tv Options Action CNBC September 11, 2015 5:30pm-6:01pm EDT
we are live from the nasdaq marketsite in new york city's sometimes square. the guys are getting ready behind me. while they're doing that here's what's coming up. >> who wants a stylus? >> maybe more people than you think. and it could have apple setting up for an amazing trade. we'll explain. plus there's one airline that could make you a lot of money. and here's a hint. ♪ delta ♪ delta airlines we'll explain. and did this guy just reveal something big about tesla? >> i try to do useful things. >> reporter: and it could mean big things for tesla. the action begins right now. so here is the question
every investor wants to know heading into next week's major earth-shattering fed meeting. where do you put your money? let's get in the money and find out. dan, you're looking at a counterintuitive trade. and i'm not exaggerating, it is a major fed meeting. >> it is major. we can be counterintuitive too. it has a lot of domestic implications but all of a sudden now there seems to be a bit of a monkey wrench that is the macro situation. to me i want to come back and look home. we've talked about utilities on this desk for the last year. i think we were all in agreement last year when the xlu, the utilities etf was up 30% late into the year, that it was way overvalued and didn't make a lot of sense there and we were short of the utilities. now i think the situation is a little different, 17% off the two-week highs here. i think the stocks that make up the xlu are actually much cheaper than they were a year ago obviously and the yields are much fatter and they don't have any exposure overseas. to me right now when you think about the yield that utilities offer they could be deemed to be
pretty defensive no matter what the fed does next week. >> utilities were the outperformers today in the session. they had a pretty good week. >> reits as well and defensive stocks in general. >> the reason everybody thinks 24 potential rate hike is such a big deal is they've been dead basically since the last cycle ended and if you take a look at the last cycle of rate hikes that's where utilities become interesting because the last cycle of rate hikes began in june of 2004, ended in june of 2006. take a look at how utilities did during that period. interestingly where were they? actually like all stocks they were higher. it is counterintuitive but if you take a look at what is usually accompanying rate hikes which is stronger economic numbers, utilities by the way are inflation adjusted. you're going to still see some eps growth. >> the reason it's counterintuitive is higher interest rates. >> the day-to-day action in
utilities and reits is there's not a fed move coming. what's also interesting is the precondition. that strength you spoke of, very rare to have a bull phase last year. it was let by the single most defensive part of the market utilities. >> if you have another chart if you look at the one-year of the ten-year treasury yield let's pull it up there. i have two circles. one back in december and one right now. back in december the xlu was at those all-time highs. up 30% on the year. the ten-year yield was 2.2%. you know where it is right now? to me that tells me something a little bit too. >> the last rate height cycle involved 25 basis point rate hikes during an epic bull market. so i think it's important to remember that even if we get a rate hike tomorrow and it's 25 basis points let's say let's try to keep a little bit of perspective here. 25 basis points is not a huge amount when you think about it.
even when we do see subsequent increases that's going to be acopping good economic numbers. >> that is a signal. that has been a big debate. finally let's get a trade on ute ilths. . >> when item looking at the xlu they also look dollar cheap the stock's going to be x dividend next week it's going to pay 42-cent dividend keep that in mind that chart right there that's the ten-year. look at that up trend that's been in place i'm sure my friend carter would say it's pretty beautiful. i think there's a good shot to take a shot for a retest or at least retracement of 50% of that 10% move we've seen over the last month today. today when the xlu was 4140 i looked out to october expiration. you can buy the october 42-44 call spread paying 50 cents buying one of the october 42 calls for 60 cents selling one of the october 44 calls at a dime your max risk is 50 cents between 42.50 and 44 you can
make up to $1.50. i like the risk reward it is out of the money you are buy option that's are elevated in price terms but they look dollar cheap to me. >> that's one of the reasons that you're using a spread, right? in the shorter dated trades basically those spreads when you sell those out of the money options those decay at i faster rate relative to their price than the at the money options you're buying. i think this is an intelligent trade. the other thing xlu not a space where you're going to see takeover activity or something like that. so selling the up side call can make some sense here. >> carter, utilities is that really the right choice here? >> it just shows how much people roust ideas. not us here on the desk. but this is -- the market's frozen up. everyone's waiting for fed -- >> i thought you guys were going to say financials. >> it's a 20% sell-off to a ten-year trend line. play for a bounce. >> moving on let's talk crude oil. finishing the week lower by 2% but a major refinery maintenance could make it a lot worse come the fall. kate kelly is at a bp refinery in whiting, indiana today and she joins us with more.
hi, kate. >> hey, sara. this is one of the many midwest area refineries that is scheduled to go into a long-planned seasonal maintenance period i'm told a bit later this month that will last for a few weeks maybe even a month. why do we care? because that means that some of the major buyers of crude oil in the u.s. market, i.e. the refineries that turn that crude oil into auto fuel and other products they can sell won't be buying it for a period of time. and analysts tell me that lack of demand could really hit the market by late september, early october, possibly causing another leg down in crude. take a quick look at the refinery numbers. one estimate is that 2 million barrels per day of refining capacity will be offline by early october. that's out of about 18 million barrels per day that is possible in terms of average daily capacity. so about 11%. so if you look then at the futures curve you see we're still in contango meaning oil pegged to later delivery dates is a little more expensive compared to where we are today in the mid 40s but not by much. those spreads have really
tightened. and this is a sobering notion. you don't see $60 per barrel wti again, sara, until 2020. >> that is pretty bearish. thank you very much. especially on top of that goldman sachs note that got a lot of attention today. carter, you're looking at one name thaefzly dependent on oil prices. >> singling out delta. let's take a look at some charts and figure it out. the thing that's going on here of course is there should be and there often is inverse relationship between air carriers. now, all of the airlines have underperformed the market year to date despite oil being so weak so here's the setup that sort of appeals to my pipe this is delta juxtaposed against crude oil. and obviously a period of, you know, weakness in crude and you have strength in delta. and then the reverse. a little bit of strength in crude and weakness in delta. now what's happened just of late is we know crude has bounced almost 25% off its low but this time delta did not react inversely. in fact, it was quite strong.
so this looks to us to be the setup of something that's changing with the dynamic of the past year. let's look at a few charts. for starters we know that delta, which is a component of the dow jones transports, has outperformed its peers. this is other airlines. we have a stock that's outperforming the group. here's the setup to my eye. here's a two-year chart. three years in fact. you could draw the lines any way you want. i would say you draw them that way. and this standoff, i think we're going to bust out here. and the high here is 51. and i think you're going to make it to about 53. we're trading in the high fours. i think you get a 10% move out of delta. we like them on the long side. >> mike, how are you trading delta? you agree with that call? >> this is a really interesting situation. the airlines obviously have volatile space and a large part of that has come from energy expense in fact up until recently that was their largest single operating expense representing about 50% of their total operating expenses in fact when oil was trading at its peaks.
but now that it's fallen so much it has made a huge difference. if you take a look at delta it's not trading at less than nine times the next 12 months expected earnings. and the reason for that is because largely the drop in fuel expense. when i take a look at it, they're definitely highly levered. delta's also unique because they among other things own their own refineries. if you compare them to other airlines, the other component to energy expense that would really impact them is the crack spread. they control that because they basically can buy crude oil and create their own fuel. when i take a look at it it fundamentally looks very good. the thing is, though, i wonder whether the market's in a little bit of a tenuous spot here. this is a volatile place to be. take a look at how delta airlines behaved when we had the big sell-off, and it really, really fell very sharply. so from my perspective if you're going to make a bullish play following his advice i don't really want to take too much risk to the down side. so the simple way to play that in my view also pointing out that options prices are a little bit elevated is to buy a call spread. specifically i'm looking at the october 46 1/2, 52 1/2 call
spread you can spend $2.10 for that thing you're going to limit your risk make that bullish bet take advantage of the fact that options are elevated and sell that higher strength call. >> i'm looking at the actions on airlines. down 13% year to date but in the last three months a resurgence up 10%. >> it's hard to argue with carter's chart. the one-year trade it's been trading between 40 and 50 for the better part of this year. trading at 46 1/2-ish right now. if you're going it play ti like the way mike's going to do, it looking out just a month and an in the money call spread. trying to mitigate from the vol potential risk if the stock doesn't rocket up 10%. but to me i actually see this stock probably pinned in between 40 and 50 for the time being until we see some crap out of crude oil below 40, below the recent lows or some sort of fundamental thing that happens. >> the other airlines are not up as well. this is the only one that's in that range. the others are still in established down trends. >> that's a very good point about this range-bound issue because if we do start getting
down to the lower end of that range you just identified around $40 one of the things you can do is look to sell a put at that stage because you're going to have an even more attractive valuation volatility will probably be even more elevated and then you're basically going to be buying it at that lower level. >> but everyone thinks that oil's going to stay low here it sounds like. >> for now fundamentally there's no reason for it to rally. >> agreeing with goldman sachs. got a question? send us a tweet t to @optionsaction and for everything "options action" be sure to check out our website, optionsaction.cnbc.com. we've got great articles there. videos from throughout the week. and exclusive trades you cannot miss. check it out. here's what else is coming up. >> why is this man smiling? because apple shares could be poised to do something remarkable. and we'll tell you what that is. plus -- ♪ calling all "options action" fans. >> now you'll find yourself back among us illogical humans again. >> got a question? tweeted us @optionsaction. and if it's nice, we'll answer
it after the break. >> logical. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.
like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. take a look at some of these names. large cap technologywise. facebook shares up 4%. salesforce a huge focus here next week because we do have what's happening, guys with
dream force coming up next week. that's their big developer conference. apple shares up 4% and oracle as well. if you talk about large cap technology we did see some dip buying over the course of this past week in a lot of these larger blue chip type names, sara. certainly an interesting trade to watch. especially what's going on here with the overall market. back over to you guys, sara. >> a lot of news this week especially from apple. dom, thank you. have a great weekend. dan, you are looking at an apple trade here. >> apple, we know started selling off before the market started selling off. it was a very consensus long trade there. that might have been part of it. but when you think about the move the stock had into that late august sell-off it was pretty exasperated. it's kind of settled down here. look at that chart right now. i think there are some pretty identifiable technical levels. 100 support on the down side. 120 was the left it broke down from prior to that flash crash low on the monday. to me i think there's a range there. >> you're talking about the 1,000-point drop on the dow.
>> i think it's important to think about what are the identify annuiable catalysts. the iphone 6s and 6s plus is going to be for sale on friday september 25th. usually on that monday the following monday they're going to announce how many phones they sold over the weekend and with the presales and then the week of october 20th we are going to have their fiscal q4 earnings. if you think the stock is settling here there's a couple identifiable catalysts that you want to look out to and you may want to make a trade to target that 120 level again. >> also notice that china was among the first countries that they are selling in unlike the last cycle which could be a good thing. >> first of all, china represents one of the bigger growth opportunities for apple. obviously they have very good market penetration here. one of the -- first of all you're going to be able to preorder the iphone 6s on sunday i think -- >> no, tonight. >> 3:00 a.m. -- well, okay. it's going to be this weekend. and i know that because i tried to preorder one this week. i will be tomorrow. it will not be the rose gold one i don't think. 90 million. right? that was the reported number
they have supposedly ordered from their suppliers. that is pretty solid. this is a situation where there has been a lot of panic here. options premiums remain elevated. you know, i think there's too much panic. and to me that is actually signaling a bullish side. >> the big tell is the groupthink that's gone on. what dom is talking about. it's not just apple. these stocks are being treated as defensive plays. if you look at how they're acting versus classic defensive names on a week with general mills and mondalese and kraft they're big, heavy, good balance sheets and quote cheap. yes, whether it's intel or apple. and i think people are using that as a place to sort of park some money. >> they're defensive and growth -- >> listen, guys. that was the case also a month and a half ago and we saw how violently these stocks could get sold. the trade i'm going to talk about here has very little to do with how bullish i am on apple or not or how positive you think these catalysts are going to be. the trade i want to detail has to do with the fact that if you're long apple but nervous we have these kind of macro fears come back into the market and
take charge of our stock market or you're thinking about a bullish trade but you don't want to buy apple here at 114, the options market is giving you an opportunity to create a trade structure that i think is very attractive as a stock alternative. so today when the stock was trading at 114 i think it closed about there you could look out to october 23rd expiration. looking at that expiration. that's likely to catch the fiscal q4 earnings. that's the catalyst you want to target here for better than expected q1 guidance. so when the stock was 114, you could look down and you could sell the october 23rd 102 put at $2. you could use that premium to buy the october 23rd weekly expiration 122 call for $2. that trade structure doesn't cost you anything. mark to market as the stock goes down toward that short put spread you will have losses. as it goes up toward that 122 call strike you will have gains. and you only make money on october 23rd expiration if the stock is above 122. we identified that as the breakdown level -- >> the important point here is you start making money up 8 and
you don't face risk until the stock's down 12. obviously i'm going to have to tell you that i love this trade. why do i love this trade? because i'm short puts apple myself. so obviously i'm on board with what he's doing here. there's too much premium in the down side puts in apple right now. full stop. this is nothing but a bucket of cash at the end of the day at the bottom of it. if this was a highly levered country i would understand that. >> 200 billion plus. >> it sounds ridiculous. the market's in trouble. it's just about the bucket of cash. almost mathematically this will do better than the market in the event of really a next down leg. >> so you agree? >> i like it as a defensive play. >> risk reversal apple consensus. >> absolutely. >> up next, are tesla shares setting up for a big move? we'll tell you the trade that could put you in the driver's seat on this stock right after this. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data
here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. it is time for total recall where we look back at some of our outstanding trades.
last month kuo and carter bought shares of starbucks. looks a little overheated. take a listen. >> we've got a well-defined trend. we bounce off that trend. and now we're pretty far above trend. the presumption is some sort of mean reversion. >> september 57 1/2 -- you can spend 3% of the current stock price to make a bearish bet. >> since then starbucks shares are down a little more than 1%. carter, is the stock -- this is a hard one to short. >> 1%. this is a -- you had to sort of be there the instant that the pay -- we get paid but the trade's off here. yeah? >> my attitude was this was a situation where the stock had become a little overextended a little above its historical valuation. this trade was a clean triple on the 24th. and if you took the profits then congratulations. i was on a plane so i missed that opportunity. but you can capture a little profit right now and i think that's what you should be doing. >> a week left to go in the
trade. >> you should unwind this thing. we're not going to press any bearish bets. >> also last month dan said shares of tesla were about to go into overdrive. have a listen. >> i think you look to do what we would call a risk reversal and you look out to january. you want to give yourself some time here. so today when the stock was about 244 you could sell the january 2016 expiration 200 put at $10 and you could use the proceeds to buy the january 2016 29 2k350ur8 290 call for $. that cost you nothing. >> the stock's sort.95 no man's land. >> it kind of is in no man's land. it obviously sold off like a lot of high valuation stocks. but it comes back. i think as long as it holds 240 here you have a scenario where you don't really va losses until down another 15 or so percent here. i like the trade. i don't think you do anything here you want to give this thing some time you want those puts to continue to decay and then possibly at some point maybe you
turn the call into a vertical call spread by selling a higher strike call and further reducing your risk. >> carter? >> as the chart goes it's literally no mans land. my bias is to the up side and i would be long tesla here. >> we've got some breaking news. dom chu back at hq. news on chico's. >> the women's apparel retailer is up 11% on very light volume. 10,000, 11,000 shares of volume. this after bloomberg headlines that chico's is said to be weighing a possible sale of itself and has been approached by some private equity buyers including sycamore partners and this is according to people familiar with the matter. you can see those shares in the extended hours trading. the story goes on to say, though, a person familiar, that sycamore has already made an offer and is trying to line up financing while talks continue with other potential bidders. you may recall that these parties were also rumored or talked about earlier this year as potentially being a part of deal talks again. so it appears as though with
this particular bit of news they are renewing some of these talks. again, according to a bloomberg report citing sources familiar. we'll keep an eye on those shares, but for right now again, only about 10,000, 11,000 shares' worth of volume. back over to you, sara. >> tough year but certainly getting a top on that news. thanks, dom. up next your tweets and the final call from the options pits. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.
like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. ♪ while we are indeed family here at "options action," that's because you're looking at carter's two beautiful children. aldon and brewster. already staking their claim to the smartboard. baby chart masters. can they walk and talk to the camera like their father? >> draw on the smartboard. they can draw. >> very cute. it's time for our final call. the last word from the options pits. carter. >> you know, the price of delta. be bold here. take a chance. >> brewster, you're ready to fly on delta to austin, texas with those cowboy boots.
i love it. >> dan. >> apple. i prefer risk reversal. >> looks like our time has expired. i'm sara eisen. for more "options action" be sure to go to our website, optionsaction.cnbc.com. we'll see you next friday, 5-30 p.m. eastern time on cnbc. 5:30 eastern time on cnbc. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." i'm just trying to make you money. my job is not just to entertain but to educate and teach you. call me at 1-800 high pressur 7 pressure -- tonight i'm letting you in on something real big, the method of my madness. come on, i know this is the craziest, most random and frankly bizarre thing not jus