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tv   Options Action  CNBC  August 10, 2014 6:00am-6:31am EDT

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then money, then things. then money, then things. you stay safe. bye-bye. there is "options action." >> tonight from russia with love. investors around the world are freaking out about russia. could the return shan stock market be your best bet? we'll tell you the best way to play it. >> plus, even though stocks have come down, we'll tell you how to protect it. and what does new york's most famous deli have to do with options action? >> i'll have what she's having. the action starts right now.
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live i'm standing in for melissa lee. these are traders in times square. a key test looming next week. that's because there is one key group we still have to hear earnings from. that is the retailers. let's try to find out. do you think it's a moment of truth for the consumer? i never doubt the u.s. consumer? maybe i'm a skeptic. this is a pretty mixed bag of retailers. i don't know that we can say that walmart and macy's and nordstrom equate to the same thing, but take a look at wages. these have not ticked up very much. that's not positive for the consumer. we had the minor uptick in the unemployment number a little while back.
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take a look at the results from mcdonalds. they weren't so great. i don't see the american consumer seems pretty tapped out. unless something comes along to put cash in their pocket, i don't see how they fuel a rally. >> doesn't it depend on the consumer? there's a top, middle, and bottom end? >> i'm talking about the middle class and the working middle class. the guys shopping at target and probably more so kohls at. >> interest rates have fallen. money is flowing from europe into the united states right now. i think as you see the ten-year interest rate that's more money in the consumers' pocket. gas is dhaerp for the consumer. i think there's positive effects here. where we could see the consumer back into play and charge the economy further. >> people are using reinvolving
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credit to make purchases. if you're buying a new house that's good news. if you're buying groceries with plastic you're pretty strapped. >> assuming there's no agree yo political issue here, they will move the market. the consumer data matters. it does. you look at reports of target. it matters. it's giving you insight into the consumer. it matters for the economy. the better the economy is doing but not too great, the better it is for market. >> the average american consumer do you think they care what is going on politically? >> what is going on in ukraine and iraq is not affecting whether or not somebody is going to walmart. if anything, it would prompt them to go now. they lift everything off the shelf when they panic. i don't that's the case now.
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>> alcohol stocks go up. when people are stressed out you need a little bit of a drink maybe. you're looking at walmart specifically. >> it's going to be reporting a the end of next week. it's a name that is only applying about a 2.1%. it's about how much on average. that walmart does. they get $13 billion in jop line sales. the real story despite those and the five acts and things they have done the market doesn't seem to love the stock at trading well less than a market multip multiple. i'm looking at the one stock that expired not next week but the week after. they report next friday. you can spend $1.
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if it moves a couple of percent to the downside they could pay off. >> to be able to pay aef and possibly do that off the earnings is a smart way to do that. i think we're going to butt heads today. you seem a little bit more negative i seem a little bit more positive. if you bring up the chart it looks uly. it has broken down. it's retesting that one support line. we're bumping up against the resistance. i don't think we don't get past the level there's serious downside risk in walmart. >> sheer what i think. in general what you're buying is something for fair value. you're not paying -- you're getting in there is pretty much fair. it's around 22%. it's typically what you see. i don't think it's a terrible trade. >> on balance we're long stock probably everybody watching is long stocks and trade like that are best way without shorting a stock that is trading at 13.5%.
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>> the russian stock market having the best day since june and seeing even more gains. you're back this year. stocks here may have got an pretty decent move to the upside. they took off after russia reported announced an end to military exercises near the ukrainian border for now. it was twice as good for the russian stock. if you look at the rsx. the etf that tracks the russian market. it rose about 2.5% today. that ignited a ton of options activity. rsxeta options traded three times the average daily buying. much of the call buying centered around the august expiration. still keep in mind that this etf is down almost 20% on the year. it might be too soon to call it a come back yet.
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>> thank you very much. setting that up, what is the trader back in the states. how would you play the russian market? >> it's an interesting situation. russia obviously the rsx had a couple of interesting situations this year. if you go march with the crimea it sold off roughly 1%. after the tragic malaysian airlines crash you have roughly 10% come out. you had a little bit of rally here. the volatility increased. you would expect it to increase. part of the reason is the csx is moving more. we went from low 20s to high 20s. on the higher side we've seen. below average over the last five years. if you're interested in russia if you think there's potentially a rebound. one of the things i would consider is options. there are so many different moving parts right now in russia
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between the various sanctions. i'm more comfortable owning options. the strategy i like here. i was looking specifically out to the september 25 strike calls. i look today rsx was trading around 27.75. they were offered around 50 cents. it's recouping some of what we we've seen them lose. >> i want to point something out. the russian liquid stocks were trading just under six times. they are about the same place now. the s&p, which was less than 14 times earnings back then now closer to 17 times. wubl of the things you have to look at is, you know, i like making a bullish bet here. it's one of the situations where you have cheap stocks. everybody is so panicked. getting an option gives you a little bit of leverage without taking the risk of going out and buying it. >> i think one mistake people make when they buy the call they wait for expiration to happen. basically what you do here is
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what i recommend. if you see a pop and russia pull away from the borders or get better. you might want to buy the call and look to sell it out later. you don't have to ride to expiration. you can trade around it. i think there's going to be a lot of volatility coming up. >> other things you can look to is spread spread the rollout in trade like this. this is one the situations where the stock is cheap. i know, a lot of value investors are looking at situations like russia. you can purchase financial assets. >> to mike's point. i didn't find any spreads attractive. the 25 strike is pretty much where it was prior. if you do get the pot there keep in mind it should increase that option there. i like brian's point you don't have to hold it through september. i chose september because august is too short.
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>> if you, the viewer, has a question. you can tweet us at cnbc options. for everything options action. you can check out our website. this is what is coming up next. why are options trade flocking to new york's most famous deli? >> it's more than that. it's because there's money to be paed. we'll explain why. >> you want to see something scary? >> if you. look at the vik. they are betting on a big move higher. we'll tell you how to profit when options action returns. ♪ [ 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.
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[ 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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when the world moves, with the mobile trader app. futures move first. learn futures from experienced pros with dedicated chats
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and daily live webinars. and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade. the fear is apparently still here. stocks close high this week. the question is it signaling trouble? brian is other there. he's going to break it down. pull out the special pen and show us what we're looking at here and what levels. >> i track it off. before you get to decide where it's going. let's see where it came from and take a look at the road map where the vik was at. it's interesting what happened in the last couple of weeks in the market. when you take a looks at the vix and you look here it's the 16 level. why it's magical when the market drops below 16 in the vix. you get the feel good. it's good feeling about the
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market. the market continue to rally. what is even more interesting is this time frame right here was one of the longest streaks in history of the vix that stayed below 16 after a drop below there. only in 1996 was there a bigger longer time. one of the negative thing that happened. this is the bad area. people were talking about the vix is broken. it doesn't mean anything. when we drop below 12 here. it took a little time. typically when the vix goes below 1 within six months we see a significant pop. the streak has broken. this was a little bit longer that than. it bopped above 16 and we have volatility in the market. it's a bad sign when you get it in july and august. >> we're coming off, as you pointed off an incredible bloi low historical base. we get a little bit, you know, overreaching a bit when we talk about who we have back in the system. we're no longer complacent.
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it's relativity low levels. >> that's a little bit fearful. typically after the market makes a 12 fortunate move when it happens in july or august. we see it happen again two, three, five times the average the last five times it happened. we talked about that 12 level in the vix. when we hit it here we saw a tremendous run in the market. that was a lot of complacency. and the 1880 level is what we hit when we broke 12 in the vix. last night we saw the s&p future trade below that 1880 area. so certainly we got a little bit of a flush out in the market. i think finally we got that recovery. that sell-off that was called for and now the market popped and back. i think there's a lot of overhang right in this area in the s&p. so even if we trayed up to this 1940 level, i think you have to worry we get a little bit over extended and sell the rally and
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start to short in. >> i don't know if we're going to see the volatility that we got in august of 2011, but i think it's important for people to remember, you know, the month that a lot of people get scared about is october. what they should pay attention to is september is typically a volatile month if you take a look at them. there's a lot of things that could potentially go wrong here. we have seen some basically foot off the gas pedal. we have major concerns that weren't discussed that much this week with italy and pain spain. and other political risks in a host of places. that combined with consumer earnings result if they're not that positive every single one could pressure the market. >> i think a couple of things you need to think about here. we're heading to the weekend. these are the areas that are scary. the fact the vix didn't drop significantly today. i wouldn't read too much into that. the other thing i would say the
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vix is at 16. that's a 1% move every three days. we saw it yesterday and today. we're seeing the movers. so the involve timty is 16 here. i think the longer term trend. you i think we'll see the s&p trade up. i think we have to look at the consumer names we talked about in the first segment how they produce. i think if we get weak earnings from names like walmart if that seems to be facilitiering we have cheap commodity prices. i think we can get the over sell-off and hit two or three more times. you could see the worst possible
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thing that money flows out of them. we saw that this week. that's what i would be concerned. people see big name in this case know about. thaez percentage of americans might say i want to reduce my exposure. i think we're up on the year. >> i actually think this is an interesting situation. we started to see more bullish traded on the s&p 500 options today. i think the investment has shifted and the sentiment is bullish. >> why did "option action" take a trip to the deli? it may surprise you and make you money. we'll be right back. [bell rings] ♪ time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box.
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all on thinkorswim, from td ameritrade.
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[b♪ll 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.
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options actions fan may span the globe, but some of our biggest admirers are here in new york city. this week we took a trip to new york's most famous delly to meet one of them. >> my name is jake. i'm the fifth generation owner here at katz's deli on the lower east side of new york city. we're here 126 years.
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this is the sandwich and by far the most popular. we go through about 15,000 pounds a week. we have to cure it for three to four weeks. it's smoked at the low temperature with a certain type of woodchips that i can't disclose. it's boiled for four to six hours and steamed for another half hour. it's hand carved here by our artists who make these beautiful 3/4 pound sandwiches. at 8:5 do you have any options that are cheaper? >> might be a tough call. we need an option that is cheaper than 18 and perhaps even more delicious. is it an easy one? >> making it more delicious is tough. i love their sandwiches. i wish i had one. >> i think the producer nixed the idea. >> there are places where there are cheap options.
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typically stocks lower volatility cheaper options. and bad news that has already come outs ones can get cheaper. there's a stock that meets several of the criteria. that's bank of america. bank of america on a dollar basis it's a relatively cheap stock about $15. you can buy the september 16 calls. that's cost about 15 cents. here is the thing. this is a company trading less than book value. for a financial is usually good news. the other is there's so much bad news. these are the kinds of situations i want to look for. i hope everybody wants to flush it down the toilet. i think what happened to bank of america. a massive settlement. this is on top of $60 billion they already spent. when you take a look at these things together people feel like how are they getting out from under? that's the answer. once you sweep them out of the away you can make money. especially if the market stays
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volatile. it has to move up about a buck. 15 cents seems like a cheap way. for a good reason. >> hopefully that's bind us. what do you think about bank of america? >> keep in mind the 15 cents. buying one option contract it equates to $15 he got his sandwich. looking at bank of america. i own it. i think these trade are interesting. that being said more times than not they don't work out and why do i trade options. part is think about using. the leverage to the upside and the capital you're spending. you get the expose sure. you need the commune here. >> when you buy them to make directional bets. stacy touched on it earlier. are you getting them close to value? frequently short dated options if all you did was buy weekly options you would have a hard
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time making money. right now we have a situation where volatility picked up. this stock has been beaten down. it could make a break one way or the other. these are the times you want to use them strategically. >> considering the tall order out there less than 18. you think bank of america was the best one to pick? >> i think so. when you look at bank stocks. bank of america i like that. and basically the theme has been buying options. we talked about increased volatility in the marketplace. when it increases like mike says. you want to own options. bank of america makes sense. i like owning a call option in this kind of environment that we're in. i think we have a handful of more volatile days to come all the way through labor day maybe even past that. a quick programming note coming up on mad money. changing the way people move with diabetes. all of that plus the conclusion
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of shark week is just ahead. coming up next, the final call from the options. ♪ [ 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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when the world moves, with the mobile trader app. futures move first. learn futures from experienced pros with dedicated chats and daily live webinars.
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and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade. it's friday early evening. it's time for the final call. brian? >> stacy, mike, good to have you back. original options action crew on tap here. a lot of volatility still to come. i would be buying options if you're going to do anything in the marketplace at least look to buy protection in the stock market. >> good word. >> we didn't get the sandwiches here. one thing i would like to do is buy throw of them right now. i'm going it take the money and buy the rsx. >> you're never going to let the producers live it down. >> i like the idea of buying things and things that are cheap. rsx qualifies.
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for $15 the bank of america calls also. will somebody please get me a sandwich! >> thank you, guys. it looks like our time is expired. for more "options action" if to our website. ands a check out the daily segment. every morning at 5:40 p.m. the following is a paid advertisement from the new face of time life, starvista entertainment. so sit back and relive the moment. it was the decade of 8-track tapes, rotary phones, big console tvs, tower-size stereo speakers, am radio, and great songs on 45s. ♪ the sailors say brandy, you're a fine girl ♪ ♪ [you're a fine girl] ♪ what a good wife you would be ♪ ♪ gonna keep on dancin' to the rock-and-roll ♪ ♪ on saturday night saturday night ♪

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