tv Options Action CNBC October 10, 2015 6:00am-6:31am EDT
hey, there! we're live at the nasdaq market site where i only have one question -- who's this guy? well, guy and the rest of the gang are getting ready. check out what's coming up. >> lucky charms! >> magically delicious. >> and perhaps delicious for your portfolio. we'll tell you what it's about. soup and cereal stocks that's got some traders flat out salivating. plus, have you lost money in twitter? >> it's not even a question i'm considering. >> well, jack, other investors feel differently. fortunately, we've got a way to get your money back, and it won't cost you a dime. we'll explain. and -- >> i stop when my gold -- >> reporter: that's too bad, mr. t., because it's been on a tear
this week. we'll tell you why the run may have just started. the action begins right now. ♪ it was a story of the week, crude and energy stocks surging. so, here's a question, how long can the rally last? is it too late to get in on the big oil names? let's get in the money and find out. mike khouw, what'd you make of the move? >> there was so much bearish sentiment, you'd expect some sort of a bounce. i think it's interesting, though, because if you look at oil fundamentally, we still do have an overabundance of it, right? both the eia and the iea are suggesting that that persistence will last into 2016, mid-2016 at least. we're talking about a million barrels of excess production. now, in the scheme of 95 million barrels a day, is that a huge amount? it is when you're running out of storage, right? so, that's pretty much the big issue, and i think that pressure's going to remain on it. so, i don't know that there's a lot more legs to this. >> yeah, i mean, we saw some pretty big moves. when you look at exxon, what was it, up 4%? the etf, the xle was up 7% this week. >> exxon is up 10%.
and i think you saw the large integrateds were consolidating as crude was over the last month or so, and i think people were starting to say, what are the worst case scenarios? exxon's a stock that in 2009 saw earnings decrease by half, down 50% in 2009 from the prior year, and then they saw a big pickup. consensus is calling for the same sort of drop this year, but actually not a huge increase next year. so, people are starting to say, okay, these stocks could be cheap. they've got big, fat dividends. if there was ever a reason for demand to go up, that was one of the things. i don't think we got any data suggesting that. to mike's point, i think it was technical and sentiment-driven. >> guy? >> hi. >> it's weird to, like, look over on this side and see you. >> didn't have an umbrella, so he's like, i'll hang out -- >> by the way, this is my third appearance, so now i'm a cast member. conoco films is a $41 stock, just a couple weeks ago trading $56 today the dividend is 5.5%. they'll report on october 29th.
is the oil patch fixed? i say no. i think it's still a demand story. we're going to find out. the data we've seen from europe, from china, from the united states has been awful in a word. so, again, if you think deflation is a fear, is a factor, which i absolutely believe, then i think there's another leg to the down side in a lot of these names. >> those big dividends in low-yield environments should be a warning sign, actually. options markets have indicated that they expect the dividends would be cut in a lot of integrated names. >> really? even the ones where analysts are saying they have never cut their dividend in "x" number of years? those are the ones that -- >> never say never? how about that? >> all right. >> look, obviously, the street -- and not just the options market, stock market is telling you this, too. 6% or close to it in terms of a dividend yelled is not realistic. >> dan, you've got to trade -- >> to your point, exxon has never cut its dividend and the options market is pricing for a -- >> yes, for a decrease. >> and we've talked about that. here's the thing, i think we have a five-year chart of exxon. it topped out last year at $105.
it is in a massive downtrend here. it just rallied back to the downtrend, and i think you have a good opportunity in the near term for a trade on the short side. they have earnings coming out i think in a week or two. and so, to me, i actually look out to the november expiration today when the stock was $79.50 and i bought the november put spread for $1.50. i bought one of the november $77 half puts for $1.90 and sold one of the november 70 puts at 40 cents. it cost me $1.50. between $76 and $70, i can make up to $6, four times my money. $70 was a big level on the down side. $80 was an important resistance level, also matching the down trend. that's why i like this trade. i'm risking $1.50 to make four times my money. if it's rejected here at that resistance and goes back and tests the prior low. so, i like the risk-reward relationship, and options prices have come in pretty dramatically over the last four weeks, so i think this is a decent trade setup into earnings. >> the options prices certainly have come in, but they're not all the way back down to the
lows. that's why you want to use a put spread. you may be saying why sell the downside put at 40 cents? there's your answer. options prices, while lower, are not as low as they should be, so a put spread is the way to play this. >> what is the right multiple for an exxonmobil in this environment? let's give them 11% eps growth. they trade close to 20 times forward earnings. you have to wonder, at what point is it too rich? i don't think exxon's going to cut their dividend. it's probably less than 4%. i think there are other names, though, that are in trouble. mike mentioned conocophillips. that's close to 6%. it wouldn't surprise me on earnings to see we have to cut our dividend here, folks. this oil environment did not fix itself in one week. >> the debt levels on these balance sheets continue to rise, and if we do at some point see an increase in rates, that's also going to increase their borrowing costs. it becomes very hard -- it's not sustainable to continue to borrow money to pay dividends. >> i would think it almost doesn't matter if exxon specifically cuts its dividend or if another company does. it's going to bring the whole group lower. >> and we haven't seen defaults yet, haven't seen
bankruptcies -- >> there's no capitulation in the sector. >> if we have that soon, that's the thing. one other point about the options trade structure, and to mike's point. yes, vols will stay big until earnings and maybe you don't want to sell the $70 put if we start to see the stock lower. maybe you buy the $77.50 and look to spread on a move lower, but at some point, you'll want to offset some deikay. >> earnings setting into high gear next week. it's been a season of pain, adobe, dominos, alcoa and yum! falling. which ones does dom seeing making big moves? >> melissa, earnings season is really kicking off. this time around, this week, over 30 s&p 500 companies will report. johnson & johnson, b of a, wells fargo, netflix on wednesday. thursday, you've got mattel, citi, goldman sachs. friday, ge. a lot of big names, and there could be more volatility around these earnings reports. at least that's what the options market's telling us. look at this. a couple of big tech/media
names. intel and netflix. if you look at the options and what they're implying about a possible move around earnings, they're a bit more volatile than they have been over recent memory. the last few years or so. you take a look at an intel, for instance, up by about 5%, plus or minus in terms of the move or around earnings here. 3.5%'s the average. with netflix, it's bigger, 15% implied move up or down. on average, it's been closer to 13.5%, 14%. that's the media and tech side, but take a look at some of the financials. a lot of them reporting next week. you look at a goldman sachs, a bank of america, wells fargo. the options market's implying actually what could be a smaller-than-average move in those stocks in and around earnings. so, tech, financials, the two biggest sectors, some big movers. and on the financial side, some, melissa, that may not be quite as volatile as they've been in the past, melissa. back over to you guys. >> thank you, dom chu. that's a pretty big move expected out of netflix, and mike, especially because this comes after a big move we've already seen going into
earnings, pricing increase. >> we had a lot of big news. why would you normally expect this? number one, you might get a surprise out of it, but we've had already one surprise on the price increase. the other issue is, look at the last four quarters. it's been closer to 20% moves post earnings for this stock over the last four quarters. so, this is something that really whips around. but i actually expect that maybe when everybody's sort of looking for that huge rip, maybe this time we're not going to get it. >> oh. >> i would add one point. this q-3 they're going to report, if you look at the last four quarters they've reported in october the last four years, the stock was down 19% last year, 9% the year before that, 11% the year before that and 34%. for some reason, there may be some seasonality about this q-3 and the guidance they give for q-4. i know that doesn't exactly make a trend, but it's something that stuck out. >> that seasonality exists for every single one of their last four quarters because it moved 18% last quarter -- >> but all higher. >> i want to get to the trade here. >> simply, i'm going to mack a bet, and it's a low-risk bet,
actually, that they're not going to move. as much as the options market's forecasting this time. i'm looking at a calendar spread, specifically the november/october $115 call spread. you may $1.95 and sell against it at $7.10. it will cost you about 2% of the current stock price. basically, we're selling that short-dated october call, going to collect that decay, and after earnings comes out, we're going to get to own that november call until november expiration. >> basically, you don't think it will move as much because it's already had the moves. >> i think because it's had the moves. even if does move, you could see a whipsaw down, but if it catches legs after that, you'll still own the long-dated call. >> this is a special trade for a genius like mike. this is a smart trade, and you really have to have a view about what's going on with this company and how options are priced. and to me, based on the history of this company, it's not a great bet to make. you're really trying to pick one, it's a needle in a haystack. so, to me, obviously, if they were to miss and guide down and
whatever this pricing information does to forward guidance, the stock's going to get creamed, you know what i mean? but it also has the potential, the last three quarters it's gapped up 18% higher each one. so, when it has good news it goes to new highs and keeps going. >> i've been a believer on netflix. good thing dan's on the other side because he would be reaching for my neck, but i think this stock has a chance to ratchet higher once again. the only misstep this stock has taken, reed hastings has taken was in july of 2011, and the stock got obliterated. since then, they've done everything right. you saw the price increase yesterday. it was subtle. it wasn't a sledgehammer over your head like it was four years ago. i think the stock goes higher. >> if the stock could move 20% and you bought it or sold it and caught that run, you're losing 20%. you're risking about 2% of the current stock price to make a bet that's going to make money if the stock sits right here. even if it rises or falls a bit, you have the opportunity to profit and i think that's how you play this. >> smarter than me. he's the professor. >> if you had to make a bet on netflix in terms of where it goes on earnings, what would that be? >> listen, i think the stock's
squeezy. >> squeezy. >> it has broken out to new highs on earnings in the last four quarters and has kept going. the stock's still intact, and as long as they don't misfire, you stick with it. >> tweet us @optionsaction. for everything "options action," check out optionsaction.cnbc.com. we have the hottest action, videos throughout the week and exclusive trades, so check it out. here's what's coming up next. ♪ >> i'm going to make him an offer he can't refuse. >> you mean, like a chance to make all your money back in twitter. we'll show you how. plus, that pretty much sums up gold this week. we'll tell you why some traders think the run is just starting. ♪ here at td ameritrade, they work hard. 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. the only way to get better is to challenge yourself,
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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. the news the news of the hour is trouble at twitter. recode is reporting that the troubled social media company is planning companywide layoffs next week as it restructures its engineering organization. the reporter who broke that story, kurt wagner, joins us now. great to have you with us. what is the magnitude of the layoffs? what's that looking like? >> hi, yes, thanks for having me. so, next week, there are going to be companywide layoffs, and we're told that it's going to impact pretty much every department within twitter. i don't think, though, that this is necessarily a sign that twitter is struggling or this is
a bad thing. i think people have been saying for a long time now that twitter is actually too big, especially on the engineering front. so, i think with jack dorsey coming back as ceo, he wants to trim things down, make it leaner and make it more efficient, and this is the first way he's going to go about doing that. >> in terms of the engineering department, isn't it hard to get engineers, and here they are laying off engineers? seems like a strange department to target. >> yeah, you would think. i think -- and as we pointed out in this story, you know, twitter's employees, i want to say about roughly half of twitter's employees are engineers. when you look at, you know, what's really driving the business for them, it's not, you know, engineering, yes, it's keeping the product up and running. but really, if there's any place in the country where there are a lot of computer engineers, it's silicon valley, and twitter has been stockpiling them for the last couple of years. and i think it just got to the point where things were too bloated and there was trouble with who was running which projects, and people kind of getting sidetracked from the ultimate goal. and so, i think that's what they
felt they needed to do, was get rid of people who weren't actually contributing to the overall goal of the company. >> kurt, did you feel that, though, during this interim period where jack dorsey was there, he was obviously very popular. now they're coming in, they're going to cut some heads here. how is the mind-set amongst existing employees here? and do they buy into his newfound focus here? and do you think that they've lost some good people over this time period, over the last, let's say five months? >> i think they have lost some good people, and i think they've also had trouble probably bringing on good people over those last five months. people were hesitant to join twitter when the ceo decision was still influx. so, i think that they have some -- you know, they're going to be probably after they get rid of folks next week, they're probably going to also then have to start hiring again and bring on some higher quality talent in that regard. i do think that people believe that jack is making this decision for the good of the company. i'm sure that those who are asked to leave won't necessarily walk away feeling that their time under jack dorsey was well
spent, but i think people do think and have thought for some time that twitter is just too big and this had to happen. and jack is the guy who's coming in and willing to make that tough decision. >> okay, kurt. great to have you with us. thanks a lot for sharing the story with us. kurt wagner over at re/code. and twitter stock in the after-hour session hitting its lows, down as much as 3.1%, bouncing just -- it's actually sitting right now there, guy. >> in the second half of 2012 and early in 2013, facebook, everybody was calling for zuckerberg's head. facebook couldn't get out of its own way. they wanted a new ceo. and now look at the stock. it finally got its sea legs. it's taken twitter a little more time, i get it, but i also think it's too valuable of a property to throw it off and leave it for dead. i've been wrong. i thought it would hold $35 six months ago. clearly, it didn't. but i also think maybe it's starting to get its sea legs. maybe this is a good first step. i know they report in a week and a half or so, but i think twitter's a property you want to own. >> you have a trade on twitter. >> i've been long it, like a lot
of you, have been long it and been wrong for a while here. really, i looked at a trade today when the stock was about $31. it was a combination of using options as an overlay to my long stock position to add potential yield and leverage without actually adding any risk to the position. so today, i just want to kind of spec it out here. when the stock was about $31, i was looking out to november expiration. that's going to catch the next earnings event, which is likely to be very newsworthy. i don't know which way the stock's going go. really, i don't think it's going to rally 20% on that sort of thing, but it has the potential to move one way or the other. so, today when the stock was 31 bucks, you could do overlay a one by two call spread in november expiration for no premium. so, you could buy one of the november $35 calls for $1.10 and sell two of the november $38s at 55 cents each. that's $1.10 total. that costs you nothing. that's against 100 shares of sock at current levels at $31. and this is how you get your yield or potential leverage. >> yeah, this makes a lot of sense, because the options
premiums here are exceptionally elevated, right? so, they're off of their 60% implied volatility high, but well above where they have been for the 18 months in the stock leading up to this. the last time it got around 30 bucks, i think that is another way that you could potentially take a look at putting positions on in twitter. that's not necessarily a bearish bet because you're going to get long the stock at lower levels. i like it at 25 bucks. >> you like it at $25. in terms of the news, does this change at all your view of what's going to happen -- >> no, listen, i think the stock could continue to work here. so, if you have an overlay against your long stock position, you are not paying anything for it, it could get 10% yield. if the stock is between $35 and $38 at the november expiration, up to an additional $3. these trades make sense. when vols are high, there's a lot of uncertainty. if you get it at $38 or higher, you'd be effectively selling at $41 on november expiration. i like those odds. >> i'd be afraid with the next result, you get a kitchen sink quarter with the new ceo.
you have layoffs now and then wait until earnings and then really drop the ax. >> i think it's fair to be afraid. i wake up afraid, although on this show, i am not afraid at all. i love this. but i think in terms of the stock performance, you might get that kitchen sink, but i don't think you're going to get it in terms of the stock reaction. i think you've already seen it. i happen to think the worst is over in terms of stock price. >> okay. there you have twitter shares in the after-hours session reacting to the news, down 2.75% so far. coming up, down and carter struck gold with their bullish bet on miners. we'll tell you how they'll turning their shiny profits into even more cash, right after this. here at td ameritrade, they work hard. 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.
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time now for the upside call, where we look back on winning trades. last week, khouw and carter made a bullish bet on gold and the miners. take a listen. >> just to get to the downtrend line, yes, this downtrend daily, which would take us above the weekly downtrend line, a move to around 17. take a shot here. >> you use the spread. i'm looking out to december. the $14.5/$17 call spread, you can spend just 75 cents for that. >> now, you may have noticed that carter is not on the desk. instead, we have a poorman
substitute for carter. but carter did send a postcard. in the postcard, carter writes, "hey, team, elected to take a day off and get an early jump on columbus day weekend. have a good show and remember the old proverb, oh, gold, i still prefer thee unto paper, which makes bank credit like a bark of vapor," from carter. >> is that real? did he really send a postcard? >> that english? looks like carter still likes the trade, i guess. >> you don't give up on the bullish bet in gold, but you do need to adjust this, because we've had a sharp move. we were long the $14.50, short the $17s. it's closer to the upside strike. i sell this one and roll out and up. >> out and up, okay. khouw and carter aren't the only ones smiling today. dan made a bullish bet on computer staples last week. listen. >> implied volatility in the xlp is very low relative to the other sector etfs. today, i looked out to november, and when the stock was $47.45,
you could buy the november $47 call for $1.45. >> well, consumer staples were up more than 3% this week, so dan, do you stick with the trade? >> actually, i closed it out. listen, over the last week, you could have thrown a dart at the board and had a stock up 3% or 4%. the options today when the stock was $49.45 was a $2.75 bid. sold them out, took a quick profit and i'm going to move on. i was not expecting out-performance by the staples in an up market here. i had a quick trade. i'm moving on. >> it's crazy when you look at someone, like clorox. hit a new 52-week high, trading at a $27 forward, $25 forward pe. some people will say these are expensive for what they are. >> people have said that about clorox for some time. that's a jim cramer fave, and that comes up tonight. >> within moments. >> it's going to continue to grind higher. the gold mining trade, by the way, we do a show called female until at 5:00, we mentioned that stock. i'm with mike.
i think that grinds higher. >> carter, something about vapor. >> keep sending cards. >> coming up on "mad money" tonight, cramer's cracking the code on ipos, doing the dirty work on three companies joining the tape, including the fastest growing tech stock in today's market. plus, a reality check on the commodities rally and cramer's game plan for next week. all that and more, top of the hour on "mad." coming up, your tweets and the final call from the options pits. here at td ameritrade, they work hard. 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. he can not see through doors.
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. time now for time now for "the final call," last word from the options pits. you know how this works, guy, right? >> i do. it's an honor to sit in carter's chair and also an honor to back up what they said about gold. gdx is going higher. >> mike khouw. >> i still like gdx, but i like dan nathan's override on twitter shares, if you own them. >> dan? >> i'm looking out to next week. there's a lot of earnings. intel also interesting. it's rallied about 7% this month, left for dead last month. to me, i think you may see some money come out of it.
the good news may be in the stock, if there is any news. >> guy, a pleasure having you here for the third time. >> unbelievable. >> our time has expired, meantime. i'm melissa lee. for more "options action," check out optionsaction.cnbc.com. "mad money" with jim cramer starts right now. if you love football, there's a new way to watch that's changing how millions of fans enjoy the game. it's fanduel. the leader is one week fantasy football with more winners and more payouts than any other site. and it lets you take your skill, knowledge, and love of the game, and turn it into real money. fanduel is the most exciting thing in one week fantasy football, and it's exploding. the popularity of fanduel has grown leaps and bounds every single year. more and more people are starting to find out that this is the way to play. it's totally revolutionized all of fantasy football. if you don't know what fanduel is, something's wrong. fanduel is growing, and the more of my friends that know about it, the more fun it is for all of us.