tv Options Action CNBC October 17, 2015 6:00am-6:31am EDT
hey, hey, there. we are live from the nasdaq markets late on this friday. look who is back, td chart master. will carter and the guys are getting ready here is what's coming up chltd. >> so what do we do? >> well, one sector could hold the clue to where stocks are going next, we will tell you what that is and how you can proftd. plus, tech showdown. not quite like that. we're talking about names like mic softd, alphabet and amazon which all report earnings next week, but one stock is set to have a huge move. >> and netflix shares are doing something very strange. the answer to make you a lot of money.
the action starts right now. so let's get right to it, shares of general electric surging today to a ten-year high. will the rest of the industrials follow suit? let's get in the money and find out. mike what do you think? what's your take? >> if we are looking at industrials there are haves and have notes. the industrial that are related to things like commodities in south america, the katd pillars, the t rex's of the world, as bad as it looks and as cheap as those stocks appear i don't think the trouble is over for them. that's not an area seeing a lot of recovery. mike moby is saying people are overblowing the problems in china, he is saying they are moving more of a service paced economy. that's not going to bail those companies out, either. maybe boeing is a place that could potentially benefit. if you are looking at the mining sector, i would stay away still. >> it feels like ge is a stock specific story. you take a look at a honeywell it missed on revenues. >> you had, in both and ge seems
stock specific, the stock is up 15% in the last couple weeks, there is obviously activist pressure and it has done it based on fundamentals. the earnings multiple now is 22 times this year's expected earnings, that's a ten-year high for ge. there is a lot of enthusiasm out here without any fundamental improvement. the honeywell situation was interesting to me, 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% on the date was the xli was actually down on the day. so ge's performance is masking bad performance in the entire space. >> some of the people that reported from emerson to fastenal and grainger using terms like industrial recession. it's not good and ge is the big weight in the sector, 11%. without the big defense contractors, well, a few airlines, everything else from united technologies, to emerson
to eaten is down and it does not look like it's over. >> exactly to your point a lot of the companies that were first trying to deal with cost cutting issues, now the ones that service those companies are saying the exact same thing. so it's rippling basically through that space. this is not the time to dive into it. >> you got a trade on xli. the etf that trades industrials. >> when you look at the chart. xli from the 2009 lows it has come down to that uptrend that has been in place since 2009. there's the chart. you have the stock at 52.5 or so today, 50 is a near term support level but that uptrend is the big one here. i don't think ge can help a whole heck of a lot from here at ten-year highs. i want to make a bearish bet looking out to december expiration when the stock was around 52.5, i bought the 52.48 put spread in december, i paid $1 for that, my max gain is at
$48, okay, that's basically -- i'm risking one to make potentially 3 down at 48 bucks. i'm paying 1 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 here especially given how poor the fundamentals are and how bad the technique calls appear to be -- >> the market has recovered nicely off of our swoon that we had over here and risking 2% if you want to press a bearish bet this is certainly a good way to do t many times it's that out of the money put that is relatively overpriced and that's why these put spreads make sense. this still the way to play it. >> if we see poor performance in the industrials what does that mean for this rally? the s&p, eight week highs, back to free flash crash close. >> the industrials as a sector one of the parts composing the whole. the industrials underperformed
all 14 and all of this year. that simply returns them to difficult levels where interested sellers are likely to act. weakness in industrials will be more of the same and also it would suggest that this very sort of impetuous rally is running out of steam. >> that's an interesting description. all right. seema mody is back at headquarters we have breaking news. >> ipo to add to the list, match filing for an ipo of up to $100 million. this is a rg savannah guthrie that has a portfolio of over 45 brands including match.com, tinder, among others. match will go public under the ticker symbol mtch, jpmorgan, merrill lynch, among others. match filing for 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 the space. >> this is not even a name that we have heard a valuation on that has any excitement about
it. i think this is a barry diller name. we had all the roll ups when these were not fashionable things now they are kicking them back out because they think it's time. >> not a match made in heaven. this is not really a hot ipo season and this is not something that's got a lot of buzz, i don't think i would have any interest in this at all. i wouldn't be surprised if this doesn't do well. >> earnings season gets into full swing next week. let's hit the score card. so far 58 s&p 500 companies report with 71 coming in throw estimates, 19d% below. one man keeping score is dom chu. >> well, melissa, if you thought we had a lot of scores to keep track of this week, just wait until next week, that's when over 100 s&p 500 companies are going to report, jpmorgan on monday, chip holt lay tuesday, boeing, mcdonald's, proctor & gamble, that's just a handful of them. large cap technology, i mean,
these three giants in particular, you are talking about alphabet, that company formerly known as google, microsoft and amazon as well, technically maybe amazon is not a consumer -- it is a consumer discretionary company but still you get the idea. all three of these guys report on thursday and here is what the options markets currently pricing in for expected stock moves around these big earnings reports. amazon.com could see a swing of up or down 8.5%. that's what options are pricing in right now. 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 just to give you an idea of size here. if these options implied 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, you know, lots of score
keeping to do, we have to get some rest for next week, melissa. back over to you guys into thank you, dom. so chart master is taking a look at one of the big cap tech names that could be poised to break out next week. >> sort of the heaviest -- slowest moving in a way but a nice yield. we will look at microsoft. take a look at the charts. let's see the setup here. 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 obviously household names, these are huge performers off the low of august 24th meaning they are not only up a lot, they are up relative to the market. the market is only up 10%. all these names of course everybody knows, here is again the first panel, here is the second. markets up 10% off its low, massive out performance. the biggest one of all, intel, is up the most. guess who is most correlated with that, microsoft. let's look at charts and try to put it together. here is a one half year picture,
the correlation is quite high, microsoft higher with intel than any other stock on that list. it looks to my eye that microsoft is setting up well for a breakout. here is our plunge and we've recovered and we have this formation that started this tight, tight trading and the presumption is that you are going to get something of a breakout out of this setup. so we're back to the level or the scene of the crime, market has not done that, the setup is perfect and i think you get this breakout. now, we closed here today -- take a look at where that is in relation to the longer term picture. here is our move from the lows of 2011, td last time the market was down 20% to where we are now, you can draw the lines this way. again, we have a big range, a nice setup, we're toying with these tops, our daily charts suggest that. you think it's just right. i think it's going to do what intel has done and then yield. you get a 3.1% yield out of this stock that is better than ten
year treasuries, much better than the s&p, it's up there with things like utilities. i think it's a heads you win, tails you wind kind of setup. >> winner both ways. mike, you agree? >> this is a company trading a little less than 17 times next 12 month earnings. it's not incredibly expensive if you compare it to the rest of the market. the other thing that's interesting, this is a company the overall value of this business not a whole lot figurer than facebook but their net income was bigger than facebook's revenues and what they get from xbox and mobile bigger than facebook's revenues. i like it fundamentally but it has quite a runoff at the bottom. >> i would say there's some risk on the week we saw data points that aren't particularly great for the end markets, we saw sea gate talk about enterprise demand, they talked about slow enterprise server demand. to me i actually think that intel's movement in some of the big cap tech especially related
to the pc supply chain was more of a sentiment trade rate rather than based on fundamentals. i take a little issue with carter's charts, the stock has been between 40 and 50 all year. if you think you are going to get a break out above 50 on fundamental news i would be surprised. >> that's not what i'm playing for here, either. what i'm doing is taking a look at that risk factor, looking at a calendar spread, specifically i'm looking at the october weekly, those are the weekly 48 calls that expire next week, january 48 call spread. you can spend about 9d 0 cents to do that, basically you are selling that near dated call not expecting this to blow out but for less than a dollar you get to be long a call after earnings all the way until january. >> so we both disagree with carter. >> i guess we do. >> i want you to respond to dan taking issue to your chart. >> i think i'm the first to say, listen, it's all interpretive. every time the stock traded six times below the monkeys could do
t my eye sees up, your eye sees down. we will find out. >> what do you think of the trade? >> i like the trade because it's a great options trade. what mike is doing is playing for a consolidation here, those short dated options are well bid. if you think that the catalysts are coming to come further out -- i would make one other point. to do this trade and playing for consolidation the stock has had two 10% moves post earnings in the last three-quarters and this is microsoft. that was massive, massive moves. to me i think you really have to have a sense of what you think is going to happen here -- >> a 5% move on a $300 billion company is a $15 billion swing one way or another. i think it's going to stay in that range and the option you are selling costs more than a third of the price of the option you are going to be buying which expires early next year, but still that gives you a sense of the value you get. >> got a question out there, send us a tweet to @options everything. check out the website options
action.nbc.com. you want to check it out. here is what's coming up next. >> i'm so confused. >> well, maybe that's because you are looking at the wrong things. but we have the one sector that could hold the key to the market's next move and we will tell you what it is. plus, this guy just took a 4% stake in twitter, but we have got a way to get long the stock for free. we will 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 things. things. rd 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.
and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. 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 the dow and s&p 500 closed the week on the high note. the s&p 500 has recovered most of its august declines. there are a bunch that are not recovering. >> seems like we are picking on small cap stocks and that's the russell 2000. it's specifically the iwm, the atf that tracks the russell 2000. when you think about the performance year to date it's really underperformed the s&p 500 and the nasdaq composite. so it's basically down about 2.5% on the year, the s&p is down 1.5% and the nasdaq composite is actually up. the most important point to me is that it's down the most from the all time highs that it made earlier in the spring. i want to go over to the chart a little bit, this is the iwm, the etf that tracks the russell 2000, it had obviously been consolidating for a good part of the year, it made that high and
then it had this precipitous drop here. one of the most important things right now, it's come back a little bit, still 11% from those highs. the most important point that i want to look at is the fact that it's actually already broken that august low. it's the only major u.s. equity index that has done that. it's showing a great deal of relative strng, below that up trend that had been in place since the 2010 lows. i want to take a quick look at the options and iwm. this is one of the reasons that i think this is probably a pretty good place to make directional bets if you are looking for a hedge or looking for an outright short, this is implied volatility, the price of options in the iwm, we obviously had this huge spike to multi-year highs but it's stayed relatively -- somewhere in the mid teens percentagewise. that looks cheap to me given that underperformance, today if you are considering iwm as a bank hedging buck one trade i
thought about when the etf was about 115 you could buy the december 115, 100 put spread paying $3 for that, could you make up to $12 between 112 and 100 on the down side, 100 was a big support level looking back a few weeks ago. to me this is risking a few percent of the underlying price of the etf to possibly have protection or about 12% gains down to 100 in the etf. >> okay. i'm going to get to the reaction to the trade, but i've got to go to carter first because dan is over there interpreting charts and drawing lines and i want your take. >> look, i mean, one of the things that was the setup for this draw down that we had, one of the most severe three-day declines on record, was the weakness in breadth that led to it, small companies had been underperforming for the better part of 18 months. where the iwm is at 118, it was there at january of 20 14rks that's all of '14, now most of '15. if you are unchanged for 18 months you've got no results.
and it doesn't look like it's getting better, it looks like it's getting worse, the chart work. >> he is happy now. what do you think of the trade? >> i definitely like the trade. there is more leverage in something like iwm, just like industrials and energies, if there is any problem on the credit side where debt resides this is where you are going to find t that's where having options can help pay off and basically give you the leverage if you're going to make a down side bet. >> how much of this belief in the down side has to do with biotech. >> these are high valuation stocks, there has been some risk aversion to some of those of late. that's where you want to go. look at all the crowding in the s&p 500, these largest -- the stocks that carter has been all over, the amazon, facebook, seems to be a very crowded trade not so much in small companies. that's why you get the most bang for your buck. >> call it a crude conundrum oil was down 4%. 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.
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. he can not see through doors. his speed, anything but superhuman. but when it comes to health care options, george found helpful information and resources at aarphealth.com this makes him feel unstoppable. well, almost unstoppable. discover real possibilities at aarphealth.com today and tomorrow take on the world. time
time now for total recall where we take a look back on some of our existing trades. last week dan thought the run in exxon was getting a little overextended. take a listen. >> it is in a massive down trend here, it just rallied back to that down trend. i think you have a good opportunity in the near term for a trade on the short side. i looked out to the november expiration when the stock was 79.5, i bought the november 77.5, 70 put spread. >> but exxon shares rallied 3% despite a sell off in oil. >> i was talk being a down trend, it just broke that down trend. it got a lot of momentum, i think it probably sees it's 200 day moving average just about 83 in the coming days. sometimes you just long premium i'm going to have to cut my losses at probably 50% of the trade, that's going to happen early next week, i do not want to see this inning get too far out of the money. >> last week mike made a bullish bet on netflix ahead of
earnings. >> i'm going to make a bet and it's a low risk bet that they are not going to move as much as the options market is forecasting this time i'm looking at a calendar spread sprefky november/october 115 call spread, 185 for those november calls, sell the october for 710. >> the stock is down 10% since earnings so, mike, the first leg of the trade expires today, what did you do? what will you do? >> you know, we are still in that long call but that thing is now more than 15% out of the money. this is a trade that actually traded up right away, up 50%. when we say options action, the action happened quickly, now you are down about a buck on the trade which isn't bad, we've got a little time to go. what i'm probably going to do if we see some level of support is sell some puts. >> carter, you've been saying what's been working and what's been work something not working. >> that's right. the netflix still on a relative bases appeals to me and the damage was fairly contained for a high bidding day. i think the trade is really
pressed to exxon, exxon has advanced essentially out 70 billion -- >> you're saying i would stay. >> you can stay. you come out and we will start a new one. >> isn't it amazing exxon is a place you are able to make this kind of money, up 30% off its lows in two months time. >> 24%, literally adding 68 billion. i mean, it's pricing in crude i think at probably 58, $59 a barrel. >> m could go up next, we have your tweets and the final call from the options pits. c go up n tweets and the final call from the options pits. o go up next, tweets and the final call from the options pits. m go up next, tweets and the final call from the options pits. i go up next, r tweets and the final call from the options pits. n go up next, your tweets and the final call from the options pits. g go up n your tweets and the final call from the options pits. 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 tweelt. first off is from nathan asking about the implied move for amazon and google, would you rarely buy a call option or spread? mike. >> if you are using amazon you want to do a spread it's implying a move of 9%.
google implying a move of 6% which is less than average means they are cheap and buying a call option not a bad way to play it. >> i agree with him. amazon, the stock looks poised to break out, the stock has moved on average 10% offer the last four quarters, i do think you want to spread it. >> could the chart master comment on his wicked bear market call from three weeks ago? >> i think we're very much in a bear. that's the point. you get the stall and no one believes t ut the crash, 10, 12% crash and no one is prepared for it and then you get the rally that makes people think that it's okay. it's not okay. banks are not acting well, industrials are not acting well, global equities are struggling. i think we've been in a bear market for a while, it's just a question of where it ends. that's my guess. >> time for the final call. last word for the pits. carter. >> i think you can be defensive and offensive here with microsoft playing for a breakout, getting a nice yield,
long on mic soeft. >> mike. >> more brif way is to buy a caliber spread. >> i like the iwm spreads. >> looks like our time has expired. see you back here for options action. mad money starts right now. [ boing! sproing! ] [ click! click! click! click! ] [ sproing! ] >> announcer: the following is a paid program for brainetics. >> can you imagine squaring a three-digit number in your head without a calculator? >> 483 squared. >> 233,289? >> awesome. >> how about solving advanced equations off the top of your head like these sixth graders? >> go, guys! >> oh! >> yeah? >> okay, so, it's 263,169. >> good! >> .6153846.