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tv   Options Action  CNBC  February 7, 2015 6:00am-6:31am EST

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. . we we arrive at the nasdaq and these guys are ready to give you their best news. here's, what's coming up. >> ahh -- >> that's probably a good thing, we've got a shocking chart that says america's favorite beverage will fall flat on earnings. plus, why are investors suddenly flocking to ford? tom lee will explain why now is a great time to buy stocks.
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>> dan, do you have answers? >> of course, i have answers? that are skeptical, waiting for wage inflation and got little bit. despite that unemployment rate ticking up a little bit, the numbers, revision to last month. this number. they're great. we know that the american economy, the u.s. economy, is doing better than everywhere else. but i think that wage inflation was a really important point and so there was some other things that happened this week, too, we're going to talk about ford. those auto numbers were off the charts. if people -- more people are getting jobs and making a little more money. they're going to have money to spend on discretionary items. >> mike? >> obviously the auto sales numbers seem tremendously positive. while we haven't necessarily seen the big bumpup in spending, in some of the consume types of names that we thought would benefit from the lower fuel prices i think we are seeing that in terms of sales. the wage inflation is the thing that's given us the most concerns right? even as unemployment has dropped, that was the place we
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weren't seeing it. seeing a bump there is little positive. >> i think that's as big as a little bump. one data point doesn't make a trend. we need more in the way of wage growth. the jobs have been bad jobs. >> we say this all the time. forget the equity market. look at the smart money, the big money is doing. look what happened to bonds, look at what happened to dwre d dwreeld -- yields. they started moving up in front of the employment number today. then when you look at the move in utilities today, if that wasn't confirmation that all of a sudden in one fell swoop the market is starting to price in higher rates sooner than they thought a week ago. >> i want to get straight to your trade. there are a lot of different components we can talk about in relationship to the stock that you're trading. >> yeah, well, i'll tell you what happened. we'll look at ford because i don't want to chase gm here. gm has been newsy for more than a year. what really caught my eye this week, it started out with those blowout january numbers. i think ford posted the biggest january since 2004. and then i just kind of put my work hat on a little bit. when i saw the breakout in names like auto nation, o'reilly
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automotive, delphi, these things broke out on massive volumes on all-time highs. ford for two years has basically been trading between $13 and $18. today it's right about at the mid-point, it's had a big rally over the last week, about 11%. i want to say this, you don't have to chase it right here. but 16's a really important level. it's the 200 day moving average and about the midpoint. it would be a breakout level. today what i was thinking about, i looked out to may, okay, when ford was 1590. why did i look at may? i want to tell you why. we're going to get a few more monthly sales reports. then we're going to get their q1 earnings report. so to me if you want to buy ford, if you think it's going to participate with increasing wage inflation over the next few months and increasing sentiment toward some of the sorts of plays, i think you look at the may 16th calls. they were basically 70 cents, stock at 15.90. break even as that 16.70. really what you're trying to do here is shoot for that previous high, a breakout at 18. >> dan was talking about the factors, he did not mention the
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dollar and did nod mention the role of oil prices. where does that factor in your view if it factors in at all? he specifically mentioned this will capture the q1 report. >> for one thing, the oil prices are really an issue because what we have seen with oil prices being where they are and lower gas prices at the pump is that people have been increasingly turning to suvs and trucks. the largest selling vehicle in the united states is the ford f-150. sells a million units. a high profit margin vehicle. a newly released vehicle. the f-150 is a completely new design. i think we're looking at some old vehicles here, so that's not accurate. actually, that is -- that is. that's the aluminum f-150. this is really -- that's really going to be -- hey, i live in texas. >> i know. >> i know a lot about pickup trucks. this is one of the things that could propel us. >> we could very well be at peak auto sales. we're almost at 17 million, right? we know subprime auto loans are a record of 25%.
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we know $1 trillion in outstanding debt in autos. i mean, is this really the time to be making new commitments to a group that is, again, exceeding all-time highs in terms of sale. '06 highs and the amount of debt outstanding is at a record and the duration of the debt is now average six years. it's a lot of short-term thinking. >> you're a short guy, i'm an options guy. this is one of the reasons if you're looking out to may and going to commit 70 cents in premium, 4.5% of the underlying -- >> i get it. >> i think the risk here, mike said it's trading at ten times and actually has a 3.7% dividend yield. this stock can become attractive to investors. >> very last quick point i'm going to make. auto companies carry a lot of debt, that means there's more leverage in the equity which favors making an options bet. >> good point. let's move on here. they call him the chart master for a ran. carter worth is 4 for 4 in last earnings calls. carter, what's the next play? >> well, this is a big name, it's a dollar name and it might
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arguably be the most recognized brand in the world and at least by my work it's not looking good. let's look at a few charts. so this is coca cola versus the s&p. since the bull market began. obviously you've got real meaningful underperformance. almost half as much as the markets. so that's one issue. and then we have how this instrument is doing compared to other subsets of the market. the blue line is coke. over the last two years. it's basically made no progress. and yet if you were to look at coke relative to all beverages like dr pepper, pepsi, it's underperforming. all beverages in turn are underperforming the sector, staples and staples are underperforming the market. this is not a good setup. now, two things i want to point out for the trade. coke made an all-time high of $44 and about 87 cents in 1998 and we've gotten back there and looks to me that we stalled. i'm going it show you the daily chart. we literally touched the high. here's the daily chart. we tried once and backed away. 45. we tried a second time and backed away. right at this critical juncture.
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then we backed away with a gap, with another gap. distribution. to me, this looks like a fairly major topping out formation. i think we break this trend. i'm a seller of coke. >> mike, where do you stand? >> so, on a fundamental basis, this name is trading a little over 20 times earnings and that is historically high for coke. the real is why don't we take a look at the top line, revenues? revenues have been declining very slightly over the course of the last couple years and are forecasted to. i think this is a secular headwind and people move away from the core products. i think it's a problem that's probably not dissimilar to the one that mcdonald's has been facing in their challenges. so as i look at this, i think what we're seeing technically is an indication that people think that fundamentals likely to follow suit as a result of the secular headwinds. the other thing i would point out, coke is basically a utility in terms of volatility. what that means, is that the
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stock is not very volatile. and it's been a place for people to hide out for dividend yield and that doesn't move around that much. that means that the options are really inexpensive. my trade there is simply to look out to april, buy the -- when i was looking at this a little after noon today, you could send 40 cents for that. that's about 1/5 of the distance between the strikes. it actually did go up to 50 cents by the end of the day. i wouldn't recommend spending more than that. that's because of the late day weakness we saw. somewhere in the 40 to 50 cent range for that spread is a good way to make a leveraged bet to the downside. >> my bet is you probably never have traded coke. >> here's the thing. i want to trade coke. these guys have been so high. why would i not want to trade their trade? >> right. >> listen. this is a smart trade. i think you want to think about procter & gamble last week, a similar sort of thing where it's trading about 20 times, you know, expected growth of only, you know, lead to single digits that's what you have here with coke. i'll throw pepsi in there, too. they report next week. i know they have this -- >> more diversified. >> i just said that. they have the snack business. the point is, there's no growth there. what are you paying for? you're paying for this yield. i don't get it. procter has not been able to get
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back on its horse. coke when they reported their q3 in october, they were already flagging currency head winds. you're going to see it again. you'll probably see downgraded 2015 guidance next week. >> big marquee names are heavy. >> and the expectations we had paul hickey on and he spoke. the expectations for international companies have been coming down. so they look like they're beating. but actually wall street's been going into a lot of these earnings because of the current headwinds. >> multiples are high. not a good setup. >> exactly. got a question out there? send us a tweet. @optionsaction. check out our website, optionsaction.cnbc.com. it's practically the reason the web was invented in the first place. in case you didn't know. you'll want to check it out. here's what's coming up next. >> bull fight. the street's biggest bull enters the bear's lare. we'll see if he can convince our guys. and 4 for 4.
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that's cohen carter's winning streak for earnings calls. how are they making money now? he'll review when "options action" returns.
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♪ don't believe me just watch ♪ don't believe me just watch is it deja vu all over again? last year stocks fell almost 3% in january to soar during the rest of the year. this year we've seen a tough january yet again and it's been followed by the market's best week in two years. so are we set up for another
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year of powerful gains? let's bring in the raging bull, aka tom lee. of global adviser. tom, great to see you. >> great to see you guys. >> welcome to a desk full of traders who are negative on the markets, not destructive. are we setting up well for a rally this year? >> you know, i think it just reminds me that this is a bull market that's been around a long time. i think it's frustrating people because it's been hard to beat. it's been volatile. and i think that type of frustration makes it easier for the market to surprise us to the upside. >> so you think the markets will continue going higher? >> yes. >> volition. >> volition. i think it's an up-year and, you know, in the horizon, i think we'll have several more years of gains. >> i want to go through some of the factors that a lot of the traders say worries them, keeps them up at night when it comes to this bull market. the collapse in commodity prices and specifically crude. >> it's scary, right? it's scary to see something relentlessly decline when you
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see something go from 100 to 30, especially something we consume every day. you have to think, is this deflation? >> right. >> you know, i think the way we get comfort is, one, it's a supply shock. second, at least in the u.s., and in the next year, we'd assess it as a huge dividend, a gasoline dividend and for corporates because they consume a lot of energy. so, it is scary, but, again, you want to quiet all the worrying. >> you talk about commodities. when you look at the collapse, there's another way to look at it. is it a bubble? it was the fed bubble that was created. the central bank bubble the world over. useless consumption of industrial commodities. that sort of thing. that burst. what really worries me at this point, the fed is in a tough spot. they know how fragile our recovery is. if they raise rates too soon, we know europe is almost in a recession, japan is almost in a recession. if they don't raise rates, equities become the next bubble to inflate.
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i don't believe equities are a bubble right now. if they leave rates for too long, we can see stocks go straight up 1999 style and know how that ends. >> that's right. if we have a scenario where the stocks go parabolic, that may hasten the end of the bull market early but i think it's got to be levels that don't justify the type of growth we could see. so i'm kind of in your camp. i think the fed is in a tough situation. i think they're maintaining credibility is key. >> right. >> one of the questions i'd have going back to the oil thing very quickly is cap-x. there's certainly a tailwind for consumer names we might expect, some haven't reported as quickly as we might see. justification for equities at current levels as dan was alluding to, rates have been so low. you have low-rate environment and the valuation of assets have rised. i'm curious what you think or if you've modeled out what the impact of that would be. >> well, you know, i might sort of think about cap-x as a story that has to eventually turn. companies can't let assets deplete.
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consumer growth not at 50% in history. you know, consumer durables have never been this old. i think we're really waiting for everyone to feel there's a reflation signal because that's a real catalyst for spending. i think it's a bit of a chicken and egg, but i think it's an eventual and i think it's, of course -- >> on target, obviously, some of it is guesswork, but are you assuming quite a bit of earnings growth? you're at $129. how much multiple expansion gets you to your 23, 25? some of the other -- >> that's right. you know, i think this is a -- you know, earnings have done something very curious this year because we saw some really aggressive cuts especially from resources and from industrials. and i almost wondered if people were, like, missed last year's decline so they're trying to look extra smart by doubling the magnitude of cuts now. i kind of think we're in a position where earnings estimates are going to start to come up over the course of the year. i mean, first of all, 74% of companies, that's a great ratio. i think people haven't modeled the consumer lift. they haven't modeled the margins savings.
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i think we are going to get to double-digit gains this year from earnings. surprise. and then it's going to be a multiple rate, yes, because we think stocks are less risky. >> we were just talking about coca cola, though, a huge u.s. multinational. they're obviously feeling the effects. there's no growth there. to me, there is a bubble in some of the staples. some of these defensives. look what happened to utilities. there's no growth there. people own these for the yield. utility index was down 4%. i think it's a very dangerous time to be committing new capital to equities especially in the environment that we have globally right now. it seems like a very, very global, or fragile recovery that the fed could really screw up. >> i mean, and i agree with most of what you said. i think it's tough to buy utility when you see multiples go from 16 to and staples acting as if there's no competition. a lot of sectors can rerate. tech is one. there's going to be a trade in financials and energy. i think the recovery might actually have better foundations
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and i think we're seeing in the labor markets. so i've got my fingers crossed. >> all right, tom, great to see you. >> thanks. technology, energy, financials. would you be long any of these? >> with technology, i think you can take advantage of the fact that options premiums are still high. the vix is over 17. that sets up well for overwriting. i think some of the other yield-type plays, though, where they're relatively low volatility, i'd actually still probably favor making directional bets to the downside on potential rate strikes that would include vix spreads against things like utilities and some of the places that we've identified like coke. >> is what you're seeing on the charts, does that match up with what tom is saying? >> i think we know this, that the index, and tom referred to this, the s&p has been very hard to beat lately. in fact, active bidders had their worst year in 25 years. the average or mean stock is not performing in line with the aggregate. i think it's going to be an issue again this year regardless of what the s&p does. there's going to be a performance problem. all right.
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coming up next the bump back up in rates could ruin one of the hottest trades of the past year. we'll explain when "options action" returns. you only know in a fire to get out, to escape and now ok you are outside and you are safe but what do you do now and that's where the red cross came in... . we ran out of the house just wearing our pajamas. at that point just to even have a toothbrush that i could call my own was so important... .
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♪ ♪ well, wasn't the only one who made it through the fire, our traders did, too, with good and bad calls ahead of earnings. let's start out with the good. last week, carter voted against green mountain. take a listen. >> we tracked this trend. we get a little overdone. this trend we get a little overdone. you get a little overdone. risk/reward. our work is not favorable. >> access markets only implying a move of about 8% this time. that's going to set us up to actually make this bearish bet without spending too much. if moves up, you haven't risked that much. if it moves down, there's a high likelihood it could move to or through the lower strike and give you a nice 3-1 payoff. >> all right. now the stock fell sharply on earnings before making back some of the losses. so, carter first, what do you see in the charts? >> sure, it's a broken chart. right? the question does one take the gains from the trade which we have? i would say yes.
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but more importantly, though, as an asset, is this a desirable asset? every indication of trouble. no reason to be long. >> mike? >> shortly after the open, we sent out a tweet and indicated -- my suggestion, though, this is an important tip. when you get into a trade, see the options run into the money, if you want to leverage your bets to the downside, that's a good thing to think about rolling. keep an eye on the twitter feed to get the updates in realtime. >> all right. also last week, dan bet against disney. here's what he said. >> looking at the earnings right now, given the market we're in, options look cheap to me. when the stock was 92 bucks today, i bought the february 92 half, 87 half put spread for $1.50. this is the sort of setup i think the stocks, some need a reset. disney could have it next week. >> well, looks like the reset came but it was to be upside. >> yeah. this was a -- and the thesis was kind of jaded. i caveated it way too much. i first made the bullish case and then i decided to put a
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bearish trade on for this one event. and so here is a situation where it's very different than a lot of the staples that we're talking about. they get 75% of their sales from the u.s. everything's firing on all cylinders. it was an epic breakout. carter called it, you guys. i hope you listened to him and not me and he said this one did not look toppy. >> and last month, dan bet against utilities. >> when you look at the top five holdings in the xlu, they're basically trading at about 18 1/2 times next year's expected earnings with a dividend yield expected only to be about 3.5%. so to me at 14 1/2 times earnings, the s&p is a better bet. i bought the march 48.44 put spread for $1. >> with today, that trade is paying off. >> it was just today. literally this happened in the last few hours. this trade was about unchanged. to me, i was patient with this one. i believe in this thesis. i was frustrated. as bonds were selling off this
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week, i expected utilities. it all happened at once. i think we'll stay with this. if you get a follow through early next week, you take it off because you have a huge decline in something that doesn't move a heck of a lot in a short period of time. >> what do you see in the charts for utilities? >> i go with all the other extended yield-chasing, people losing their minds charts. presumption is -- and you've got this just right. all right. coming up on "mad money" cramer's got the earnings game plan for the week ahead an looking long term. how to set yourself up for success the cramer way. that's just ahead. coming up next, though, we're taking your tweets. don't reach for that phone. think nice thoughts.
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let's take a tweet. let's take a tweet. eugene asks is there a good way to play tesla earnings with options? let's get the chart action first. because past couple weeks have been pretty good for tesla. >> well, it's a very bad chart that's had a nice rebound, but the rebound leaves it something of a very difficult level.
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we would be short going into earnings. >> short into earnings. >> you know, we made one of the first trades of the year on this desk was a short tesla trade. when it got back to the down trend. what carter is saying, it was a really bad chart. it topped out in september. now it's been down 35%. it's kind of come back to the down trend. elon musk, the cat couldn't be out of the bag as far as chinese sales. that's one thing you have to be careful of. we have news of that. i'd look speculatively at the money, look at the weekly -- 200 is the target where you want to get back to. 180 was the kind of low from a few weeks ago. i would look at maybe like a 205, 180 put spread. >> quickly on tesla, are you constructive or not? with carter? >> yeah, i'm with carter on this one, i think. this thing has obviously been moving around quite a lot, but, you know, i'm going to stick with carter on this. >> all right. time for the final call. last word from the options? carl? >> well, it's a great name, but i think you should sell your coke. >> mike? >> spreads. they're inexpensive.
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>> dan. >> sell all the staples. if ford comes in 15 1/2 look at the may 16th calls. >> our time is expired. i'm melissa lee. thanks for watching. check out the website, optionsaction.cnbc.com. see you back here next week at 5:30. "mad money" starts right now. >> 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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