Skip to main content

tv   Options Action  CNBC  January 15, 2016 5:30pm-6:01pm EST

5:30 pm
i have been all over the world for cnbc but i have not been here. hosting "options action." the guys are getting ready for the show. while they are doing that, here is what is coming up. >> that sums up how our traders feel. but if you are worried about more losses, relax. we'll tell you how to protect your portfolio. plus -- >> off their her head. >> that is what investors have done with shares of disney. but the stock may have found a bottom. and we'll tell what you the bulls are looking at. and -- including the price of walmart
5:31 pm
stock, which continues to tumble after the retailer announced massive closings. and it could have major implications for the economy. the action starts right now. so let's get right to it. tough day if you are long, the s&p 500 hitting the lowest levels since 2014 on a chaotic expiration friday. the vix at one point touched 31. is it too late to buy protection? we'll let you know. let's get into the money and find out. dan, let's start with you. what do viewers do if they are long the market? >> today i thought the selloff was orderly. i don't think it was panicky. and it looks and feels bad if you are looking at your statements and your s&p is down 9% and you own some some that outperformed last year and is down more than that. but from the last five years we know we get counter trend rallies. in the last five years we had a handful of 10% selloffs and i knew they could come back. and now it turned and now you
5:32 pm
get an opportunity, a., to take some profits, in the next couple of weeks to reduce exposure, or use those opportunities to put on protection. and i think when you are talking about the vix, a lot of people are looking at spot. when you are look at the futures, there was more panic there and mike could speak to that. >> i'll let you go first. let's hear from the technician? >> i think the key is what you do after this kind of thing has happened. meaning, do you sit there and try to say i'll play for a bounce today and then try to catch it off the bottom again. that implies that you are not running any real money and you have some perfect timing or dexterity. the message is, is it time to be careful. it has been time to be careful for a while. and things are going down and it won't just fix itself and go up, no problems. >> what was keeping it up was a handful of stocks. like names like disney, starbucks, apple, you name it. and all of these supports everything else when there is uniqueness underneath.
5:33 pm
now we are seeing that concern about those stories, individual stories are turning bad and that is bringing the rest of the market with it. people say could they hold up when the market is acting weak? i would say that one of the reasons the market is weak is because the strong names are places where people have identified a lot of risk. >> i want to listen to what carter said back in september and last week against on "fast money." let's play this. >> we have declining prices with almost no sectors in uptrends. we're in a bear market by my word. >> the presumption is a minimum 1,800 and i think lower from there. >> so how much worse could it get? >> well, it could get worse. let's look at charts and try to figure this out. look, either you are prepared for it or you are not. and even now it is not too late to take some measures. here is the real thing that is important. if you were to take the russell 3000, that is 98% of the investable capital in the united states, and not so much the index, which is down some 11% or 12%, but look at the internals. you're talking about 76% of the stocks are down 60% or more.
5:34 pm
and it goes on from here. down 18%. basically, this is unfolding for the better part of 18 months. here, 25%. half of the stocks in the index, 1600, are down or more. it is not about just the index weakness now. it is unfolding for the better part of two years. now we're getting at the index level. let's look at another way to look at this. the column here is the number of stocks that they've made -- look at this, down over two years. so you've made no results. you are unch or worse. look at these numbers. this didn't just happen in the last two weeks. this has been going on for months. it is now coming out at the index level. so let's try to figure out -- it goes on and on. they are all repeating themselves, yeah. unchanged or worse over two years. it didn't just happen in the last ten sessions. there is a chart.
5:35 pm
you could draw lines different ways. could you say that has a classic neck and shoulders top. you play for the bounce, that was six or seven sessions. this bounce, it doesn't matter. the critical thing is we have all of the elements of the top. whether you call it a head and shoulder top or a break in trend. and this is a well-defined trend and well-defined break. where are we headed? 1800 is the minimum. this is the channel in the bull face since march of '09. to get down to the bottom, the perfectly normal would be high of 1700, 1800, plus or minus. and then what is more likely, yes, that is only a 16% drawdown, peak to trough, what is more is this. this is the market since ronald reagan took off. we tushed this at the end of the recession crash, the financial crisis low. even if we just stay in the top quadrant, and we were to get there, we are only just here
5:36 pm
now. just getting back into reality, if you will. just to come into the bottom, and still the top quadrant, you are talking a move back to these prior peaks which is a reasonable thing. that would be about 1575. remain sellers. >> that is scary. dan, do you think stocks could go that low? >> i do. but i think you have to be tactical about using hedges. we know what happened to implied volatility during the selloff this year and you want to be careful about pressing a low like this. to me, i try to look around and look for contrarian ways to play it. and if you think equities are going down and the economy is going into a recession, the only safe haven that has existed during the last ten years has been u.s. treasuries for all intents and purposes. we have a chart here the last eight years. look at what the bond etf did during the financial crisis, during the 2011, 2012 sovereign debt crisis. it is making higher highs and
5:37 pm
higher lows. that is an uptrend, people. and it is my belief the fed will not raise rates again any time soon. you could use the tlt options in particular as a tactical hedge against the portfolio of large cap u.s. stocks that you own. and there is a big, big reason for this. is that if you did get one of those spikes, to me, i think you have the opportunity to stay in some of your stocks but have exposure to something that people will flock to. so the trade simply today, when the etf, the tlt was 125, you could look out to april expiration, there is a fed meeting after expiration but the probability of a rate hike in april has gotten cloberred over the last few weeks and the april sell put at the etf of 125 and use the proceeds to buy the april 130 call for $1.70 and that cost you nothing, between 120 and 130 on april expiration you don't lose and you have a playout to the upside if you
5:38 pm
have a false spike. and i want to make one quick point. the tlt is not going to crash lower in this environment. you don't have the ideosyncratic -- >> that is why than six my buying an outright call, which would be a natural inclination. you would think it would be a safe haven, but volatility is higher. that raised options. and the risk free rates in this environment is essentially zero which is the reason why selling the 120 put there is no chance we'll drop below that level between now and the april meeting and it will expire before that. so this is definitely an intelligent way to take a hedged position and take advantage of the fact that some of the downside puts will be bid. >> let's highlight the catalysts from next week. the turmoil into the heart of earnings season and traders see stocks with big moves. seema mody is back at headquarters with what we could expect next week. seema? >> melissa -- michelle, it will be a big part of the market next
5:39 pm
year. we'll hear from ms., ibm, goldman and verizon and american express on thursday and ge will close out the week on friday. and the options market is expecting huge moves out of some of the stocks. let's start with financials. bank of america, morgan stanley and goldman sachs are saying there could be a four or five percent move in either direction but the hottest stocks will report, we're talking about netflix, which is a big mover and expect to see a 13% move when it reports on tuesday afternoon. and then there is starbucks, pricing in an expected 4% move. how it all plays out remains to be seen. michelle, back to you. >> yes, it does. thank you, seema. the names reporting earnings so far have gotten off to a rough start. shares of in tell down 7% since they reported on thursday. citigroup and jp morgan falling despite earnings beats. and that begs the question, are earnings going to be able to
5:40 pm
save stocks. does it even matter right now, dan, or is sentiment so bad? >> i think it definitely matters. and the earnings that are going to be reported don't matter. that is in the stocks. what matters is the forward guidance and the visibility that companies have. and what matters is how honest management are about the factors. we know they stink. if they are trying to put lipstick on a pig, don't buy it. >> dollar strength for the multi-nationals, if you have combining that and with the weaker economies abroad, it is hard to see how could you be optimistic. that is the guidance that hurt intel obviously, that is what will hurt other names. and i take a look at this and i see a lot of names that are still trading at very high valuations. so one of the napes that was mention -- names mentioned was starbucks. >> which you are trading. >>s implying a move at 4%. it is trading 30 times the next 12-month estimated earnings which is above the historical
5:41 pm
average and inexpensive because it has continued to deliver. what is the risk to the upside. what are we expecting? they will come out and blow the doors off. 13.3% of the revenues last quarter came from china and we could get a great number from them, in that area. but the upside risk is fairly limited. >> so what is the trade there. >> i'm looking out to february. look at the 5550 put spread. it might be less now when you look at this on monday. could you spend $1 for the $5 spread. it goes out to february expiration. so you will get the opportunity to number one, play earnings, which is coming next week. and number two, if we continue to see weakness, dan alluded to the fact to a lift in the marketba it could proceed -- but it could proceed lower -- >> and that manages the earnings perfectly. the last quarters they matched or beat by a penny. there is not going to be a big -- the question is how does the stock react? it is obviously a winner. but this is where there is risk in the market, the high fliers that hasn't had adjustment to the multiple. to the pullback is minor. it could get worse just as
5:42 pm
disney and nike have gotten worse. >> you have not mentioned this. this was a mania stock. up 50% last year. and when they reported in last year they talked about weak margins in china and the stock was down and then they bought it. we are not in that market environment any more and then i give it to you, mike, because that is your trade. >> that is right. we're going to capture the possibility. there is very little news that could cause a sharp move to the upside -- or move to the downside is more likely but this captures market weakness if that takes it lower. >> if you have a question, send us a tweet at options action. if it is nice, we might read it later on in the show. the nasty ones will not be read. and for everything "options action," there is only one place to go, "options action." we have articles and trade. it is like you died and went to options heaven. so check it out. in the meantime, here is what is coming up next. the force is with you young sky walker. >> you are not a jedi yet.
5:43 pm
>> his name may have the force but concerns about espn are weighing on the stock. but some traders think a bottom is in and we'll tell you what they are looking at. plus -- walmart just did something that could signal a major slowdown in the economy. we'll tell you what that is and how it could impact your portfolio when "options action" returns. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.
5:44 pm
5:45 pm
herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back to "options action." despite record-breaking numbers at the box office, the force of disney "star wars" hasn't been enough to boost the stock which got downgraded by barkleys today and trading near the august
5:46 pm
flash-crash lows. julia boorstin has the details. julia? [ inaudible ]. >> we're having trouble with her mike. we'll see if we could get that fix. >> could i tell you what she was going to say? >> tell me. >> we saw the "star wars" movie for the third time last weekend. >> your kids pushed you to do it? >> i haven't seen it. >> i have seen it. one of my sons and my wife have seen it twice already. they loved it. >> it is that sort of thing. >> but it hasn't moved the stock. >> and it is an absolute blockbuster. but the weakness in disney is unrelated to one particular hit. what it is related to is espn. concerns about court cutting and cable -- did we get her back? >> keep going until we make sure. >> basically the storey here is this is -- the story is this is the most stable portion of the business and people thought it would grow because sports was
5:47 pm
the one must-see television. >> and even in the over all market, we are not selling off and would disney be down less or -- >> this is a third of their business. this is the marquee media property in cable, is espn. >> and they had the drop with the espn news. it wasn't anything to do with "star wars." >> what is the trade then? >> this is one of those situations, we are getting down to a level at which the stock has bounced in the past. the flash crash hit around $90. 18 months ago this was the level. this is down to the point where this is trading at a discount. one of the best names that has been around is trading at a discount to the broad market and we are seeing what looks like perhaps a short-term wash-out to me. and at the same time that is happening, options premiums are going through the roof. so what i was looking at was simply selling the february 92.5 put. you could collect 3.25 when i was looking at it. this is a situation where you are long on the stock below $90 if it is put to you. if it isn't and the stock stays
5:48 pm
here and drifts lower or goes higher, you will pay 3.5% in one month. and to me that seems like an attractive return. >> and you would be well into support. and that is the thing here. if the s&p 500 itself, which is a major component, is down 11%, this is down twice that, 22%, and plus at a cheaper price. you would much rather put your money here than something that has yet to have the beating this has had. >> and we could have made this argument, home depot, starbucks, they overshot. the stories were so well loved and they kept going higher and higher and bad news was dismissed. and until now it is a pile-on. so to me, i think, a., it is definitely going to 90. that is the 52-week flash crash low. and this has breaken the long-term uptrend. the next massive support is $80 or the low 80s. >> it is not just -- >> the only thing i would say -- >> it is just a trend line. trend lines are not support. >> but the sentiment shift and you could let it ride.
5:49 pm
>> i'll agree and say this is what will happen. if it blows through and you are long the stock on 90 bucks, you are saying there is 11% or 12% risk to the down-side from there. and then at the same time that is going on, we'll see continued higher -- >> wouldn't it be better to sell the puts on the day when a market is blowing up to the downside and that sort of thing and getting paid for that risk. >> but if you put the stock you will get paid because you will sell calls against the stock any way looking at 80 at the low. >> at 87 you would have a peak to trough drawdown of 28%. versus the s&p that is down 11%. that is a decent price. it could go lower, to take action on disney. >> if you are dipping your toe in the water, this is one way to do it and a way to get paid. >> and i want to dip. i want to wait until i see an eight handle on it, how is that. >> we'll talk about another big name next. walmart shares tumbling after the company announced it would close more than 250 of its stores. and that could spell more trouble for the broader economy. we'll explain why after the break.
5:50 pm
i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.
5:51 pm
5:52 pm
herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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.
5:53 pm
td ameritrade. welcome back to "options action." time for the upside call where we look back on some of the winning trades. so last week dan made a bearish bet on walmart. take a listen. >> so today i priced tup, the stock fell out of bed at the end of the day as the market did. but it was 64.60, you look out to february expiration, that is the day they report earnings in the morning you could bought for 2.20 and your break even is at 6280. >> shares of the company fell 2% after they announced it will close 250 stores. good call, dan. what do you do now? >> not really. you could have thrown a dart at any stock last friday and you would have had a few percent gain. >> but i'm giving you this pat on the back. what do you do now? >> i paid 220 for these february 65 puts worth $4 today when the
5:54 pm
stock was at the lows for the week. i rolled it down. and this is an important concept, we were talking about hedg hedges, the activity in the options market was rolling out of prior positions and taking money off the table and monetizing and stag in the game. and that is what i did. i closed the 65 puts in february and bought the 60 half put spreads for a fraction of the earnings and now i can't lose and i still have the bearish exposure. >> also last week they said shares of caterpillar will continue to tumble as well. what are you doing with the stock now? >> letting it ride. >> i don't think it will bounce back now. we were talking about multiples before. the multiple is cheap. it is cheap for a reason. the market is tell ug that the trouble lie -- telling you that the trouble lies ahead and not behind and with that in mind, the put spread, we stay with it. >> anything with it? >> stick with it. down and to the right. >> coming up next, your tweets and the final call for the options pits.
5:55 pm
5:56 pm
i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.
5:57 pm
herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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.
5:58 pm
td ameritrade. let's take a tweet here on "options action" f. you want to buy a strangle on the spy, how far out of the money would you choose? >> i don't want to buy a strangle on the spy. this is exactly the thing you don't want to do. after you see a spike in volatility, right after the market had really sharp moves, the knee-jerk reaction and people say i have to run out and buy some puts or a strangle to capture this movement, you will pay up for. >> that the break even will be higher and if vol comes out of the market, you will get punished. look to put spreads, if you are thinking on the down side or call spreads to the upside. but you might want to wait for a countercyclical move. >> i would say that -- i would turn it upside down. google it, kids. sell it. define your risk. sell spy vol which is probably the best trade on the board
5:59 pm
right now if things settle down a little bit. so just be careful with directional long premium trades that are vulnerable after trades like this. >> i would rather sell it here than buy it. right, that is -- expect a lot of this. >> it is mean reverting. you need to remember about volatility. it remerts to the -- reverts to the mean. we're way above the mean. >> a quick programming note. cnbc alive on monday from 6:00 a.m. to noon for a markets in turmoil special coverage. time for the last word from the options pick. carter? >> how about tread with caution. >> tread with caution. i'll take it. carter? >> i'm going to try to sell the elevated premium and i'm look at the 92.5 puts in disney. >> i think you want to be tactical with hedges. don't want to do them too frequently. i think there are ways to win with tlt risk reversal looking out to april and it is a good
6:00 pm
reversal. >> guys, it has been great to be with you on this crazy day. let's see what the markets bring next week, because u.s. markets closed on monday. but we're here covering what is going on overseas. overseas. go to our website. see you next fry, 5:30. 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. i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to save you money. my job isn't just to entertain but to educate and teach you. and put this all in context. call me at 1-800-743-cnbc. or tweet me @jimcramer. this selloff isn't nearly as rapid as it now looks. dow

39 Views

info Stream Only

Uploaded by TV Archive on