tv Options Action CNBC August 9, 2014 6:00am-6:31am EDT
don't you ever forget this. it's this. people first. then money. then things. you stay safe. bye, bye. this is "options action," tonight, from russia with love. >> i'm mr. bond here. >> investors freaking out about russia, but is it the best bet? the easy play. plus -- >> you think i'm scary? >> this. even though the fears calmed, they are sounding the alarm. how to protect yourself. what does new york's deli have to do with the options action? >> i'll have what she's having. >> it could make you a lot of
money. the options start now. >> i'm in for melissa lee tonight, hello, everybody, these are the trieders in times square. hello, everybody. great to have you with us. stocks rallying, there is a key group we still have to hear earnings from, and that is the retailers, folks, names from macy's, kohl's, walmart report next week. will they save the rally or the next shoe to draw? let's get in the money to find out. mike, do you think it's the moment of truth? by the way, i never doubt the power of the u.s. consumer. >> you know, maybe i'm a little bit more of a skeptic. i say that, but i am on this one. that's a mixed bag of retailers reporting next week. i don't know that we can say that walmart and macy's and nordstrom equates to the same thing. look at wages. they have not ticked up much. that's not positive for the consumer. there's a minor uptick in the unemployment number. look at results from mcdonald's,
not great either. you know, i don't see the -- the american consumer is tapped out to me right now. unless something puts cash in the pockets, i don't see how they fuel a rally. >> doesn't it depend on what consumer you're talking about, the top end, middle end, bottom end, are you talking across the board? >> the working middle class, the americans, the guys shopping at target, probably more so kohl's and walmarts of the world. >> you have to consider interest rates have fallen. money flowing from europe into the united states now, and as the interest rates trade below 2.5%, that's money in the pocket. commodities, grain and oil prices and gas, that is cheaper for the consumer. i think there are some positive effects here where we could see consumer come back in play and charge the economy further. >> that does not help people using revolving credit.
if you buy a house, good news, but if you buy groceries using plastic to do it, you're strapped. >> what do you think? >> assuming there's no bigger geopolitical issue here, that ultimately moves markets, that is the bigger fact here, consumer data matters. it does. look at the reports of target. that matters. that's giving you insight into consumers. look how the consumer is doing. it matters for the economy. the better the economy is doing, not too great, there's one for the market. >> do you think the average american consumer, you think they care about what's going on geopolitically? >> they should. i mean, ultimately can impact the u.s. as a whole. difficult to imagine that some of the situations going on would impact that. >> what's going on in ukraine? what's going on in iraq is not affecting whether or not they go to walmart. if anything, prompts them to go rather than not. when people panic, they lift everything off the shelf. i don't think either is the case here. i don't think those impact the americans.
>> don't you see alcohol and cigarette stocks go up, when people are stressed, you need a drink, maybe. mike, walmart specifically. what's the trick here? >> reports at the end of next week. it's a name implying a 2.1% move, how much it moves on average. this is not a stock that performs well after earnings. reason is they have a lot of secular head winds. there's not top line growth despite little things they do pretty well. sam's club is growing at the rate of costco, twice the multiple that walmart does and $13 billion in online sales. despite those things and the acretive buy backs and things done, the market does not love the stock, trading well less than the market multiple. take a quick look at the august 74.5 -- at the money put, not the ones that expire next week, but week after, two week options reporting friday. you intend a dollar for those. if this moves a couple percent
to the downside, they pay off nicely. >> to pay off and possibly do that after the earnings play is the smart way to do it, we'll butt heads on the show because you are snegtive on the consumer, and i'm more positive here. i'm not certain walmart takes the tank. the chart looks ugly. it has broke down, retesting a support line, and the resistance, if we're not past that level there, there's serious downside risk in walmart and buying a cheap put like that gets you in play. >> what you are buying is fair value, not paying up, implied move is fair, that is 2%, typically what you see. i don't think it's a terrible trade, but a fair value trade. >> what i say is on balance, we're long stocks, everybody watching long stocks so trades like this are ways to make hedge best to the down side without going out and shorting a stock that's trading at 13.5 times.
>> the russian stock market had the best day since june, and traders see more gapeins, domm chu, what are you hearing? >> absolutely, they got a move to the upside taking off arian the interfax reported russia announced end to military exercises near the ukrainian border for now. it was twice as good for the russian stocks so if you look at the rsx, the exchange traded fund, the etf that tracks the market, rose 2.5% today actually. options traded three times their average daily volume. now, much of that call buying centered on the august expiration suggesting traders see a move higher in the coming just short term, the next few weeks here. still, keep in mind, this is down 20% on the year so it might be too soon to call it a comeback just yet, guys.
back to you. >> thank you. what's the back of this? how do you play the russian market? >> it's an interesting situation. ruch s russia, obviously, a couple interesting situations this year. beginning of march, crimea crisis, two weeks to bounce back. where are we now after the malaysia airline crash? 10% of the rsx came out. there was a rally here to chu's point, the volatility increased. you expected that. where are we in terms of volatility? low 20 s to high 20s. this is below average of what we've seen over five years. russia, the way i look at this is if you're interested in getting long russia, if you think there's potentially a rebound here, one of the things i consider is options. there are so many different moving parts right now in russia
between various sanctions, geopolitical issues, comfortable with options. the strategy i like here, looking specifically out to the september 25 strike calls, and i look today, rsx traded at 2375, offered at 50 cents. the break even of the trade is we've seen lost over the last couple weeks. >> the russian stocks, top 50 liquid stocks in russia traded six times earnings. where are they now? about the same place. s&p less than 14 times earnings then, now close to 17 times. i like making a bullish bet here. this is one of the situations where you do have really cheap stocks because everybody is panicked. getting an option gives you leverage out the risk of buying it. >> i think one mistake people make, too, buying the call, they hold on and wait for expiration to happen to finish in the money. basically, what you do here,
what i recommend, if you see a pop, russia pull from the borders, things improve, just buy the call and look to sell the call back out later. don't ride it to expiration. trade around it. i think there's a lot of volatility in the market coming up. just owning and waiting for expiration is not the right thing to do, but buy the call to take the profit. >> spread and roll out trades like this. this is one of the situations where the stocks there are so cheap, and i know a lot of value investors who play in emerging markets are looking at situations like russia where they are cheap. there's not a lot of places where you purchase financial assets. >> to mike's point, i did not find spreads. the 25 strike is where it was prior, so if you get the pot, keep in mind, that increases options there, and i like brian's point there, you don't hold through september. i chose september because august is too short a time period here. there's time for rebound, doesn't mean you hold until then. >> bottom line.
okay. if the viewer has a question, tweet us at @cnbc options, and check out the website at firstname.lastname@example.org. this is next. >> why flock to the deli? >> i think they're having an okay time. >> it's more than that, billy. it's because there's money to be made, and we'll explain why. >> want to see something scary? >> if you do, look at the vix. how to profit when "options actions" returns. [bell rings] ♪ time and sales data. split-second stats. ♪ its so close to the options floor,
you'll bust your brain-box. all on thinkorswim, from td ameritrade. the fear is still here. even as stocks closed this week high, the vix remains hot. the question is is it signaling trouble for stocks? brian is at the plasma screen to break it down for us. pull out the special pen and show us what exactly are we looking at and at what levels. >> the vix is my baby here. before you decide where it's going, see where it came from. look at that road map where it was at. i think it's interesting on what's happened in the last couple weeks in the market. when you take a look at the vix and look in here, this was sort of that 16 level. why it's magical is because basically when the market drops below 16 in the vix, you get a feel good, right? this whole area was good feeling about the market. the market could continue the
rally. the s&p could continue, and what's more interesting is this time frame right here was one of the longest streaks in history of the vix, stayed below 16 after it dropped below there, only 1996 was there a bigger, longer time, so certainly that was a good sign for the market. the one negative thing that happened, this area, the bad area, right? people were talking about the vix is broken, does not mean anything. well, when we drop below 12 here, yes, takes time, when it drops below 12, within six months, there's a pop, the streak broke, the hitting streak here, this was longer, but popped above 16. now there's volatile any in the market, a bad sign? july and august. >> if question pop up, you pointed incredibly low historical base, are we overreaching talking about oh, there's fear back in the system, no longer come play sent, but a
relatively low levels. >> we are. that's fear. . look at the vix, after the market makes a 2% move, when that happens in july or august, we see that happen again, two, three, even five times average the last five times that's happened in ten years. basically, we talked about that 12 level in the vix, and so when we hit the 12 level here, we saw a tremendous run in the market, right? that was a lot of complacency, and this 18 80 level, that's what we hit when we broke 12 in the vix. last night, we saw the s&p futures trade below that 1888, 18 80 area. certainly, we got more of a flush in the market. i think, finally, we got the recovery, the sell off that was called for in complacency, and now the market popped and is back. i still think there's a lot of overhang right in the area in the s&p. even if we trade up to this 1940 level, i think you have to worry that maybe we get every extended in the rally, and that's sell the rally and start to short
into that. >> what do you think, mike? >> i don't know that we'll see the volatility we got in august of 2011, but it's important for people to remember the month people are scared about is october, but pay attention to septembertypically a volatile month. a lot of things could go wrong here. we've seen foot off the gas pedal with qe. we have major concerns not discussed that week with italy and spain, and, of course, other geopolitical risks in a host of places combined with more consumer-related earnings results that if they are not positive, every single one could pressure the markets. >> a couple other things to think about here, headed into the weekend, what happens on the weekend? these are areas that are scarier. the fact that the vix did not drop significantly today, i do not read into it too much. there's embedded volatility for the weekend when you kaempblt trade anything. the vix at 16, that's
incorporating a number of things, not the least of which is volatility, can go either way, that's a 1% move every three days, we saw it today. we see the moves. i understand the longer term trends to it, but realize that 16 says the market moves. that means up sometimes. >> what do you think is the catalyst to take us higher or lower next week? >> i think the catalyst are the technicals flush out, s&p trades up to 1940, and we have to look at the consumer names that we talked about in the first segment here on how they produce because i think if we get weak earnings from names like walmart, priceline, earnings monday morning, a great indication how the consumer's doing. if that is faltering, you know, we have cheap commodity prices, consumer should be doing good. if that falters, could hit three times of over 1 %. >> if it falters, could be the worst thing for prices, money flows out of them.
that's the thing. this week we saw that, and that's what i would be concern about. if people see big names they know about, those percentage of americans would reduce exposure. still up on the year. that's important to remember. the market's not down yet. >> saddle it up for us. >> this is an interesting situation. bullish trading in the s&p 500 options today. i think the investment shifted, and it's bullish. >> next, why did "options action" take a trip to the deli? the trip would surprise you and make you money. that's what's important on this show. we'll be right back. ♪ [ 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
"options action"'s fans span the globe, and we have aspirers in new york city. we took a trip to the most famous deli to meet one of them. ♪ >> hi, i'm jake dell, fifth generation owner here, and we're down on the lower east side of new york city, here 126 years, oldest, and objectively speaking, the best deli.
this is the most popular sand witch. we go through 15,000 a week, cured for three to four weeks, smoked for 48 to 72 hours at low temperature with a certain type of woodchips i can't disclose. it's filed for four to six hours and steamed for a half hour. this is all hand carved here by our artists who make beautiful three quarter pound sandwiches, at $18.45, do you have options that are cheaper? >> a tough call, mike, we need an option that's cheaper than 18 bucks and more delicious. tough order or easy? >> well, making it more delicious is tough. i love those sand witch, and i wish i had one in front of me. >> the producer nixed the idea, sorry. >> we'll have to talk about that, but in the meantime, there's places with cheap options. stocks that are cheaper have
cheaper options, lower volatili volatility, there's cheaper options, and bad news that's come out, options are cheaper. there is a stock that meets several criteria, and that's bank of america. >> bank of america. >> bank of america on a dollar basis, it's a cheap stock at $15, buy the september 15 calls, that costs 15 cents. this is a company that's trading at less than book value, which, for financial is usually good news. the other is there's so much bad news. these are situations i look for when i want long something. i hope everyone wants to flush it down the toilet. what's happened to bank of america, there's a massive settlement. this is on top of the -- >> sentiment in corporate histo history. >> on top of 60 billion already spent. when you look at that together, how do they get out? that's the answer there. once you start sweeping it out of the way, the companies proceed and start to make money. this, i think, especially if the market stays volatile, this moves up a buck, 15 cents seems
like a cheap way to make a bullish bet in a stock going up for good reason. >> we hope it's behind us. bank of america, guys? >> 15 cents, when mike's talking 15 cents, that's buying one action contract, e kating to a hundred shares of stock, that's $15, hence, he got the sandwich. looking at bank of america, i own it in my personal account, the trades are interesting. that being said, more times than not, they do not work out, people are frustrated, why trade options when i trade this? part is, think about what you're using here. the leverage to the upside, capital you spend, again, the sub $18, and you need a dollar move here at the money option. >> real issue when you trade options, when you buy them to make directional bet, and this was touched on, are you getting them at fair value? very frequently, start dated options, if all you ever did was buy weekly options to make a directional bet, you have a hard
time making money, but now there's a situation where volatility picked up. the stock is obviously beat down. could make a break one way or another. these are the times you want to use them strategically. >> considering the tall order out there, less than $18, more delicious than the sandwich, bank of america the best as well? >> i do. bank stocks, bank of america, that's at the top of the list there, and, also, you know, the theme is the whole show is buying options, talking about increased volatility in the market place, and when it increases, like mike says, own options here. bank of america makes sense, upside of the stock, bank of america, a call option in this environment we're in because we have a handful of more volatile days to come through labor day, maybe past that. >> okay. a quick programming note, on "mad money," cramer has shadow stock and the biotech, changing the way people live with diabetes, all that, plus the
you'll bust your brain-box. all on thinkorswim, from td ameritrade. friday early evening, time for the time call, last word from the options pit, brian? >> good to be back, original options crew on tap here. listen, volatility still to come like i talked about. buy options if you're going to do anything in the market place or look to buy protection on rally in the stock market. >> good word. okay. stacy? >> so we didn't get the sandwiches here, but what i want to do is buy three right now, and by the three, take that money, buy the rsx september 25 strike call. >> never going to let the producer live it down, are you? >> i certainly like the idea of buying calls and things cheap and beating up for all kinds of reasons, and rsx qualifies, so
for 15 bucks, bank of america calls also, somebody, please, get me a sandwich. >> leave the tip. thank you, guys, our time expired. for more, go to our website, optionsactions at cnbc.com, remember that. we are here every day at 5:40 a.m., and see you next friday. ♪ >> a better back and a better body. since 1981 that has been my passion. i created teeter hang ups so people could live healthier, more active lives. i know what it's like to have back pain. when i found inversion, it changed my life forever, and i believe it can change yours. i am proud to present the newest and best teeter hang ups. >> if we wanna live not only a long life, but an active, healthy, pare