tv Options Action CNBC October 16, 2015 5:30pm-6:01pm EDT
hey there. we are live from the nasdaq markets and on this friday, look who is back. the chart master. so while carter and the guys are getting ready, here is what is coming up. >> so what do we do? >> one sector could hold the clue to where stocks are going next. we'll tell you what that is and how you can profit. plus, tech showdown. not quite like that. we're talking about names like microsoft, alphabet and amazon which all report earnings next week. one stock is set to have a huge move. we'll reveal. and netflix shares are doing something very strange. >> tell me what we're talking about.
>> we will, frank. because the answer could make you a lot of money. the action starts right now. well let's get right to it. shares of gef surging to a 10-year high so will the rest of the industrials follow suit. let's get into the money. mike co, what is your take here. >> looking at industrials, there are haves and have notes. the industrials like related to latino america, the caterpill caterpillars, i don't think the trouble is over for them because they are not seeing recovery. mark moeby is saying people are overblowing the problems in china. he is saying they are moving to a service based economy. that is not helping them out. so there are the haves and have not s. maybe boeing could potentially benefit. but if you are looking at the mining sector, i would stay away. >> it feels like ge is a stock specific story. when you look at honeywell, it
missed in revenues. >> that is a good point. and ge stock is up 15% in the last couple of weeks. there is activist pressure in there. an it is not based on fundamentals. the earnings is 22 times this year's experted earnings so that is a ten-year high. the honeywell got me looking at the space in particular because that stock at one point was down 2.5% on the day and ge was up 3.5% but the xlive, the etf that tracks it was down. so ge's performance is masking a lot of bad per poermance in the space. >> you could see the commentary from emerson and the chairmans saying we are seeing things terrible, like industrial recession. it is not good. and ge is the big weight in the sector, 11%. without the big defense contractor, a few airlines,
everything from united technologies, honeywell, it is all done, not by my word. >> to your point, a lot of the companies trying to deal with cost-cutting issues and now the ones that service those companies are saying the same thing. so it is rippling through that space. it is not the time to dive into it. >> do you have a trade on xli which tracks industries. >> yes. when you look at chart from the 2009 lows it has come down now to the uptrend that has been in place since 2009. there is the chart right there. so you have the stock at 52.5 today. 50 is a massive near-term support level. but the uptrend is the big one here. so i think that you'll continue to see fundamental zreerdeterion and i don't think ge can help at ten year high so i want to make a bearish bet looking out to december expiration at around
52.5, i bought the 52-48 put spread and my max gain is at $48, okay, that is basically risking one to make potentially three down at $48. here is the thing. i'm paying one and that is about 2% of the stock price right here. and i think this is a very near the money bet that breaks even, down about 2.5%. i like the risk reward given how poor the fundamentals are and how bad the technical as peer to be zeerting. >> the market has just recovered off of our swoon that we had over here and risking 2% to press a bearish bet, this is a good way to to do it. many times it the bearish output that makes it the price. and this is still wait to play it. >> if we see poor performance in the industrials what does it mean for the rally. as mike mentioned, the s&p we're back to preflash numbers. >> the industrials all
underperformed all of '14 and this year and they've had steep ricochets. and that returns them to difficult levels where those hurt are likely to act. so weakness would be more of the same and would suggest that this very sort of impetuous rally is running out of steam. >> impetuous rally. that is an interesting description. seema mody has breaking news. >> ipo to add to the list. matt filing for $100 million. they have match.com, okay, tinder and others. they will go public under the sim poll mtch. and the owners are allen and company and bank of america. and filing fob an ipo of up to $100 million. back to you. >> seema mody, thank you. interesting time to go public. i don't know if you have any thoughts about that space. >> this is not even a name we've heard a valuation on that has
any excitement about it. i think this is a diller name. we had all of the roll ups when these were not fashionable and now they kick them back up because they think it is time. >> not a match made in heaven. this is not a hot ipo season and not something that has a lot of buzz. i don't think i would have any interest in this at all and i wouldn't be surprised if it doesn't do well. >> let's move on. earnings season starts next week. let's hit the score card. so far we've had 51 companies report and 10% matched and 19% below. and dom has names that we could see next week. dom. >> well if you thought we had a lot of scores to keep track of, wait until next week. you have morgan stanley, chipolte, boeing, mcdonald's and proctor and gamble on friday. and you know where there could
be action is large cap technology. the three giants in particular, you are talking about alphabet, the company formerly known as google. and then microsoft and amazon as well. i'm technically make amazon is not a consumer -- it is a consumer discretionary company, but still, you get the idea. all three of them report on thursday and here is what the options market is pricing in for expected stock moves around the big earnings reports. amazon.com could see a swing see up or down 8.5%. alphabet is pricing in at plus or minus 6% move and microsoft is around plus or minus 4%. now these are three stocks that are huge in size. they make up together, just those three, a fifth of the total awaiting of the overall nasdaq 100 index. to give you on idea of size. if the moves are correct, it could be, get this, a plus or minus $67 billion swing in market cap fluctuations in total
for these three guys. so lots of score keeping to do. we have to get some rest for next week, melissa. back over to you guys. >> rest up. thank you, dom. >> so chart master is looking at one of the big names that could be poised to break out next week. >> sort of the heaviest and the slowest moving in a way. we're going to look at microsoft. so let's look at the charts and watch them together and see the setup here. so what we know is a lot of big stocks, if you look at tech names in particular, how they've performed off of the low. what i have here is these are household names. these are huge performers off the low of august 24th. meaning they are up a lot, they are up relative to the market. the market is only up 10%. all of these names, everybody knows. here is the first panel. here is the second. markets up 10% off the low. massive outperformance. but the biggest one of all, intel, is up the most. and who is most incorporated
with that? that is microsoft. and here is the 1.5 year picture. and it is higher with intel than any other stock on the list. and it looks to my eye, that they are setting up well for a break-out. so here is the plunge. and we've recovered and we have this formation that is starting -- this tight, tight trading and the presumption is you will get something of a breakout out of this setup. so we are back to the level of the scene of the crime. market has not done that. the setup is perfect. and think you get this breakout. now we close here today -- and take a look at where that is in relation to the long-term picture. our move from the lows of 2011, the last time the market was down 20% to where we are now and draw the lines this way. so again we have a big range, a nice setup, and we are toying with the tops. our daily charts suggest that. i think it is just right. i think it will do what intel has done. and then yield. you get a 3.1% yield out of this
stock that is better than 10-year treasuries and up there with utilities and reits. so it is a heads you win and tails you win setup. >> wow! both ways. mike, do you agree. >> they are trading a little less than 17 times last quarterly earnings. the other thing that is interesting. the over all value of the business, not a whole lot bigger that facebook but the net income was bigger than facebook revenues. and what they get from xbox and mobile also bigger than facebook revenues. so there are some parts of the business that are more interesting and exciting. i like it here. but it has had a run off the bottom. >> i would say there is some risk here too. and we saw this data points that aren't great for microsoft. and we saw sea gate talk about intel and although the stock rallied, it was down. they talked about slow server demand. so i think intel movement in the
big cap tech, especially related to the pc supply chain was sentiment rather than based on fundamentals and i take issue with carter's charts. the stock is between 40 and 50 all year, if you think you will get a break out above 50, i would be surprised because i don't see what will make it happen. >> that is not what i'm playing for here, either. and what i'm doing is taking a look at the risk factor and looking at a calendar spread. we've done this a couple of times. i'm looking at the october weekly, that expire next week. january 48 call spread, you can spend 90 cents to do that. and you are not expecting this to blow out. but for less than a dollar you are long a call after earnings until january and that is the way to make a bullish bet. >> so we both disagree with carter. >> i guess. >> i want you to respond to dan taking issue with your chart. >> i'm the first to say, this is all very interpretive. every time it trades at six
times cash flow, you could buy it. the monkeys could see it. your eye sees up and my eye sees down. we'll find out. >> what do you think about the trade. >> mike is playing for a consolidation and those are well bid. so if you think that the catalysts will come further out, i would make one other point, to do this trade, the stock has had two 10% moves post earnings in the last quarters. and this is microsoft. that was massive, massive move. so to me, i think you have to have a chance of of what you think will happen here. >> a 5% move on a $300 billion company is a $15 billion swing one way or the other and it will stay in that swing. and it cost more than a third of the price of the option that you are buying which expires next year. early next year. i'll grant you. but still a convenience of the value you get. >> got a question out there, send us a tweet to "options
action." check out the hots news and videos through the week and exclusive trades so check it out. here is what is coming up next. >> i'm so confused. >> maybe because you are looking at the wrong things. but west africa the o-- the we sector that could hold the ticket to the market move. >> this guy just took a 4% stake in twitter but we have a way to get long on the stock for free. we'll explain when "options action" returns. 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.
ahh... steve, other than making me move stuff, ces. 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. the dow and the s&p 500 closed the week on a high note. the s&p has recovered the august declines but one group of stocks
is not participating. so dan made it over to the smart board with what could hold the key to the next move. >> it seems like we're picking on the small cap stocks and that is the russell 2000 and the atf that tracks it. so when you think about the performance year-to-date, it is underperformed the s&p 500 and the nasdaq composite. so it is basically down about 2.5% on the year. the s&p is down 1.5% and the nasdaq composite is up. but to me, the most important is it is down from the all-time highs in the spring. and i want to go over to the chart. this is the iwm, and they track the russell 2000 and consolidating for the good part of the year and made the high and then had a precipitous drop here. but one of the most important things here, it has come back a little bit. it is still 11% from the highs. but the most important point is the fact that it has broken the
august low. the only major u.s. equity index that has done that. so it is showing strength. it is below the uptrend that had been in place since the 2010 lows. and i want to go take a quick look at the options of the iwm, one of the reasons that i think this is a good place to make some directional bets if you are looking for a hedge or out right short. the price of options in the iwm, you have a huge spike to multi-years highs and it has come back in like most options prices but stayed relatively big and somewhere in the mid teens, percentage wise right now. that looks cheap to me begin the underperformance. so today if you are considering iwm, a good hedging buck. when the etf was about 115, could you buy the december 115, 100 put spread paying $3 for that and make up to $12 and $100
and 112 on the down side. and 100 was the level a few weeks ago. so to me this is risking a few percent of the underlying 10% or to the gains down 100% in the etf. >> i'm going to get to reaction of the trade. but i have to go to carter over there because dan is interpreting charts and drawing lines and i need your take. >> look, i mean, one of the things that was the setup for the drawdown, one of the most severe three-day declines on record, the weakness in breath that led to it and they have been underperforming for 18 months. with the russell was, it was there in 14 and now most of 15. if you are unchanged for 18 months, you have no results. and it doesn't look like it is getting better. it looks like it is getting worse. good chart work. >> wow! >> what do you think of the trade? >> i like the trade. there is more leverage some
something like iwm. just like in energiys. if there is a problem on the credit side, this is when you will find the debt and when having options will pay off and it will give you a leverage to make a down side bet. >> how many belief has to do with biotech? >> it is a great point, mel. these are high valuation stocks and there is some risk aversion to those of late. and that is where you want to go. look at all of the crowding in the s&p 500. the stocks that -- carter has been all over the amazon, the facebook, there seems to be a crowded trade, not so much in small cap and that is why i think you get the most bang for your buck. >> a crude conundrum, and why were names like exxon and chevron rallying? we have the surprising answers 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. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.
ahh... steve, other than making me move stuff, ces. 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.
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.
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ahh... steve, other than making me move stuff, ces. 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 for a tweet. now first off it is from nathan asking about the move for zahn and google. would you rather -- buy a call option or spread, mike? >> if you are using amazon, you want to use a spread because it
is implying a move of 7%. and google is implying a move that is 6%, which means options is cheap and buying a call option is not a bad way to play it. >> what do you think, dan. >> here is the thing about amazon, it looks poised to break out and it moves on average 10% over the last four quarter so spread it if you want to make a directional bet. >> this one is for carter. could the chart master comment on his wicked bear market call from three weeks ago. >> i think we're in it. but we've been in it. you get the stall and no one believes it and then the crash, and no one is prepared for it and then the rally that makes people think it is okay. it is not okay. banks are not acting well, industrials are not acting well. global equities are struggling. i think we'll be in a bear market for a while. it is a question of where it ends. >> time for a final call. carter. >> i think defensive and offensive with microsoft playing for a breakout. also getting a nice yield. we're long on microsoft.
>> mikeco. >> the stock is to buy a counter spread into earnings. >> dan. >> offensive about defense, i like the iwm defense in put spreads. >> see you 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." welcome to cramerica. i'm trying to make you money. my job, not just teach you entertain and educate. so call me or tweet m me @jimcramer. no matter how many times i warn you to avoid calendar investing, meaning some sophomore strategy, sell in september to avoid the tr