tv Options Action CNBC November 9, 2013 6:00am-6:31am EST
money, and it is this... people first, then money, then things. now ystay safe. bye-bye. this is options action. tonight, car trouble. >> honestly, we're out of gas. >> no, not that kind of car trouble. tesla shares have hit the skids. there's a secret buy sign investors should plug into. we'll reveal what it is. plus, talk about overstuffed. shares of casual dining stocks have been on a tear. but are they about to get grilled? we'll tell you why traders are concerned. and we'll tell you why good news for jobs could be a warning sign for housing. the action from the nyse begins right now.
and live from the new york stock exchange, in the heart of the financial capital of the world, i'm melissa lee these are the traders here at post nine for a very special edition of options action. welcome, everybody. let's gets to it. everyone is focused on the the triple digit gains in the dow. there is one stock we're watching. facebook. shares of the social giant having a tough week. this despite the very successful twitter ipo. so is one of america's favorite tech stocks about to be in big trouble? let's get in the money and find out. dan, just looking at the charts, it's looking like another favorite stock, that has gone south. >> no doubt about it. listen, all week long we were talking about the atm trade for twitter, a lot of us dismissed that. twitter is a smaller company now. facebook has 100 billion plus market cap. so to me, i don't think it had anything really to do with twitter. if anything, twitter valuation makes facebook look more interesting on evaluation basis, that's it. here's the problem. the momentum. it just kind of came to a halt.
the way the nasdaq closed up 1.4% on facebook is a big part of the nasdaq for all intents and purposes, this stock closed unchanged on the day. basically unchanged and sitting on really key support. >> the issue is a change in the psychology of the markets, take a look -- a lot of momentum names, and they have declined from their october highs. people are taking province, this good old fashioned profit taking. >> there's a lot of profit taking. all of a sudden you hear people talking about valuation. valuation doesn't justify the prices of these stocks. i mean, you have facebook, and a name that will do less than $8 billion in revenue with market capitalization over $110 billion. it's very hard to figure out how you get to those kinds of numbers, as long as you ride the train, you do it. >> here's the thing. this is the one chart, it has nothing to do with internet social stocks. look at tesla. pull up this chart right here. it fell off a cliff. it was forming a head and shoulders top. it broke down on the earnings news, look at that. that's a horrible, horrible looking chart. and i actually think there's a
chance, if we want to fast forward to facebook, the way it closed today, look at that, does that look similar? it stopped on the neckline. at about $47.5. so to me, this is one where if you have gains in this thing it's up 80% on the year. you may want to consider protection. >> tesla had news this week, it was all bad news, twitter on the other hand had great news until friday, when it was down almost 8%. i think twitter is a bigger problem for facebook than dan does. people will start looking at these as essentially the same stock. they may not be the same size. they are the same stock, social media. twitter will come back down. the problem with facebook, for the first time in months, in months, it's flirting with 50 day moving average. if it gets below that, people will pull the ripcord. >> you're looking at a way to protect a position in facebook. you own it. you are seeing it decline. what do you do? >> i got a call from somebody who owned it, he's up 100% in just a matter of months. so this was the trade. i'll lay it out. to me, i think with the stock up 80% on the year like we said, trying to avoid any disasters
into end of the year and protect gains, i think you should look at callers, this is something that it gives you participation to the upside, but also gives you disaster protection to the down side. what are you doing against long stock, i priced it today when the stock was 47 3/4. you could sell the december 52 1/2 call at a dollar and use proceeds to buy the december 44 put for $1. it doesn't cost you anything. what is interesting you get to hold on to your stock. between now and december expiration, you have up to $4.75 upside. that's about 13% higher here. then you're protected below 44. so you have risk. if you have massive gains, this is a great strategy to help you sleep at night. it doesn't cost you anything. >> one of the reasons people want to hold on to their shares, facebook still on balance is actually still up. this is a name that a lot of fund managers want to show they still hold in their positions, usually when you start seeing institutional selling at the end of the year it's in the weaker names, not in the names that everybody wants to brag about
owning. so there is something that could suggest, that there's not going to be a massive wave of selling. that's a reason to hold the stock. technically, it looks weak. that's a reason to protect yourself. >> given what the markets have done, this is the time to be talking about callers, we talk about them tactic leap. usually the put that you buy is more expensive than the call you sell. you know what, facebook is a great name for callers, that relationship is reversed, because people are bubbly about facebook, they want to buy the upside. so this is a situation where the penalty of a caller, it doesn't exist. it makes a lot of sense to be doing it in facebook. particularly like dan said, if you bought it well. >> last word is this, i think the biggest risk between now and end of the year is the momentum trade coming undone and snowballing. so if you believe in that, this is a smart trade. just remember one other thing, it will be added to the s & p at some point and gap higher, that's probably in the new year, this is december expiration. >> let's move to the other big story, the blowout jobs numbers. the employment report was not good news for a number of interest rates, sensitive stocks, dominic.
>> interest rates were on the rise thanks to that better than expected jobs report. those rising rates could be hurting some big names in the home building side of things, the fundamental reason is simple. higher rates flow into higher mortgage rates. and higher mortgage rates have a negative effect on home affordability. some of the markets biggest laggards were pultegroup, d.r. horton, keep an eye on home builders if you think the interest rate trajectory continues higher. back to you. >> thanks, dom. was today selloff in the home builders just an aberration, let's go to the charts and get answers from carter braxton worth of oppenheimer. >> hi there. what i want to look at today is the theme of home builders, in the context of home depot. most home builders are fairly small cap names. large cap managers have expressed a view about home builders through names like home depot.
and something is not right here. this is the xhb, a broad based basket of many dozen home building stocks, but also appliance stocks like whirlpool and carpet stocks. and of course home depot. what we have by all accounts is a well defined trend. and then we have a break of trend. no other way to draw this. but this is quite clear. it is not in trend any more. and what's the problem here, is that this hasn't made a new high since may. stock market is making new highs, this stock is not participating. it has the look and feel of a bullish to bearish reversal, having sort of topped out. now, this picture of the xhb, take a look at the next chart, home depot. it's the exact same picture, you have the exact same circumstance of a well defined trend, a well defined break in trend, you have all of the problems, and now if you look at the comparative chart over the long term, the third chart, which is home depot versus this etf, this
disconnect, meaning this spread is the problem. we would make the bet that this is going to start to come down and let's say narrow the gap, if you will. like this. >> all right. so mike, do you agree with carter, that in order to narrow the gap home depot must fall? >> certainly to narrow the gap it would have to fall. i don't see a whole lot of reasons for the home builders to rise, valuations of the home builders don't make much sense. that would propel the xhb up rather than having home depot fall. one thing that is interesting about home depot it isn't enormously expensive. it's trading at the same multiple as the broader market. this is a name that's been growing eps at close to 20%. so it isn't really overly priced here. but clearly, there is a technical problem, you might be inclined to make a bearish bet. i'm going to go with courter on this one. but i won't do so in such a way that i'm risking a great deal if i'm wrong. just because valuation is okay here. >> mike has a bearish bet on home depot, using a put calendar.
we've done these calendars before. it's good to refresh. let's crack open the playbook and see how it works. in the strategy you sell a near dated put and use the money to buy a longer dated put of the same strike. this is a bearish strategy, it requires timing. you want the stock above the strike of the put short by the first expiration and below the strike of the longer dated put, that you were long by the second expiration. so mike, with that said what's the trade? >> i'm just doing the december february 67 1/2 put calendar. i'm going to buy the february 67.5 put spend 95 cents for those and sell the december 67 1/2 puts for 35 cents a net debit of 60 cents. these are the kind of trades i like to put on when i'm leaning in a bearish way but want to take advantage of time letting decay of the near dated option work in my favor. i am tagging along. he did a similar trade on home depot recently. we may have taken a look at it. i think it's a good idea obviously with the stock where it is right now.
>> you know, really i'm positioned similarly. i agree with carter. >> you love the trade. >> i love the trade. >> mike is right. >> and i also agree with the technicals, the fact this company or this stock has not been able to confirm the highs, s & p five points from the all time high here. to me that's a problem. i would actually move up the strikes just a bit here. i think that 67 1/2 strike i think hasn't traded 67 1/2 since march. so i think you have a very high probability that the december expires worthless, but then you own -- >> we're giving ourselves time for it to run to that lower strike. and it doesn't have to run through it in that time frame for this to work out. >> that would be the only issue, these strikes are quite a bit away, don't consider this protection. this is more like a bearish lottery ticket. you're not spending much money, if it ends up really unspooling after that first expiration. you're in great shape. but it's not really protection i don't think against your stock. >> let's wrap this up with stocks versus options here, want to get short home depot, take out homeowner's insurance. carries unlimited risk.
mike's put calendar offers a leverage bet to the downside and defines risk to just $60. got a question out there send a tweet, we'll answer it after the show on our web site. options action.cnbc.com. scott has a trade on facebook. in addition to scott you'll find trader blogs and educational materials, so you want to check that out. here's what's coming up. ♪ >> call it the electric slide. no. not that. this. shares of tesla have gone in reverse. is the bottom in? we'll reveal. plus, talk about eating more than you can chew. >> i can't believe i ate that whole thing. >> restaurant stocks have been on fire. we'll tell you why they could soon see indigestion when we return.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ welcome back to a special edition of options action live from the new york stock exchange time to do something we haven't done in a while, get called out. our traders are good but not always right. couple weeks back dan made a bullish bet on tesla, since then shares have gone in reverse.
he didn't lose much money, here's why. ♪ >> on options action, just because you risk less doesn't mean you'll make more. unfortunately, that's what happened to dan's bullish trade on tesla. dan bought shares of the electric car maker ready to take off. that may be true. but 100 shares will cost you almost 17 grand. so to spend less, dan instead bought the november 8th weekly 180 strike call for $9. to make money dan needs tesla shares to rise above the 180 strike price by more than the $9 he spent on the trade or above 189 by november 8th. dishing out nine bucks might as well spend. >> $1 million. >> so to cut his cost dan sold the november 1st weekly 180 strike call for $2, and created his call calendar. but he did something even better. he made making money easier. and here's how. between the $9 he spent on the
longer dated call and the $2 he collected on the shorter dated call, dan kept the total cost of his trade down to $7. and now instead of dan needing shares of tesla to rise above 189 to make money, he sees profits of shares rise above his strike price by more than the $7 that he spent, or above 187 by november 8th. >> good. very good. >> sure it is. but it gets even better. value of the shorter dated call dan sold will decrease faster than the value of the longer dated call that he bought. letting him do something that you can't accomplish, turn time into money. but remember, there is a trade-off. in order to make the most money. dan needs tesla shares to stay below the strike of the shorter dated call he sold before the first expiration. but above the strike of the longer dated call he bought, by more than the total cost of the trade by the second expiration.
or in this case above 187 by november 8th. and since the time of the trade, tesla shares have, well, wrecked. fallen 20% on disappointing earnings. >> i can't take it. i can't do it. >> now options action fans around the world have come to the nyse. and they only have one question. what will dan do now? before we get to that answer, perhaps this will make you feel better. had you shorted 100 shares of tesla at the time of the trade, you would have lost more than $3300, dan's put calendar expired worthless today which means he would have lost the full $700. now, dan did tweet how to lock in profits on the trade right before earnings, so you do need to follow us, and him on twitter. for those who missed the tweet. how did the two weekly expirations impact the trade? what would you do with tesla? >> interestingly enough heading into the event the calendar did exactly what you wanted. it cheapened the price of the call. the stock ran into the event. event trading is hard. that's why we define risk.
the idea was you had a profit before the event without taking risk. you could have taken it or spread it reducing your cost basis. but right now, okay, i mean, i actually bought a little tesla today. i think it made an epic short term bottom, what you call a spike bottom. an open low, it gapped down then big reversal. it didn't close green i would have loved to see that. but you should see follow through next week i'm looking for 150 as a trade. >> do you buy into the epic bottom. >> spike bottom. of epic proportion. >> absolutely not. absolutely not because the valuation is also epic. this is one of these names, and you know what, actually, i think these are great cars, i don't think these cars -- >> we're trading and you're talking valuation the stock is down 30% peak to trough from september 30th. >> it should have gone down 70%. the valuation of this is absolutely nuts. the fact there's so much enthusiasm will probably create support levels that don't make
sense. for those people trading momentum, that's fine. i'm not that guy. >> do we not see an epic spike bottom when it was at 170? >> no. we showed the chart in the beginning of the show. it's way oversold. this is down 30% in about a week -- about three weeks. okay. and so to me it creates opportunity where people have gotten sobered up all day long on cnbc. everybody has gone to the bear side here. >> we were just talking about a change in psychology in the market when it comes to momentum stocks. would you buy tesla here? >> not with dan's money. he says it's oversold. it was triple overbought. the buzz is lower. it has no p for the -- >> buy the car not the stock. >> coming up, casual dining stocks have offered delicious returns. but there's a warning sign that could lead to some indigestion, we'll tell you what it is when we come back with our special edition of options action from the nyse. [ indistinct shouting ]
breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. welcome back to options action. gas prices are down, and they are down significantly, according to gasoline price firm
gasbuddy.com, fuel prices are at the lowest levels of the year, about 70% of america now has regular unleaded gasoline below 3 bucks a gallon, as we spend less money on gas, we spend more money at the malls and restaurants. some traders are looking for some positive effects on stocks like mcdonald's, burger king and midscale eateries like darden's olive garden or red lobster, the question is will consumers pocket these savings, save them or make this holiday season filled with food and cheer, melissa, back to you. >> thank you, dominic. is buying casual diners the best way to play falling gas prices. let's go back to the charts with the never casual carter braxton worth. carter. >> sure. well, we think the move in the casual diners is overdone. let's look at the charts and figure it out together. what's important about this is that there's a seasonal presumption here. we bottomed in november of '10. we bottomed again. we bottomed again. we're on a level where seasonally you're likely to get a throwback. this is basically -- we think the move in gas is overdone.
you're going to start to move higher. but take a look at the inverse relationship between driving gasoline and get rid of those. so here we have all casual diners in the market. it's the industry group versus of course gasoline itself. and this spread is the issue. these have appreciated, as the cost of driving has gone down. now, i want to look at what i think is one of the most excessive ones of all. this is buffalo wild wings, a well defined five year trend. now we have literally exploded out the top. in fact, we gapped up with earnings, we are so far above trend here, that this by all accounts is something of an exhaustion gap. just to put this in context longer term. take a look at the all time let's say chart since -- well, last ten years. if you look at where we are now, in relation to how far we've been above the moving average. this is about as extreme as it gets. so it begs the question, what to
do. well, take profits, sell, sell short. take a look, finally, just for good measure, here is buffalo wild wings compared to nothing as small as starbucks, cheese cake, even here, it is showing you how excessive it is up 100% year to date, up 124% over this period. sell. >> all right. that's pretty clear, mike. >> another silly valuation stock. i'll do the exact same thing i did in home depot. i'm looking to buy a put calendar specifically the december march 135 put calendar. i'm buying the 135 in march for 7.50 and selling december against it a net debit of 5.50. this is trading twice as expensive for the same rate of growth as home depot. we were talking valuation before, this is a stock i can't understand at these levels. >> any way you can buy puts in buffalo wild wings, these stocks make me ill. i don't know who is buying them? i don't know where people think they're going either. buyer beware.
>> the stocks are expensive. the options are not particularly expensive. and mike, by doing a calendar makes it even less expensive. so given the way that carter lays this out, carter who i bet eats chicken wings with a knife and fork. >> i don't think he eats chicken wings, period. anyway. >> the way carter lays this out, you have to be bearish. >> maybe chicken liver patee. coming up next final call from the options pits. [ male announcer ] once, there was a man who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell.
♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ time for the final call. scott. >> due to start trading next friday. >> dan. >> call your facebook stock. >> bearish bets in buffalo wild wings. >> looks like our time expired. thanks for watching options
action here from the new york stock exchange check out our web site and also check out our daily segment inside fast money every day at 5:40 p.m. eastern time. meantime, salute to the troops, mad money is up right now. >> announcer: the following is paid presentation for focus t25, brought to you by beachbody. >> [ echoing ] it's about time. the number-one people have for not working out is they don't have time. >> i have four kids. >> i work 60, 70 hours a week. >> i don't want to work out for no hour. are you kidding me? i don't have the time. >> announcer: no time to work out? no problem. introducing focus t25, the breakthrough in-home fitness program guaranteed over an hour's results in only 25