward the end of the week, buying in the form of a put spread someone paid 67 cents for 157,000 ofhose.
ngle stocks, wells fargo, one thini would highlight, this is protecon, it is not a bet on a violent move. i think what we are seeing is is is an expectation that the move already took ple. aot of names that you had up on the board e now 10, 15, 20% the last month. some expectations have bee dampened in the wh we have seen in the la month or so. one of the things i wou say about the implied mov we're seeing, all bein midsingl digits or so, listen, we have gotten kind of comfortable. the armageddon may be off the table here, but the is opportunities to buy cheap protection if you want to be able to sleep better at nht against your long divion. >> it is interting that dan poin out the implied moves are about the same. these are very, very differe stocks and behave differently. >> i would say, don't think we can comforbly sit here and say armageddon is off e ble at all.
in any sector. is igoing to happen tomorrow? absolutely not. that's not what is being priced at. i uld to mike's point, oking at some of the individual names, wells farg bank of america, bb & t, we saw aggressiveut buying, if armageddon happens, meone's t protection for it. on the flip side of that, me mentioned the xlf trade where we saw protective seember puts for trading. we did see shorter datings, in the july call-buying, taking shot. i don't look at it as bullish earnings will be gre and we are lookinfor an upside. if anything, i thinkthe markets arsomewhat muted. we havseen a lot of moves, we are not going to s thach. although, e the things i wish, it is a low probability at we will see any of these big types of moves. high probabilityve is not a event. >> h do you interpret this
scott? goldmasacht of gate, the implied ves on the stocks change as time goes on >> goldman shs is secretariat, and a lot of the other financial names are rejects frothe childr'setting zoo. tion traders never take the idea of armageddon off the table completely. as soons you do, it haens is you get your head handed to you. protective put buyg and a lot of the financials s been anecdotal. rnings don't happen in a vacuum. earlier, when things were ttert preannouncement, our earnings will be okay. we were set up for big disappoiments, we would have seen more aive management expections. we really han't seen that. so the put buying is anecdotal. is peoplewanting to protect eir positions. >> i would mention that goldman
sachs has started off on tuesday, i think goldman has a great quarter an gives a great outlook. i don't think it wi be the sort of thing that propels the enti sector. i think like sct said, goldm is considered an oliar. the one thing th can turn the seor to the down side would be an outlook forhe second half of the year by goldman shs a bit less than expeation. >> am not sure i will- -- credit lossewere going to be dism the second half, that -- could chan t conversation. early march, when the ceo has differencomments. let's not go deeper into nk of ameca. you have arade there. >> here's one, the report next ay on expiration. here is a company that traded as low as $3 this year almost and as high as almost $15. it settled back in herbelow $12. as i look out to next we's earnings, this company has not said a worany what the
businessooks like in the last couple of mohs. e thing i want to do, they 1. billion shares, at 10.77. i looked out andaw tuly 11 put, offered at5 cents you bought that stock, tt offering you saw t stock go up to $15 and back down, and dn't sell y, you may want to think about protecting thastock. intereingly enough, you buy that 25 cent put, and in july, you are protected at that level of $10.7 to me, this is that protection down. 10%, dollar cheap if you o that stock. >> mike, what do you thi? >> i agr. generally, ion like to buy shordated options, 25 cents if you ownhis thing, this a stock that mov around a bit, you probably should buthat. >> and this is a sectothat will it be oeverybody's radar. chnology, the best performing group this year.
teflon tech,s the option market forecasting any direction based on earnings? >> iyou look at the qqq options, it willive you an idea of tax seiment. 33th is protecting some of the tech earnings here. unli the financials, i struggle when i am trying to find individual name microf with bullish trading, i fe like i am stretching. tech is on of thoseames that has been a qui riser here. nobody is positioning fomuch. look to google, the erage mover, been around 5%, ibm, ok to intel. averagmoves closer to 3 %. not pricing in much morehan that in genel, ild say it resembles e financial sector. there is not huge expecd
move out there. it is slightlyiffe in the sense that i don't see t same oactive put buying that i did in the actual ocks. >> this is maybe goonews, if we are a gssalf full mood? >> a lot of e names are cycle names, in the last 18 months o so, look at intel, ibm, at they will say r their outlooksintel's ceo mentioned, t last earnings report th pc market has bottle it is down on the ar. it is one of those things that under perfms. i am noture the option market, en investors are taking wt they have to say at face value. >> how do you read the tea leaves, sct? >> ibm and intel, thimportant ones, in the fincials, and google is the secretariat ofhe space. they're the outliar.
we can't pay so much attention to the expection for a move in ogle, 7%. inted ibm, the fact that expectations othe move from rnings are muted. it is probably good. they are likely to lead us out of the space. intel has gotten supp chain problems fured out. people drang down chip inventories, buying lot from intel, was a pblem earlier in thcycle. it seems to haveone away. those companies, well, we don't pect a big move from them at leas tt is good. th are going to lead us out of the doldrums. >> goldman sachs sayinthey expect a recovery in hdware. they like the hier growth names. you got a trade on ibm. what is it? >>uick correction here, rst the right me, it was the august puts not july. going into earnings, if i own stock, and i particitein thisally, sticking to the trade i recommended. fothe last three months, i
likehe callers. i'm oking at the july 95 t, off 70 cents, am cheap, wt to financet. the offer out that jy strike called, 60 cents, buying prection. down 5%,et called away, roughly up 5%. i'm paying a dime for it. one thini want to stress about ibm, theast five years, two quarters that ibm moved more than 5%. january, over %, have to go ba to april '05, where it was down 8%. i don't expecthis trade to workut. which fin >> you don't expt to work ou i think it is going to workout. i will defend your trade may more than you ar the reason is, what did newsre we goi to see that is actuall going drive this stock a lot higher? i don't see a lo the certainly, volility basis,
not suggesting we'll see b moves in either rection. if we are going to see anying if the economic news we are seeing will any indication, that newcould be negative, the put buyers are doing the right thing. you are doing e right thing. i like the tra, it is a smart trade at ibm. >> cominto your defense, acey. >> moving on. that is pat benatar, isn't it, dan? living in an '80s time warp, my hair is not big enough. it has tbe time for everyone's favorite segment,ut up or shut up where dan a mike agree on the directioof a stk, but t each other with their st shots over stregy. thlast time they tangled it was a draw. they both call apollo earngs, when the parent company of this network, general electric, releases results. mike, the first shot. >> i will continue theheme here, the fit we are not expecting a lot to comout of rnings, the play isn't
necessarily, i won't layut a bunch premiums. betting on a big move coming in earnings. i am willi to recognize, we uld see new data points out of ge or otheearnings, as earnings season progresses here. i will sel the august 10/9 put spread f 20 cents and buy o paying about a dime fothis thing. the prices may not- trading about even. the idea here, i won't lose anything if the stock es down 7%. if it does make a sharp upward move, not saying i expect that i have leverage. i need protectio >>he only guy or gal who may n thhing ishe broker, he's suggesting four-legged
trades. >> thr-legged trades. no, you're buyg two. you're buying two the upside calls,ight? >>el three different strikes. >> what i wanto do here, i am not so focused on earnings. heres a stock between 6 and 15 in the last few mont here. it really hasn'tound a home yet the. theris lot of moving parts. i ink wall street has their hands full of ting to get thr arms around it and focusing on what t outlook will be r this name. g forward, i think it has potential to be votile. it hasn't found a home ye the implied move for earnings is 6% so what in i moves like that on average or so. what iant to do, buy the august 10, 11, i wt to pay 115 for that break even by august expiration, 12, 15 on e up side, 885, on the down side. a proxy of wt could happen in the mark, if we are inflection point that may cause, you know, the may cause the market to go
one way or the oth. ge wilparticipate one way or the other. >> strangl are lower probabily ades. what's youtake? >> i said that so many times. i like das thesis here. i will have to go th mike on this one. i actually really like dan's thesis. let tell you why. you dot have to pay anything upfront. i ke that. >> got question, send us an e-mail. not every trade is a winner. 'll call out one of our less successful ones on palm, ahead of expiration nextriday. that's after this break. >> time for pump up the volum founded in 1910 and listed on the new york sto exchange in 1936, this companys now the largest wer tool mar in the u.s. bringing to market the first electr lawn mower, the dust buer and t steak light.
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or go to our website. i'll see you at 3:00! announcer: captioned telephone - enjoy the phone again! a nahat sizzled before. what do you make of this activity? >> a great example of what can ppen on a quiet day. 10 times the average call volu today. i put a high probabili tt , do somethg is happening this weekend. no. the company is expecting to report earnings. july 24th. two monthsago,he rumor was out there, it was rit after they cut their dividds, it has been the. think it is interesting, i just don't think it is happeng this weekend. >> move on, then. time to get lled out. updateou on losing trades. winnerare great, but it is the less successfulones that can teach you to be a better trader. pain, no gain. dan's nsalling for a palming violation. just because you are spendg
less to make more, doesn't mean you will always come out ahead. das palm spread. >> iant to buy the july 11 eight-put spread in palm. >> they are king a bearish bet the stock will go lor and buying a put against it. byling that strike put, you reduce the cost of the trade, and limiting betweenhe put that you bought and the one at you sold. in the case of dan tde, he thought palm was overhyped. and that the stock had gone too fa too fast. but aimple bearish bet wasn't his strategy. >> i wouldn't short this sto with your money. >> he bought the jy 11th put spread, selecting 30 cents to sell the july 8 strike put. dan pai80 cents to make a possible $2.20 for the
difference between the 11, 8 striut, minus the cost of the trade. in order to make the 2.20, he need the stock to fall to $8. >> you have aituation where the mpy is basically pinned all of its hopfor survival on one product. >> if president obama taug us anytng, is that hope is a powerful source. >> yes, we can! >> since dan me his move, palm ock rallied from 28%, maki his ade hopeless that is because as the stock rises, it falls. now, with it out of his hand he must use his head. time is workinagainst him. ar broken, "options action" fans around theorld are left to wder what will dan do n? don't want to keep all the leons of fans waiting. hau shorted palm stocks, you would be looking at bigger
losseson the quick spread. having said that d. what is the move ahead of the expiration on friday? >> the thing is wohless. you lost youmoney. i don't taket lightly. it is thmost serious thing we can do when we are investing in the market. one of the reasons we were clear, i was very clea i uldn't short this stock. still wouldn't he, up 20 or so percent from the level i ggested buying the p spread. that said the thesis hasn't changed one bit. if anything, i am re negative. the company released earnings since they announced this product. they won say a word about the its of this palm pre device. i have played with it. i don't think is a greathone. no sort of competi to apple. if you watchhat apple did, sold a million iphones in weekend, and mondamorning, announced it. what are these guyhiding? i want to roll this thing out and buy the november 14 put
spread, th max potential gain of 330, two times my money. i still belvestrongtally th this thesis willlay out. you have to be persistent in the market and hop won't make you mone consistently in the < market >> scott, what you say >> im coletely with dan in that pal is the third player in this spa and that is not a place you want to be in. i am wondering if thiss no dan's great whitwhe. how many tes do you roll this thinout? maybe we move . >> theosses were cut. >> i think you can g caught into a trap. if you continue to persisteny thw premium at a trade ia. it can be a trap. over time you are digging yourself a he thou have to make a lot of money to get out of. >> got a question, send us an e-mail. it is the fuel that wers our
time forhe final call, the last word. stacey. >> earnings next wee know what u have on, have a plan. >> scott? >> i like dan's ge strangle. could own that before expiration for almost no erosion. >> dan? >> i like buying that bank america july 11th pufor 25 ces. >> mike? >> i wilgo with the vat put buy. >> our thankto the traders. i'm melissa lee. we will see you back hernext week. have a great week, everybo.