tv Options Action CNBC November 7, 2015 6:00am-6:31am EST
we are live at a very balmy nasdaq market site. i'm sara eisen in tonight for melissa lee. the guys are getting ready behind me. while they do that, this is coming up. >> we're out of gas. >> and that could spell trouble for one dow stock. we'll give you the name and how to profit. and how would you like to make money if amazon shares go up, down or nowhere at all. >> it is a good question. >> and we have the answer, jeff. we'll break it down. and -- >> they're cool and available and addictive. >> which might explain why cigarette stocks are surging. but if you missed the run, we'll
tell you how to profit. the action starts right now. all right. let's get right to it. a better than expected jobs report has one group of stocks back in the crosshairs. emerging markets giving up ground on fears of a federal reserve interest rate hike. should you steer clear. let's get in the money and find out. dan, what do you think. >> there were a couple of trades that were obvious. the dollar here. and the emerging markets stock. >> sell emerging markets. >> yes. the other way. and so when you think about it, those were the knee jerk reactions. china opening down a couple of percent. and it rallied toward the end of the day. if you think in december, the fed is going to raise interest rate for the first time in nine years. i think you want to focus on the group of stocks because they -- they are basically not pricing a whole heck of a lot in. >> i think one of the questions that people might say to themselves is naturally why do you want to sell emerging market stocks or them in general when you are concerned about rising
rates and the reason is that as rates go up, the dollar strength is relative to the currencies. and you've seen other countries in dollar denominated bonds and they have to pay back in dollars and that is a real set of pressures. and you combine that with the brazil issues and can you see how this could pressure a lot of them. >> but this is a beta trade. if you look at the lows for the e.m., it is same for the s&p. it is up 12.5% and it is up 18%. and it is highly coordinated with the commodities stocks and it is petering out here. >> and last time we saw the emerging markets got hammered. there were fears of an interest rate hike from the fed and there were fears from china and that has calmed down a bit. >> yeah, it has. and it is apple and starbucks and nike. three brands destroying it all over the world and here in the u.s. and what else is going on in the u.s. we are a weak u.s. consumer. look at the retail sales that we've seen. look at how a lot of the u.s.
domicile retail -- >> the auto sales were very strong. >> but the auto sales and apple are pulling away from everyone else. >> housing is coming back. consumer discretionary is the best performing sector this year. >> it is a tight aspirational group of consumer brands. look at macy's and nordstroms. >> and the xrt is dragging. a few big names of consumer discretion. >> but we are getting away from the real point. i brought up the brands that did well in china. but let me tell you, i think they are damned if they do, damned if they don't. if yellen raised interest rate. if she doesn't it is because of the fears of midseptember, the fear of week global growth and having that deflation imported here to the u.s. that would be the reason. and i think you sell eem on that and sold if they do raise rates. >> so that is your trade? you are a seller. >> yeah. so look out to december expiration. the fed meeting is december 16th. i don't think it matters.
i think eem is going down. when it was 35.30, you could buy the put spread for 30 cents. and selling it at 70 cents for the max risk and break even down 3% at 34.30 and the max gain is down at $32 down 9%. but let me tell you what $32 looks like on a chart. that is the level bounced from september. and i'll let carter get to the charts. $32 where it was rejected is a massive long-term support and broke there in august and now it is resistance. i think this is a good level to fade back to 36. >> i think this is the way you want to play it but i think there is risk to the upside than you might suspect. we talked about if the rates rise. but the dollar strength encourages imports and that could support the sector. so you want to use it on the options.
>> how does the chart look, carter. >> it is a dollar issue here. you got the right side, in my view. >> and we did see strength in the dollar weakness in commodities. the final word on this. is commodities the key or watch what china does? >> here is three data points. oil is up 20%. the dixie is up 7%. that is the dollar index and now interest rates are moving ahead, up 30 bips from that time period. so emerging markets and people are calling it a bull market and we think that is a bear market rally. >> it is up 20% from the lows. >> that is not what defines a bull or bear. >> all right. i get yelled at all of the time for the bull and the bear and the correction and the language. moving on. big cap tech got bigger after facebook and amazon joined microsoft and google and alphabet as the only $300 billion market cap. but one trader on this desk
thinks that one of the names could soon fall off that list. carter, what are you looking at? >> we're going to make a bet against amazon or poke a bear. dangerous stuff but lets go to the charts to figure it out. obviously an exceptional winner. and the issue here is now too much of a good thing and the idea would be to reduce exposure if you are a long player or take a shot on the short side. amazon juxtaposed against others. and it is weighted. it is right here, 12 months ago, when the huge run-up. so the stock is up about 113%. and i want to talk -- so this period right here is where the gaps begin. quarterly beat, quarterly beat. quarterly beat. quarterly beat. now after those quarterly beats, here are the percentage gains. it is all quite uniform. some are bigger than others. but what happens often after you've had this point, is that you get a sideways to a stall period.
side ways to a stall. side ways to a stall. so at this point, we'll make the bet that it is likely to play out the same way, that the upside is now a bit muted from here and not likely to continue at this race of ascent. and then just look at this. off the trend line again. off the trend line, off the trend line. so it is about spread and how far you can really get. take some profits. >> all right. carter on amazon. mike, what are you looking at. this is a darling of the s&p this year. >> it is a darling. and what are we doing right now. we're going into the christmas shopping season. this is the best season they've ever seen. it is a period that is historically strong for stocks. but if you take a look at the price to sales for amazon you'll see that a lot of the stock price appreciation hasn't been driven by fundamentals it is essentially an increase in the valuation multiple which is doubled over the course of the last year. so this is not a situation where i think -- look, i'm going to out right make a bearish bet. but you could go into the next
earnings which they are reporting on january 28 so take a look at a sideways trade that expires before that. and specifically what i was looking at was the january 660-675 call spread. so sell the 660 calls for 29.30 and buy the 675 against it for 22.5 and collect just under $7 if the stock stays here. even if it rallies and if it sells off, that is a win. and obviously in a trade, you get paid if it sits stills or declines. even if it rallies up slightly, it wouldn't go to the call spread value. to the risk, is not what you will experience, even if the stock does rally. >> dan. >> this is a good options trade. forget about the technics and the stock, it is up more than 100% and the sentiment is white hot right now on this name. i think implied volatility price volume reflects that. so you want to sell options here. only fear i have is that the
universal consensus around this stock, google, netflix and what is the other one -- or facebook. i'm sick of all of them. >> you're talking about fang. but it has been a phenomenon. >> it has the ability to send the stocks up in a parabolic manner. i'm out of the way. i've been so wrong. >> say this thing doubles from here. it is bullish. but the path higher, does it path through a lower price. could you get a dip. play options to do it and as a long player do you trim your exposure. >> to your point. >> that is exactly right. look, so it is going to need the next catalyst to kick the stock higher. the next earnings could provide the catalyst. what are you expecting to see, probably year-over-year, the quarterly sales will be up 4.5 to $5 billion. it is an exceptional company. it is trading at 4.5 times revenues and that is pretty risky for margins. >> i don't think you wait for the next catalyst.
it is trading on pure animal spirits here. so i think there is a potential for a 1999 sort of parabolic move that wipes out everybody and defies logic. >> would won't wipe it out if you are risking $8. >> i wonder if we have to change fang now that it is alphabet. we'll have to ask cramer. check out "options action" and we have articles and sign up for the fast-growing news letter. so check it out. in the meantime, here is what is coming up next. letter. so check it out. in the meantime, here is what is coming up next. >> one dow stock has created $50 billion in new market cap in just 9 1/2 weeks. clever. we'll give you the name and how to profit now. plus -- >> that's incredible. >> that is what investors are saying about facebook shares. and we'll tell you why when "options action" returns. 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.
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. welcome back to "options action." i'm jackie deangelis reporting from the new york stock exchange. welcome back to "options action." i'm jackie deangelis reporting from the new york stock exchange. a strong jobs report delivering a blow to commodities today after the dollar soared. traders seeing data that they believe could prompt the fed to come out with the rate increase in december. crude prices down 2% on the session. 44.29 is where we finish. a 5% drop on the week.
but still stuck smack in the middle of the range from the low 40s to the upper limit of 50. and gold hit as well. a $15 slide south under the key mark of 1100. traders think we could go lower if the conditions persist but there is the situation of buy the rumor sell the fact. they buy the dollar index up which is bearish for commodities until the event happens. we'll have to wait and see. >> jackie, have a great weekend and thank you. carter. s&p energy group is the best performing sector so far this quarter. up 13%. how long does the rally last. >> that is just it. so look at this. just look at that spread. i mean blue is energy. orange is s&p. i have to say, my eye sees that and it makes me want to make the bet that blue will catch up with orange, right. energy oversold.
but what if i start my storyline somewhere else. what i start my narrative from the prior bull market. blue is still way ahead of orange. meaning energy still has the excess of the brazil and the china buildout. so, yeah, here it looks like maybe this should play catch-up, but again, what if i change my story to the long-term picture. we think energy is overdone, still long-term. and then here is the chart. the daily chart. you can draw the lines however you want. i draw them like that. so unless and until it can get above this line, i would be inclined to make the bet that it doesn't. so a 22% move from peak to -- i would say fade it. >> the move in energy. mike, are you as bearish as carter? >> this is not a place that i think is the time to get long in energy. i think a lot of people were attempted to do that at several points along the way feeling energy stocks are down 10% and they are cheap and i think now they are cheap. and every time catching the falling knife and getting stabbed for trying it.
what people don't realize is when commodities can weaken, they can weaken sharply and for a prolonged period of time. and we've seen some of the best in the business including exxon-mobil not seeing a turnaround any time soon. so if the guy in the biggest energy company in the country doesn't see a turnaround, why should you think so. and volatility right now is double what it was for the energy space about halfway through the end of the year. and if you look at what options prices are suggesting, they are well above from what they've been historically. so the market not looking optimistic for this space. i think the way to play this is once again using options. the december 6964 put spread, spend about 1.60. and part of the reason to do this is the high level of volatility and you could see how sharply the space could rebound if it does happen to catch a bid but i don't think it is going to. >> dan, do you think it will. >> i did make a bearish bet in
exxon and then we had the pop and 30% of the etf is exxon and chevron. that was a technical trade. and i want to make one point about exxon. what might have gotten investors focused on. >> that the peak to trough earnings decline from 2008 to 2009 was 50%. and consensus for this year is in exxon is down 50%. so people priced in the potential for the earnings decline and saw an uptick next year. you had a 4.5% dividend yield. >> and we're going into the defensive name. it is exxon and chevron moved the most and a lot of stocks have not moved at all. >> could you get a scenario, when the energy names because they are readjusting and rebalancing to the lower price can rally off the bottom when crude oil prices stay lower. >> crude is not coming up. we have the pressure of the dollar or said differently, this rally, what level of crude are they discounting at this point.
>> it is not just the level of crude. let's bear in mind that one of the places that was a bright spot for the names was refining. and refining, those crack spreads, the difference between what the refined products sell for and what crude -- they pay for it, that actually tends to get commoditized over time and i wouldn't expect them to make up for the decline in crude prices that way. >> i like talking crack spread. one stock is up over 300% in the past decade but the run may soon be over. we'll give you the name when we return on "options action." 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
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.
welcome back, let's get a market flash on ibm. seema mody back at headquarters with that. >> the warren buffett berkshire hathaway beating on earnings but welcome back, let's get a market flash on ibm. seema mody back at headquarters with that. >> the warren buffett berkshire hathaway beating on earnings but a loss of $2 billion from the investment in ibm. but berkshire is sticking behind the company saying ibm continues to be profitable and generate significant cash flows. we have no intention of disposing our investment in ibm common stock. and that we expect the fair value of our investment in ibm will recover and ultimately exceed our costs.
sara, ibm shares have been underperforming, down about 14% year-to-date. definitely not a winner so far this year. >> seema mody. thank you for the update. dan, we knew this was the loser recently for warren buffett and now we know it is a $2 billion loss this quarter. >> he talked about how there is a lot of cash flow that they are using to buy back their stock. >> and they are arguing they are buying stock and investing. >> they are just managing earnings and the earnings and the sales are declining. i'm shocked -- >> the justification for massive buybacks is typically you need to return massive amounts of cash to shareholders except they don't have any net cash on their balance sheet, people. so this doesn't make a whole lot of sense here. so this is really a stock you have to stay away from. they have not figured it out. >> and what does that mean. >> in the long-term? >> it is going down. >> looks like we're in full agreement here on the desk. time for total recall where we look back on open trades.
last week both cohen and carter thought stocks were getting too hot. take a listen. >> we bounced off this trend line consistently, consistently. we trade it around 48 and change and a 10% drop. if you've got it, trim it, sell it. if you want to short sell, try this one. >> i was looking specifically at the december 47.5, 45 put spread. spend about 70 cents for that. >> not a bad call. shares of reynolds american are down 8% this week. carter, after the amazing run-up. you called it. >> you have the back drop of staples in general coming apart this past week. but with a beta half up, it is the equivalent of a 16% move. you have to take the money and run here. >> you are done. mike. >> this ran to the short strike. it almost went too far too fast for our bet. it is a little bit more than a
double for us. i think you take the money off the table. moving on. taking the money off on rai. and facebook ahead of earnings, dan made a trade. >> when it was 102.5, you could look at november expiration and sell the november 1.10 call at 1.30 and it cost you nothing. >> so facebook had earnings share soar to an all-time high after they beat and then cooled off toward the end of the week. but dan, that was a good report. >> it was perfectly good. and they are spending on things they should be spending on and here is a company with a $300 billion market cap and better than ge and trading at 18 times sales. that was a caller against long stock. if you were worried about down side on the event and willing to give up upside. the 110 call is below 105 and you have a few weeks to expiration and you hold onto it. you don't touch the put.
it is not worth a whole heck of a lot but consider it as a lottery ticket and when the upside is offered at 40 cents, you take it. >> you basically in a buy right now. short that call. and this is a good time for it. because we had the big catalyst. now is the time to move. >> it faded on the day of the pop. didn't close well and pulled in a bit. getting dodgy. i would stick and see what you get. >> sticking with it. up next, your tweets and the final call from the options desk. 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.
get into long calendars. >> next up, stan asked does anyone have a trade on price line earnings. dan or carter. >> the stock had the huge run up and there is a 7% move, $100 move in either direction. you have to be careful buying the move because the stock has moved in sympathy with the fang stocks already. >> it is steep. and the risk here is that it is to the upside, because the last several have been -- you get the amazon phenomenon with four or five gaps in a row. this is only two. it is possible it is up. >> you are skeptical of all of the high-flying charts. and final call from the options pit. carter. >> so if you have the nice trade in energy, which it has been nice on the long side, take some profits and if you have some of the very steep things, just fade them. >> mike. >> sell call spread. >> dan. >> you just said he is skeptical on the high fliers, he's been saying on this desk and "fast money," stick with the names so i think it is important for you to listen to.
>> inflection point. >> i think there is a time to be cautious, so i'm also cautious. >> all right. it looks like time has expired. i'm sara eisen. for more, go to options action.com. "mad money" is next. >> announcer: the following is a paid program for the new t-fal optigrill plus, brought to you by groupe seb usa -- innovative ideas you can't live without. how do you like your steaks -- rare, medium, or well-done, but juicy? whether you love tender, juicy grilled chicken or mouthwatering grilled salmon, there's nothing quite like the taste of perfectly grilled food. but grilling it right is never easy. undercooking your meat can be dangerous, and overcooking makes it dry and rubbery. you never get it just the way you like it -- until now. introducing the new, improved t-fal optigrill plus, still the first and only patented indoor