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tv   Options Action  CNBC  February 1, 2015 6:00am-6:31am EST

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at theare live we are live at the nasdaq on a brutal friday for stocks, these guys getting ready to give their best news. here's what's coming up. investors are starting to freak out about the market but that could be your flashing sign to buy. plus, is green mountain about to get roasted? >> put that coffee down. >> a shocking chart spells big trouble for the coffee maker but we've got a way for you to cash in. and -- >> you're entering a world of pain. >> shares got crushed this week and it's about to get worse for the chinese internet giant. options action starts right now.
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>> these are widely held mega cap names and what they've done on earnings, what does it mean for the market and who is next to fall? let's get in and find out. >> let's forget caterpillar. but when you look at the two we had, microsoft and procter & gamble, two stocks that are widely deappreciated, good yields, all of the above here. when you look at that sort of decline at the mega caps, i think it has to raise antennas. you could come back and say apple was up. >> google. >> they were also down 20% over the last year. i think you want to start thinking about these crowded trades, why you own them, what you're paying for the growth you're expecting and the yield you're expecting. >> certainly one of the things we've seen with a lot of these yield stocks is the fact people thought they were a safe place to hang out. maybe not so much. but one observation i would
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quickly make, as yields continue to drop, it's hard to figure why the valuation would be so unreasonable. you cannot have yields continue to go down and also say these things are overvalued, there should be a relationship between the two. either bonds are way overpriced or stocks still amazingly underpriced. >> there's the issue in principle, the classic move on the board, as there's trouble for the market, you move defensively to health care and staples and utilities but those are crowded trades. there's nowhere to go if you want to get out but stay in. >> what did you make of the late day sell-off? >> that's right, the s&p has been almost a perfect uptrend about two years. we have asended at 45 degree angle and seven out of eight times and we're hovering right on -- not only a well defined trend line but what i use is the
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150 moving average as an automated trend line. we're going to break. we cannot keep this perfection up. it's too long already. >> presumably, dan, you're going to look at names that had actually done well. >> well, that's generally not a great strategy, carter would tell us that, to pick on stocks that outperformed for good reason. but i want to look at disney. the implied move is about 3%. this stock doesn't generally move on average, 1.7%. it is a very crowded trade and much loved name. it doesn't have a tremendous yield. the dividend yield is below 2%. trading about 21 times, 2015 earnings are already supposed to grow on 8%. to me that's kind of expensive. here's the one thing about disney, they do not have the kind of dollar head winds that some of the others that we listed talked about in their reports last month.
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it's a fairly domesticated company and also a company you do not want to step in front of. this super cycle they have, this is going to be a long term trade. when they reported in november, there was disappointing in the media, that's primarily espn and advertising. if this stock went back to october lows i would be a buyer in the low 80s or mid 80s, looking at the earnings event, given the market we're in, options look cheap when the stock was $92 today, i bought it 87 half put spread. i sold one of the puts at 60 cents. i can make up to 350 i like the risk reward, look how quickly this stock dropped in the
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afternoon. this is the sort of setup that i think some of them need a reset. disney could have it next week. >> do you think it could see low 80s? >> in principle if a stock is sort of in a perfect uptrend, the only way a good thing to end, it gets too hot or goes limp and roll over. this has done neither. it hasn't got expensive or show you it's in trouble. benefit -- the burden of proof is on the bear here. >> the other thing i would point out, the s&p is expensive but disney is not. this is a company that managed to prove itself with double digit eps growth going on a decade with only one down year, that was 2008, only down marginally. this is a well managed business and they have strong robust underlying businesses like espn -- >> i agree with all of that, they had double digit earnings growth, it's supposed to
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decelerate in fiscal 2015. i have two daughters and -- this is a frozen super cycle, coming of tough comparers. if you want a reset, right now this is the time to do it. lower the guidance a little bit and have a stock come in -- >> the last interesting observation, options have not gone up as much as you would think going into earnings for this a and lot of other names. with that in mind, it's a very reasonable bet to make in terms of price. >> talk about overcaffeinated, green mountain falling but investors could see more pain when it reports next week, at least according to our chart master. carter, what did you see? >> this is one that's starting to roll and go limp. let's have a look at the pattern and see if we can figure it out together. i have several charts here and it will make some sense. first i want to point out the good before the bad. notice there's a gap here in november. that's a quarterly b, december,
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february, 13 weeks later, again in june, again. the last gap was also a quarterly beep but the stock didn't go up it went down. that's ominous to beep again and share price didn't go up. same chart, draw the trend line. we have bounced off trend, bounced off trend and by all accounts we've broken trend. that's an issue. it has a little bit of this rolling overlook, which is usually a sign something is changing. here's the long-term uptrend when the stock was literally at an epic low. from $17 to $160 and we've broken this trend. that's also not good. then the long term chart since the ipo, this came to life in '93 and we have tracked this trend and we get a little overdone, this trend we get a little overdone. and you get a little overdone. risk reward by our work is not
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favorable. >> so bearish. what's a fundamental set up, mike? >> this is pretty expensive, trading 28 times, that makes it probably 30% more expensive than a name like disney which is expected to have higher year on year eps growth. this is more of a one trick pony. we still need the show me proof for the new technology. they lost the patent on old things and we have to worry about this. i think it's kind of interesting. investors really chased this almost every single time. if this really moves on earnings, over the course of the last 12 quarters, that's three years worth of data, after three weeks the stock moved 25% on average. and 10 of the last 12 times that was higher. the interesting thing, options markets only implying a move of about 8% this time. that's going to set us up to make the bearish bet without spending too much and we're looking at the april 100 put
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spread. in this case you can spend $5.70 for the 115s and sell the 100s for 1.85. it's about a quarter of the distance and given the moves this thing has had. think about this. if it moves up you haven't risked that much. but if it moves down, it could move to or through the lower strike and that would give you a 3-1 pay off. >> this is a company that i don't really understand. before coke got involved i thought it was a totally bs company and i thought the product was crappy, but coke is a larger shareholder and the low are they go, the more they end up buying here. there's an embedded put here. from a trade setup, to me it looks oversold. i'm not one to press oversold situations but this is one way to do it. if you think the stocks go to 100 on a disappointing report,
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this is the way to do it. >> not going to be for the feint of heart. we'll eat like kings or have a lot of egg all over. >> the coke involvement is why the options actions are setting up the way they do. let's look how it has moved over time. it does move very sharply. it's trading at the high multiple. if there's any signs or cracks in their story, i actually think the folks at coke might take -- might take a breather and wait for it to come to them. >> send a tweet for everything options action, only one place to go, you silly rab bit, optionsactions.cnbc.com. >> does it mean it's time to buy stocks? it's strange but true and we've got the incredible stats to prove it. and baba shares got slammed on earnings, the one upcoming event could lead to more pain for sharehold shareholders, we'll explain.
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just just like that the fear is back. closing above the long term average of 20. in the past this represented a good-bying opportunity. will it again? let's bring in brian sullivan. what do you see? what's the pattern been? >> it's really neat, when you're talking about markets, dan and carter have been bearish about
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what's going on in the price action especially that happened today. if you look at the vix and it the first time it ticks above 20, this happened 20 times, look at the s&p, investors have been hugely rewarded if you bought stocks at that moment. three months out the s&p 500 is up 8.8% and six months out, 13.2% from the time it upticks above 20. i'm looking at this and saying i'm almost near my vix target of 22 like i mentioned a couple of weeks ago. now maybe is the time for a risk reward basis to start to price average and buy into the market. i think there's interesting technical levels that give you a mental stop, we break 1985 on the s&p, then you step in and dip your toe in the water. >> brian, the time frame you're speaking of is exactly the chart we were looking at together earlier, this perfect up trend and 20 out of 20 it's been ripe
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to go the opposite direction after weakness and perfection doesn't last. this is probably the time when it's not going to work. >> there was an instance when it went over 20 in late '07 and that wouldn't have been a great time to buy equity. the only reason it looks that way because what has often happened, they buy them on the dips and that caused a meep remean reversion in vix. sometimes it is the sign of something a whole lot worse. do you think that might be happening now? >> mike, i think you've got to be worried about that. treasuries are trading like internet growth stocks and oil is flying around. oil services names have extreme volatility. certainly is 20 still 20? i don't know. my target is about 22. that's when i step in. if you want to step in now, you have to keep a tight stock. the market can easily reverse on itself when it's on these trend lines and collapse. i'm willing to dip night toe in.
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i've got to take a -- >> brian has done that very well for a long time. you at home should not be charting the vix. carter spends time doing it and vix is not an asset. focus on what's going on in bond and rally on gold and other things that affect the stocks you own. that's the message i would have. when you put it all together, it doesn't make for a pretty picture right now. >> brian, i'm going to go back to you. in terms of spikes and volatility, are there certain sectors that look more attractive than the overall markets? >> i think there is, when you look at the dividend paid by the s&p 500, that yield is basically trading tax adjusted at the 30 year treasury. if you think there's going to be growth over the next 30 years and stocks will be at least in this spot, 30 years from now.
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if you want to own a treasury or own that yield that grows dividends and stock price depreciated over that time and if i'm a buy and hold guy, i think i use this opportunity, this pull back to dip a little bit and wait and see what happens. >> brian, thank you. coming up next, is the worst behind or is the worst ahead for caterpillar and alibaba.
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it will capture those earnings. >> 75, still in the cards here? >> we're not quite there yet, 79 -- we would say there's more downside. in the long term, over 20 or 30 years, has lower -- >> mike, what are you doing? >> i'll sell the puts and roll down and out. we're not going to have that much gearing in the options right now. take the profits and apply to a lower strike put. >> what would you do? >> i was skeptical of pressing it. it was a great call but the stock did find a home this week and didn't budget much from 82. i'm kind of hard pressed to think the company bought $4.2 billion i have to assume thet get back and get some support between 75 and 80. >> it wasn't just caterpillar, the super power force bet
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against qualcomm. >> we would say move along and declare victory and walk away. >> the biggest disappoint mtd here, that it moved this far and fast came as a surprise to me. it's a time to take profits to the good side. take the money and run. >> i think 60 is an interesting level. i said that at a time when they made a call, fantastic call. they have so much cash, no debt, do buy back a lot of stock and trying to get into the spaces that intel is and server chips. i think it's a very cheap stock. they misexecuted on a lot of levels but i think they will push them around and i think intel should buy them. >> interesting. >> dan made a bet against alibaba. here's what he said. >> the trade that i was looking at alibaba, looking to take
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advantage of the heightened implied volatility, option prices around february expiration that will catch the earnings report next week. i want to sell an option there and buy a longer dated put in martha captures that lockup in hoping to get in for cheaper -- >> dan got the direction right but maybe a different structure could have worked out better. >> a lot better. this is a really disappointing trade. my these sis has been fairly bearish on alibaba. i was trying to thread the needle a little bit. sometimes it makes sense when you are convicted to get in there and make a move like they did in cat and buy an outright put and let it ride. >> what do you think? >> it's interesting that we did highlight on the options actions segment, yahoo! and baba going into this. for those following the twitter feed, you should, that was action we highlighted. here's another situation where options were cheap and they
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really paid off. i think we'll see more of that. >> it's a really important point to manage the trade. the strikes were 95, the stocks 89. the worst case scenario it continues to go lower and you use the dollar premium you risked on the trade. i closed it here for a small gain and if the stock fills in the gap and goes back to 95, brilliant, that's exactly what we wanted to happen. i'm not sure it's got much of a bid. i'm going to look for another trade. >> not much of a trading history for baba. >> you're supposed to look at one year or longer. but that being said, the drop in gap, the problem is it's not about whether it goes lower and there's every indication it can. it's that it is trapped and can't go higher. up above are millions of angry people, angry sharers. you have overhead supplies and prospects going lower are low. >> big brother is watching you and it's name is arrowsight, cramer sits down.
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are you on top of your game? arrowsight knows. you at home, pick up your phone and tweet us at options action. we're taking your tweets after the break. be nice out there.
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what is your take on cmg, it seems there's quite a bit of bullish talk surrounding the talk. carter? >> we know restaurant stocks have done well and the last one to go was starbucks a week or two ago. we think this is one that's held back and hasn't moved like denny's and burger king and so forth. we would be long. it acts well. unchanged when the market has been pounded. go with the long side. >> bullish, are you? no, you're not. he never is. >> that's not true, this is a burrito company trading at 40 times expected earnings and it
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can't last forever. the chart is fantastic and basing like you said. if you own it, don't sell it, but i don't know if you have to chase it. this is the sort of stock you have to see if there's any sign of desell race, you've got to get out quickly, it will drop 20 to 30% quickly. >> john says, why always buy in premium when it's so high to sell a spread. >> actually, it can seem expensive at times and cheap at other times. the market is relatively volatile and we're in the middle of erpgz season. a lot of trades are long premium bets because we're expecting the stocks to move more sharply. however, selling vertical spreads in a high implied volatility department is usually a good strategy. carter. >> if you have green mountain coffee, we would recommend selling. >> i would use put spreads to do that right now.
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>> i'm favorable on the company. i would like to buy it down 5 tore 10%. into earnings is a nasty setup, i like shorting at 92.5. >> thanks so much for watching. see you back here next friday more more "options action." >> announcer: think you don't have time to work out? >> my commute is almost two hours a day. >> well, i have two kids, husband, dog. >> i'm working 12 to 14 hours a day. >> 45 minutes is what you need to successfully burn fat and lose weight. >> announcer: now all you need is 25 minutes. >> 25 minutes? it's like before i blink, it's over. 2 1/2 minutes left. >> you're dripping in sweat. >> five minutes into it, i'm already sweating. >> it's brilliant. it's only 25 minutes a day. >> stay in there! you got it! >> i lost 38 pounds and 33 1/2 inches.

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