tv Options Action CNBC December 7, 2013 6:00am-6:31am EST
things. now, you stay safe. bye-bye! things is "options action" tonight -- >> do you understand the words coming out of my mouth. >> not when it comes to the bond market and the fed. why the markets got the taper wrong and bonds could be a better bet than stocks. double down. >> betting all. >> stocks are falling but casino names are hitting the jackpot. we'll explain why the winning streak is just starting with a special report. and trouble at home. >> i just want to smash your face in. >> not that kind of trouble. we'll tell you why home depot's recent weakness could spell
trouble for stocks. "the action" starts right now. >> live from the nasdaq market site in new york city's times square i'm melissa lee. these are the traders. while stocks continue their surge higher we're focused on a market mystery. why have investors become anti-social on a day that saw the dow jump almost 200 points, facebook, twitter and pandora were down. 3d stocks got crushed. why are investors shunning these high flyers? dan, these are the names that typically provide even more data to the market. >> i think it has to do with the fact that investors have huge gains in these things. think about it they're expensive stocks here and the market is going to have another leg, continue to go, all this news, you know, we're in the goldilocks phase with the data and potential taper and the market can handle it maybe investors start moving into industrial names, cyclical names and these speculative names are not as interesting at this point. >> seems this is a good sign for
the market's rally. >> i think it is. imagine you're sitting here managing some money and trying to play on the momentum you see in these stocks and suddenly think maybe this is for real, maybe it makes sense to buy general motors at 3.5 times, maybe it makes sense sentence to say deer is bombing out here. these are the names that look cheap. you can't buy into that unless you believe the economic story is improving. looks like people do believe that. >> or if you want to be in the space why wouldn't you be in a company that makes money that would be linkedin intended for people who have jobs and money and more people have jobs and money of today, linkedin up above a bunch today. i think linkedin is the best way to play the space. twitter doesn't make money. i don't know when they're going to make money. linkedin makes money, an upgrade today, 3%. >> let's talk about twitter, i think twitter is one of the most unique social media properties throughout. the facebook story is well
known. when facebook came to market in 2012, this is a mature company. twitter is a smaller company and going to have higher growth going forward. i think as far as social media is concerned and i don't put linkedin in there, they get half their revenues from companies, not from individuals. to me, twitter is this really, really unique property, yeah trades at 25 times next years sales and no one will be able to get their arms around that but i would almost put this in an amazon category where you may not be able to get comfortable with this valuation for years. >> you just hold your nose and buy. >> on the next pullback. >> the question you have to ask yourself when looking at twitter could twitter get to facebook in terms of revenues and earnings as facebook likely to do that kind of growth? i don't think anyone believes the latter. it doesn't price like that. twitter the price of the stock is suggesting that people think it could be a facebook story. i think at the current valuation it doesn't make much sense. it is that -- i think the story people are playing. >> i think those two are different.
you don't like linkedin because it gets half revenues from companies. but facebook and twitter get all their money from companies because they get their money from selling advertising. >> twitter will be a utility for users, 250 million users, a ubiquitous sort of server. >> you want to set yourself to take advantage of this. >> i wouldn't buy it here. 30 wall street analysts who initiated on the stock this week, mo of them -- nine buys, six sales and the average price is 40. the stock closed at about 45 today. i have not traded twitter yet, been around for a month now, and i just want to set up for bullish trades with defined risk. >> what is dan doing since he is bulling? buying a calendar call spread, strategy we don't use too often so we want to check that playbook to see how this works. bullish strategy, buy one call to finance that person, near dated call of the same strike. how do you make money? you want the stock below the
strike of the call you're short but above on the second expiration so this does require some timing. >> to me the stock has traded over the last month in about a $10 range between 40 and $50 and closed today about 45 in the middle. i actually think there's a good shot it's going to take a run at that previous high at some point towards the end of the year. people who own this want to see it go higher. to me the next piece of news is in late january the report there, fiscal or the q4 and that's going to be a real catalyst. you could have this new year effect where people come in and buy this stock, don't want to buy it up from the $26 ipo. when the stock was 45 i bought the december, january $48 counter call spread. i paid about $1 for that. i sold one of the december 48 calls at 60 cents, bought one of the january 48 calls for $1.60. what i want to happen here i wants the stock to move up in the next two weeks, december expiration to about 48. the 48 call ins december i'm short and going to ex pire and
then i end up opening that january call for a dollar. i may continue to roll weekly calls against it or turn it into a vertical call spread. >> the dates are interesting because they happen before any of the lockups happen. >> correct. >> so -- >> that makes a lot of sense because when you take a look at how expensive these options are even the short dated one ahead of those catalysts those are options you probably want to sell. this is one of the stocks where you have the better opportunities, 60% implied volatility is why these trades can work. you have to keep a close eye on it. the valuation of this stock is one i find nose bleed territory, i would rather write about it than buy it. >> i don't agree with dan's point of view but if you're going to be bullish get the math working for you and define your risk. he talks about selling weekly calls once the front option is expired. i like to call that a super calendar. great way to get the math on your side. >> move on to a bit of a market mystery prior to today the market had fallen five straight
days but casino stocks were raling. what gives, dominic chu back at cnbc headquarters with this. >> the markets may have been on a slide but the hotter upside action if will has been with the gaming stocks, the big names with operations here in las vegas and in mckau. shares of wynn resorts up 7% in the last three trading sessions and then las vegas sands up 6% during that same span as well. the larger u.s. listed international players have been faring well given a robust november climb in mckau and doesn't hurt when las vegas sands gets a credit rating upgrade from s&p from a junk status company to investment grade. melissa, las vegas sappeds really kind of helping to power these casino stocks this week. >> thanks for that. so can the hot streak continue at this point? call to the charts and find out the man who counts his cards in his sleep, carter of oppenheimer. >> yes. the relative strength is what's important when the week was very
poor until today, these stocks acted well all week long. let's take a look at a few charts. las vegas sands one year chart, what's important about this, basically a dead asset for quite some time that has come to life in a big way and orderly way. nice regular uptrend. the implication this throws to about 80. we closed today around 75, 76. take a look at it another way. the same uptrend, same chart but this breakout that kicks things off. we're in this channel, the presumption again around 80, 81. so put it altogether. this is the level from which we broke out. it's important. big range. the breakout is young. there's more to go presumptively. we're looking for low 80s. buy, stay long if you're already there. >> all right. well it's no secret that mike and carter are friends and i guess you guys have been hanging out quite some time because you brought a chart of your own mike. >> take a look at this. the interesting thing about this chart is, this actually shows the growth of the gaming business in mckau.
a chart of the number of casinos in mckau. see right now we've got about 35 casinos. how big is the mckau business? interesting las vegas sands the stock we're talking about gets less than 16% of their revenues from las vegas. singapore is bigger than las vegas but mckau is the balk of the story, done more than $40 billion in gaming revenues. you see there at the upper right-hand corner there where it's blocked out in yellow there aren't going to be any new casinos coming on-line until 2015 at the soonest. what we have is a supply constrained market over there. and you can see that in the rev, which is how much they're getting to bill for their hotel rooms. you can see it in their occupancy rates much higher than in las vegas, so this is kind of the ideal situation for the casinos. i think that is one of the reasons why we're seeing these things actually, it's not just the growth in revenues, they're starting to trade at higher multiples and i think the expectation is that strength in the gaming industry is going to translate into significantly higher margins. >> what's your trade? >> the thing is all of these
stocks we're starting to see the option have declined a great deal. when getting cheap the only thing you can do is go out and buy them. i'm looking at the march 80 calls, buy those for about $2.70. i'm going to look for an opportunity to spread this trade. these things like i said, the valuations, mult. s have exed. aed. this one trading about 27 trailing earnings and 22 times or so forward earnings. this is a situation where it is trading at a little bit of a premium to the market. to its pierce peers i want to talk a cautious bullish bet. >> would you be cautiously bullish? >> the chart looks beautiful, a nice breakout and that is the way to do it. i can't speaks to the fundamentals. the long-term chart that carter has when you look in '07 when the stock went from 80, almost right now, and went to 140 and the lows of the financial crisis almost went to 0, that's the reason to be buying calls in stocks like this rather than opening stocks. >> i would still be less cautious than dan. why? because revenues in november for the entire space that is mckau
up over 21%, expectations were about 20%, which is still a huge number. they met it, beat it. i actually think that mike points outs the problems with constraints as far as volume over there is concerned. i think it's a great name, a great space and i would be even more bullish than mike. >> all right. let's wrap this up. stocks versus options. want to buy 100 shares of las vegas sands, better get a line of credit as 100 shares will set you back almost $7600. mike's call purchase offers leverage to the upside in calls just under $300. got a question out there, send us a tweet at cnbc options we'll answer it right after our show on our website, optionsaction.cnbc.com. scott has a way to play the rally in general motors. you'll find great trader blogs, educational materials, keys for living a happy and healthy life. it's true. check it out. here's what's coming up next. >> housing has been on a mend. >> little problem in the
kitchen. nothing trivial. >> so why are home depot shares falling? we'll tell you why the answer could spell trouble about the market. plus, talk about a bold call. >> i want [ inaudible ]? >> not quite that bold. dan and carter do think the sell-off in bonds might be over and they'll tell you why and how you can profit. that's when "options action" returns. [ indistinct shouting ] ♪ [ 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. ♪
action." good news got a good market reaction. that hasn't been the norm given the fed stimulus. the jobs number was better than expected. unemployment fell to the lowest level in five years. traders want to keep an eye on the interest rate sensitive plays with yields on the rise under performance could come from income substitution plays. think the conventional wisdom. the utilities, telecom stocks, consumer staples would fall in value. all three were in the green today and none were among the worst performing sectors. even the real estate investment trusts and etfs that track them was higher on the day but now let's be honest here, it might being for many to see good news being interpreted in a good way by the market. maybe it means that fundamentals are back? question mark. >> we'll see. thanks for that. is the relatively strong performance of interest rate sensitive stocks giving us a clue about where bonds might be going. let's head to what we like to call the bears hair.
find out with carter and dan. carter kick it off there. >> all sorts of charts. the bonds did act well today and that's counterintuitive. let's take a look. this is a yield chart over the past one year. we know the high is around 302 and this is a very symmetrical formation. the presumption is we've returned back to that top and usually this about where you stop. put this in a longer term. that action there, which i'm showing you here, take a look at it in the longer term chart, this action here. now long therm you can call this a cup and handle, it implies this, but in the first instance before you do that, you back in fill for quite some time or back away. so let's look at the action, the ten-year note, we actually close at or near the high of the range and has all the hallmarks, something of a head and shoulders bottom. take a look at the 30-year bond which, of course, is a much more treacherous, but it also held the low, and we think that's
very important, and finally, the tlt, which is the instrument in question, it is right here at these lows, and it, too, closed at or near the high. the presumption is, tlt bounces. this, of course, is the etf for 20 year and longer bonds. >> this is one that to me, i find this very interesting. i think this is as a trader a really tough press here. you said it was counter intuive that bonds were up on day like today but to me, i've take an step further. when i look at this, here's the tlt, this is backing out for about five years. this to me is like danger zone here. all right. this is where we were on that other chart right here. okay. so this is really tough press and the price action today, didn't really suggest that you should get in there and press it right now. when you look at this chart right here, of the ten-year treasury yield versus the tlt, going back to 2009, we got to 4%, right there, and the tlt was at 90 okay. here we are over here okay. we closed at about 2.88 and the
tlt is about 102.5. to me i actually -- carter is bullish. he thinks the bonds will rally a little bit here. >> largely on the way they perform today. >> right? >> in light of what should have been a horrible day. >> i don't want to press it this short here. if it rallies to where you think it is, resistance at 105 in the tlt. this you an important chart, implied volatility of the tlt. look at this. basically at five-year lows setting up for an options trade to be a little bit contrarian if you want to do it. to me i'm not doing this monday morning but if i get that pop that carter thinks is going to happen in the next couple days or week, what i want to do is really just because that implied volatility meaning the price of options is just so low, i would just buy a put and look out to march, talking about taper, maybe january, maybe march, and if the price is today at 102.5 you could have bought that at the money 102 put for $3 breaking even at 99, down 2.5%
or so. i like the risk/reward of that trade if you think bonds are going lower. >> i'm completely with dan here. if you're going to buy long dated treasuries at this level that's like selling cheap puts. dan's trade is to buy a cheap put on a cheap put. there's a lot of ledge leverage in that trade. we can't expect rates to go a whole lot lower. you're sort of capped on one end but have a lot of room to run on the other. these are the kinds of situations that options traders wait for. i absolutely would support dan's trade on this. >> interesting thing, they are looking at a little different time frames. i think carter thinks the market will back and fill for a short period of time. i think it's going to be a very short period of time. if you agree with carter i would wait to put dan's trade on but i will not wait very long. >> dan? >> and that's the whole point of the trade. i love his analysis and shows me there is an opportunity for a short-term technical bounce and may get me the opportunity to get in there. >> because the bonds were down so hard before the payroll report and they snapped right on the news. >> all right. coming up next, could a warning
for the market be found in the aisles of home depot? we'll it tell you why this big box retailer could make or break the next leg of the rally when we come right back. stay tuned. ♪ [ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... 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.
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welcome back to "options action." time to get called out where we take a look back on trades that have not worked out. a couple weeks back carter made a bearish bet on home depot. the stock has rallied but haven't lost too much money and here's why. an options action is how we build winning trades, risk less so we can make more and that's just what cowen carter tried to do. carter thought it was time to ditch home depot. >> the company is not right here. >> shorting the stock. so define his risk they say bought the strike put for 95 cents. now to make money mike needs home depot shares to fall below the 67.50 strike price by more than the 95 cents he spent or below 66.55 by february expiration. a risky 95 cents just to bet
against home depot. this ain't a million dollar listing, boys. so to spend less mike then sold the december 67.50 strike put for 35 cents and created his put calendar. but he did something else. he put the odds in his favor and here ease how. between the 95 cents he spent on the longer dated put and 35 cents he collected on the shorter dated put mike cut the total cost of his trade down to 60 cents. and now instead of needing shares of home depot to fall below 66.55 to make money, mike sees profits if the stock falls below 67.50, or below 66.90 by february expiration. it gets even better. >> better than mcdonald? >> that's because the value of the shorter dated put mike sold will decrease faster than the value of the longer dated put he bought. letting him do something even the handiest men can't do, turn
time into money. >> are you sure? >> but remember, there's a tradeoff. in order to make the most money mike need home depot shares to stay above strike price of the put he sold. but below the strike price he bought by the second ir spigs rags. since the time of the trade shares have risen 4% making this trade neither a winner nor a loser. >> wow. >> and now options action fans only have one question, what will these two property brothers do to fix this trade? >> perhaps this might be some consolation. had you shorted 100 shares of home depot at the time of the trade you would have lost about $500. now mike's put fly has lost about half its value. when you risk less you lose less and close out his position today he would be looking at a loss of about 25 bucks. so here is where it gets interesting, though. the shorter dated put that mike sold is now worthless which has help offset the decline of the
value in the longer data put. mike needs hd shares to fall by the seconds expiration in february. will that happen? carter got us in so we got to turn back to carter. what do you see ahead for hd some. >> we think it looks stalled. the stock is the perfect intersection of retailing, home building, consumer and it acts heavy. it has not kept up with the market month to date, quarter to date and we think the risk is still to the downside. >> what do you do, mike? >> other than go to home depot about twice every weekend since i bought a house, i've been supporting the stock myself i think. if my wife is watching the show that's what she would say. the put we're short if you can buy that back at a penny that's what you do. the put we're long we have to roll that up if we're going to press a bearish bet here. the probability has dropped down too far. >> final thought from the options pit. [ indistinct shouting ] ♪
time for the final call. the last in the options pit. scott? >> this week is all about general motors. >> dan. >> twitter call calendar. >> i like dan's trade. >> looks like our it time has expired. i'm melissa lee. for more check out our website. "mads money" starts 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