tv Options Action CNBC October 18, 2015 6:00am-6:31am EDT
we're we're live from the nasdaq market site on this friday. look who is back, the chart master. while carter and the guys are getting ready, here's what's coming up. >> one sector could hold the clue to where stocks are going next. we'll tell you how you can profit. plus, tech showdown. not quite like that, we're talking about names like microsoft and alphabet and amazon which report earnings next week. one stock is set to have a huge move. netflix shares are doing something very strange. >> tell me what we're talking about. >> we will, frank, the answer could make you a lot of money.
the action starts right now. ♪ pump up the jam >> shares of ge surging to a ten-year high. will the rest of the industrials follow suit? what do you think? >> i think that if we're looking at industrials there are haves and have nots, the industrials related to things like commodities in south america, that would be the cat pillar's and t-rex s, i don't see as cheap as stocks might appear, i don't think the trouble is over for them. that's not an area seeing recovery. a lot of people are overblowing the problems in china, saying they are moving to more of a service based economy. that won't help bail the companies out either. maybe boeing is a place that could potentially benefit. if you're looking at the mining sector, stay away still. >> it feels like ge is a stock specific story. you look at honeywell, missed on revenue. >> you had earnings for both and
ge seems stock specific, stocks up 15% in last year. and it's not really based on fundamentals. if this is a fundamental input, the earnings multiple is 22 times this year's expected earnings. that's a 10-year high. there's a lot of enthusiasm without any fundamental improvement. the honeywell situation was interesting to me. that stock at one point was down 2.45% on the day and ge up 3.5% but ge's performance is masking bad performance in the entire space. >> on the commentary from people reporting, the chairman saying we're seeing things that are terrible, using words like industrial recession. it's not good. an ge is the big weight in the sector, 11%, without the big defense factors, everything else from united technology and
emerson is down and it does not look like it's over not by my work. >> to your point, a lot of companies first trying to deal with cost cutting issues are saying the exact same thing, it's rippling through that space. this is not the time to dive in. >> you got a trade on xli. >> specifically when you look at the chart of the xli from the 2009 lows it has come down to the up trend that has been in place since 2009. there's the chart right there. you have the stock at 52.5 today. 50 is a massive near term support level but the up trend is the big one here. i think you'll continue to see fundamental deterioration. i want to make a defined risk bet looking out to december expiration today when the stock is 52.5, i bought the 52, 48 put spread in december and paid a
dollar for that. my max gain at $48. that's basically i'm risking one to make potentially three down at 48 bucks. here's the thing. i'm paying one and that is about 2% of the stock price right here. i think this is a very near the money bet that breaks even down 2.5%. i like the risk reward given how poor the fundamentals are and how bad the technicals appear to be deteriorating. >> the market has recovered nicely offer the little swoon here. if you want to press a bearish bet in a space like this, this is the way to do it. these put spreads make sense even though we saw it fall down to 15 today. still the way to play it. >> if we see poor performance, what does that mean? we're at eight-week highs and back to preclash lows. >> the industrials all
underperformed all of this year and steep ricochets. weakness in industrials will be more of the same and would suggest this very sort of i am pet tuous rally is running out of steam. >> that's an interesting description. we've got breaking news. >> to add to the list, match following for ipo of $100 million, this is a company that has a portfolio over 45 brands including match.com and timber. they will go public under mtch. the lead underwriters are jp morgan and merrill lynch among others. match, mhch following for ipo under $100 million. >> interesting time to go public. >> this is not even a name we've heard a valuation on.
i think it is a interactive, we've had roll-ups when they are not fashionable things and they think it's time. i suspect it's probably -- >> not a match made in heaven. this is not a hot ipo season. i don't think i would have any interest in this at all. wouldn't be surprised if this doesn't do well. >> earnings season get into full swing next week. so far we've had 58 s&p 500 companies reports and 19% below. one man is keeping score is dom chu back with the names that could see big moves next week. >> well, if you thought we had a lot of scores to keep track of last week, wait until next week. you've got morgan stanley on monday, chipotle on tuesday, boeing on wednesday, mcdonald's on thursday and procter & gamble on friday. you know where there could be lots of action, that's large cap
technology. these three giants in particular, you're talking about alphabet, that company formerly known as google and microsoft and amazon as well. technically amazon maybe is not a consumer discretionary facility but you get the idea. all three report on thursday but here's what the options markets currently price in for expected stock moves. amazon.com could see a swing of up or down 8%. alphabet pricing plus or minus 6% move and microsoft around plus or minus 4%. these are three stocks that are huge in size. they make up together a fifth of the total awaiting of the overall nasdaq 100 index to give you an idea of size here. if these options implied moves are correct, it could be, get this, a plus or minus 6 or $7 billion swing in total for these
three guys. lots of score keeping to do. we've got to get rest for next week. >> we do. chart master is taking a look at one of the big cap tech names that could be poised to break out next week. >> the heaviest and slowest moving in a way. we'll look at microsoft. watch them together and see the setup here. what we know is a lot of big stocks if you look at tech news in particular, how they performed off the low. these are 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 of the names of course, everybody knows, here's the first panel and second. market is up 10% off the low and massive outperformance. the biggest one of all, intel is up the most. guess who's most correlated with that? microsoft. let's try to put it together. here's one half of your picture,
the correlations quite high. microsoft higher with intel than any other stock. it looks they are setting up well for a breakout. so here's our plunge. and we've recovered and we have this formation that is starting, this tight, tight trading and the presumption is you'll get something of a breakout out of this setup. we're back to the level or scene of the crime. market has not done that. the setup is perfect and i think you get this breakout. we close here today. take a look where that is in relation to the longer term picture. here's our move from the lows of 2011. last time it was down 20% to where we are now, you can draw lines this way. we have a big range, a nice setup, we're toying with these tops and our daily chart suggests that. i think it's just right and going to 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 much better than the s&p 500, up there with things like utilities. it's a heads you win, tails you win setup. >> mike, you agree? >> this is a company trading less than 17 times less 12 months earnings, not incredibly expensive. the overall value of the business not a whole lot bigger than facebook, but actually what they get from x box and mobile, also, bigger than facebook's revenues, there are parts of the business that are more interesting and exciting. i like it fundamentally here but it has had a runoff at the bottom. >> on the week we saw data points that aren't particularly great for microsoft end market. we saw intel although the stock rallied initially down. they talked about slow enterprise server demand. to me i think intel's movement in the big cap tech, especially
related to the pc supply chain was more of a sentiment based on fundamentals here. the stock has been between 40 and 50 all year. if you think you're going to get a breakout above 50 on fundamental news i would be very surprised. >> that's not what i'm really playing here for either. i'm taking a look at that risk factor and looking at the callen der spread, the weekly 48 calls that expire next week. you can spend about 90 cents to do that, basically selling near dated call. not expecting this to blow out. but for less than a dollar you get to be long a call after earnings until january. that's the way you can make a bullish bet. >> we both disagree with carter. >> i guess we do. >> i want you to respond. >> i think i'm the first to say, it's all interpretive. it's like fundamentals, every
time a stock traded, monkeys could do it. my ic is up, yours is down, we'll find out. >> what do you think of the trade? >> i like the trade, it's a great options trade. playing for con solid dags here and those with short dated options are well bid. if you think the catalysts will come further out. i will make one other point, to do this trade, the stock has had two 10% moves post earnings in the last three quarters and this is microsoft. that was massive move. to me i think you 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 the other. i think it's going to stay in that range and the option you're selling cost more than a third of the price of the option you're going to be buying which expires next year, early next year. but still gives ut a sense of the value you get. >> got a question out there, send us a tweet and for everything options action, check out optionsactions.cnbc.com.
check it out. here's what's coming up next -- >> i'm so confused. >> well, maybe that's because you're looking at the wrong things but we have the one sector that could hold the key to the market's next move and we'll tell you what it is. >> plus, this guy just took a 4% stake in twitter. but we have a way to long in 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.
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 close on a high note. s&p recovered most of the august declines but there's one group of stocks not participating. so dan made it over to the chart master's territory, the smart board with what could hold the key to the next move. >> we're always picking on small cap stocks and russell 2000 and specifically the iwm so if you think about the performance year to date it's underperformed the s&p 500 and nasdaq composite. it's down about 2.5% on the year, s&p down 1.5% and nasdaq is actually up. to me, it's down the most from the all time highs it made earlier in the spring. i want to go over to the chart a little bit. this is the iwm, tracks the russell 2000 and had been consolidating for a good part of the year and made that high and
then it had this drop here. one of the most important things right now, it's come back a little bit and still 11% from the highs but the most important point i want to look at is the fact 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 strength and below the uptrend in place since the 2010 lows. i want to take a quick look at the options and why this is probably a pretty good place to make directional bets if you're looking for a hedge or outright short. the price of options in the iwm. we have a huge spike to multiyear highs and come back in like most options prices but it's actually stayed relatively bid and somewhere in the mid-teens percentagewise. that looks pretty cheap given that under performance, if you're considering iwm, one trade i thought about when the
etf was 115 you could buy the december 115, 100 put spread and make up to $12 between 112 and 100. to me this is risking a few percent of the underlying price of the etf to probably have protection or 12% gains down to 100. >> i'll get to the reaction to the trade but i got to go to carter first. dan is over there interpreting charts and drawing lines and your take? >> one of the things that was the setup for this drawdown we had, one of the most severe three-day declines on record, the weakness in breath that led to it and small caps had been under performing for 18 months. it was there in january of 2014. all of '14 now most of '15. if you're unchanged for 18 months, you've got no results.
it doesn't look like it's getting better. it's getting worse, the chart work. >> wow. what do you think of the trade? >> i did he have in tefinitely because there's more leverage. if there's any kind of problem on the credit site where debt resides, this is where you'll find it. that's when having options can help pay off. it will give you the leverage you're going to need. >> how much of this belief in the downside in small caps has to do with biotech? >> it's a great point. these are high valuation stocks, there's been risk aversion to those of late. that's where you want to go. look at the crowding in -- the stocks carter has been all over, the amazon and facebook, seems to be a crowded trade. not so much in small caps. >> coming up next, call it a crude con undrum, oil was down 4%. why were exxon and chevron
rallying? we have 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.
time for total recall, we look back an our existing trades. last week dan thought the run in exxon was getting overextended. take a listen. >> it is a massive downtrend here and just rallied back to that down trend and 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 today when the stock was 79.5 and bought the november 77.5 put spread for $1.50. >> exxon share rallied 3% despite a sell-off in oil. >> i was talking about a down trend and it broke the down trend. it got a lot of momentum. probably sees the 200 day moving average, just about 83 in the coming days here. sometimes you long premium here, i have to cut my losses at 50% of the trade. that's going to happen early next week. don't want to watch the premium go poof. >> mike made a bullish bet on netflix ahead of earnings.
>> very simply, i'm going to make a bet, a low risk bet they are not going to move as much as the options market is moving, a calendar spread specifically the call spread, 9.85 for november calls and sell for 7.10. >> stock is down about 10% since earnings. the first leg of the trade expires today. what did you do? >> we're still in the long call but that thing is more than 15% out of the money. it is a trade that actually traded up right away, up about 50%. we say options action, the action happened quickly. now you're down about a buck on the trade, isn't bad considering how much the stock is. we have a little time to go. what i'll probably do if we start to see some level of support is sell some puts. >> for a while you've been saying stick to what's been working and now it's not working. >> the netflix still on a relative basis appeals to me and the damage was fairly contained for a high bid name. i think the trade here is
pressed, the exxon. exxon is about 70 billion -- >> you're saying i should stay? >> i would stay. you come out and we'll start a new one. >> isn't it amazing exxon is a place you're able to make this kind of money, off 30% off the lows in two months time? >> adding 68 billion. how many are worth that? about 60. it's pricing in crude at 58, $59 a barrel. >> coming up next, we've got your tweets and final call from the options pit. 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.
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 time for a tweet. first off is from nathan asking about the implied move for amazon and google. would you rather -- i like that would you rather in options action, buy a call option or spread? >> if you're using amazon, a
spread. google is implying a move of 6% which is less than average which means options are cheap and buying a call option is not a bad way to play it. >> i agree with him. here's the thing about amazon, the stock looks poised to break out. and the stock has moved on average about 10% over the last four quarters. i do thing you want to spread it if you make a directional bet. >> could the chart master comment on his wicked bear market call from three weeks ago? >> i think we're very much in a bear. you get the stall and no one believes it and get the crash, 10, 12% crash and no one is prepared and you get the rally that makes people think it's okay. it's not okay. banks are not acting well and industrials are not acting well. global equities are struggling. we've been in a bear market for a while it's a question of where it ends, my guess. >> time for the final call. >> i think you can be defensive and offensive with microsoft playing for a breakout and getting a nice yield. long microsoft.
>> more defensive way to play is to buy a counter spread into earnings, microsoft. >> i like offensive about defense, i like the iwm put spreads in separate. >> see you back here next friday for "options action." "mad money" starts right now. >> announcer: the following paid presentation for the power pressure cooker xl is brought to you by tristar products incorporated. introducing the power pressure cooker xl, the revolutionary kitchen miracle with one-touch technology that infuses flavor into your food while cooking up to 70% faster. the power pressure cooker xl is sweeping the nation with over 1 million sold. it's getting five-star reviews and has been featured in bon apetit and cooking light magazines. and now the big news -- the power pressure cooker xl is larger than ever, with a full 10-quart size. imagine being able to cook an entire whole turkey in under an hour, prepare a succulent, mouth-watering ham that will feed an entire family three times fast.