tv Options Action CNBC May 20, 2016 5:30pm-6:01pm EDT
we're live at the nasdaq market site on a beautiful friday afternoon. the guys here are getting ready behind me. while they're doing that, take a look at what's coming up in the show. >> money's going to be huge! >> sure it's not the shoes? >> i'm sure. >> actually, it might be the shoes. it could be causing nike some problems. we'll explain. plus, it's a secret indicator that stocks may have hit a near term top. >> i can tell you, but then i'd have to kill you. >> no need for all that. we'll tell you what it is and how you can profit. and -- >> i could get cash for this gold medallion. >> you could. but we have a simpler way to make money on gold. and we'll show you how.
the action begins right now. >> let's get right to it. after a volatile week for the markets, the fed looking to pull the trigger on a june hike, what's the safe place for investors to hide from even more volatility? dan, what do you think? >> here's the thing. we had a lot going on here. the april minutes. i think what happened is, the fed really effectively thought that -- or relayed the thought market participants were giving the june rates. that would be the second increase in ten years, since june of 2006. the last one came obviously in december. there's been an interesting debate going on. a lot of fed watchers, folks i like a lot, muhammad and mark, these guys saying they're not looking for excuses not to raise. they're actually looking for cover to raise. they want to normalize policy here. when you look at what went on this week, the s&p, dow, a little bit of a gain. we saw rates go up a little bit. the two-year treasury yield is up, what, ten basis points or
something. well below the 1.1% it was after the first rate increase. i'm not so certain any rates are going anywhere anytime soon. >> that's exactly the point, actually. that increase in rates we saw is essentially the market saying, we don't believe there's going to be an increase coming up in june. if that's true, then obviously you have to say, okay, well, for financials to rally, based on the expectation you can have an increase in rates and the other areas to get hurt, you have an expectation of increase in rates and markets saying you shouldn't expect an increase in rates. >> the banks, after that initial pop, not that robust. i think they're desperate to get another one on the board so they can start pulling them back. they've got one hike. they want to do another so they can quickly get back to zero. >> is the feeling the economy is not as strong? >> obviously last week's inflation data is ticking up. it's still well below the fed's
own target they set. the nonfarm payrolls, unemployment at the prior target. it seems to be weakening. april was a disappointment. when you think about a june increase, we've had fed fund futures going from pricing 4% chance of a june hike last friday at this time to about 30% now. you say to yourself, that nonfarm payroll number is going to be really important. >> i do expect we will get an increase. i also don't think it's really that meaningful, though. what we're talking about is 25 basis points at the outside. that's not really getting us back to normalization as far as rates are concerned. and you can take a look at what happened the last time we did this. it really was sort of a little bit of a tempest in a teapot. i expect that's what's going to happen. i do think the probability that we're going to get a rate increase in june is greater than what the market's currently pricing. >> it's a fight, right, in the sense that not that the fed really cares about the market, but they do. i think they want to show the market there that actually they have something, it's not just
talk. because once they get two hikes, they can start unwinding them. >> they do care about the markets. in the minutes they did talk about easing economic conditions. the 20-year treasury bond, etf, we have a chart of the ten-year treasury yield. just look at that. look at it over the last ten years. it tells you structurally has changed here. if we get a 25 basis point raise whether in june or july or september, i don't think this economy can handle meaningful higher rates at this point. and that chart is telling you everything all about it. to me, the trade sets up kind of interesting in the tlt. that is the 20-year. it's not that chart, but we also have the tlt in a massive uptrend, off of the lows here. i think that will continue. when i look at the options trade in tlt, it sets up pretty good to september to do risk reversals here. i think there could be room to the down side.
maybe the mid-120s here. maybe it's a one and done, maybe they just get dovish again because of global conditions. so to me, i look at the tlt when it was trading at 130 today. the trade is a risk reversal. i want to sell the september 1 put. buy one of the september 133 calls. for $2.50. it cost me nothing. i make money on expiration above 133. that's up 2.2% from current levels. worst case is i get put down at 126 here. as the etf goes to the short put strike, i'll have losses and gains as it goes up to the 133 call strike. create a bit of a band here where i'm not long at 130. it could go down a few bucks here and there. i want to play the leveraged move to the upside. >> one of the things i already said is i think expect a rate increase maybe a little bit more rapidly. one of the things i do like about the trade, actually if we get the rate increase, which is, you know, right now we're saying
there's a 30% probability, so if you factor that in, and say, look at the duration of tlt, which is the 20-year treasuries, folks, that takes you as you point out to about 125, 126. if we get the rate increase. at which point you're effectively in a buy on tlt. nothing is going to happen between june and the end of the year if we do get the rate increase is my expectation. i'm more inclined to fade tlt. the trade still sets up nicely because of the breakout -- >> lower for longer, the rate environment globally is going to say somehow this is the low and rates are moving higher. if you look at the spreads for germany and japan, and everything else, i want to be buying bonds. >> to underscore if the fed -- let's say the may jobs report comes in great. the fed raises in june. this trade still works in your opinion? >> it's not going to work very well. but i'll just make two other points.
we've had two downward volatility spikes in the last two years. august, september, january, f b february. to me, this is a bit of a safety trade. i think you have the potential for flight to safety. i also think you have a scenario where mike said maybe it's one and done-ish, or maybe the market doesn't price it in. i think there's a lot of ways to win it. the down side scenario where you get creamed is a low probability. >> the big picture to the little picture. shares of footlocker plummeting today. according to superstar carmelo anthony, it should not have come as a surprise to investors. what he said moments ago on "closing bell." >> the shoe game is a little bit different. you know, there's a lot of direct to consumer platforms right now. i don't think people are going into stores and buying shoes anymore. i think everything is online, websites, apps. >> that's melo, as he's known. if he's correct, what could that mean for nike?
>> we're going to look at charts to put this in perspective. footlocker sales, nike products account for 60% of their sales. it also goes the other way. footlocker is generating a 20% of the sales for nike out of their stores. the relationship between the two stocks is pretty straightforward. here you see the numbers. that is, you know, frick and frac. they are together. what's going to happen here is they're going to happen together. you see the stocks i've just referred to. let's look at some charts. this is the chart of foot locker. if an uptrend looks like something that's going up, and once your trend line rolls over, you're going down. this awfully similar to nike. nike's moving average has turned, just as footlocker's has turned. the relationship between the two. footlocker starts to stall before nike. nike is following. footlocker's had earnings, nike's earnings are coming.
let's look at a few charts. this is relative to the s&p. even as nike was trying to rally, with the market, it's still making relative lows to the s&p. in fact, the stock itself is still above its own february low. but this relative performance is at 7 and 10-month relative lows, that's not good. not only is it related to footlocker, it's re8lated to other equities. what i'm just expecting is that we're going to re-approach these prior lows, if not more. around 56 and change. i think we can get 52. i want to sell nike. not a good setup. >> mike, same camp? >> here's the situation. nike doesn't seem like a super expensive stock, but they do have some problems. the names are lebron james, michael jordan, kobe bryant. look at under armour, steph curry, jordan spieth, and so on and so forth. we've got 15% to 20% of their
revenues coming from their sales of these type of products. 60 call spread. sell the july 57 1/2 call for $1.95. afford cover the upside for $1. 40% of the distance between the strikes. you're going to make money basically if it stays right here. even if it rallies slightly, much like doing a buy right type of strategy, you don't have the down side risk of put the stock. this is one of those situations where you can look to collect premium. >> what do you think? >> i don't think it's a bad way to do it especially you consider the stock is down 9% on the year. so you can say it's like entering slightly oversold camp in a way. the olympics are coming up this summer. and the -- whatever else. the olympics, i guess. if you go back and look back, it's not a huge catalyst for nike over time. there's a good way to --
>> footlocker and nike both, talk about basketball shoe sales in their annual reports and quarterly earnings. whether it is direct to consumer sales or whether it's in the footlocker stores, these are the products that need to be selling well for them to start beating earnings. if there is a potential source of weakness, this is it. >> here's another prior leader. think about it. disney, starbucks, home depot, the list goes on and on. >> mcdonald's is starting to crack a little. >> growth stocks are under duress. the big names are all rolling over. it doesn't get any bigger than nike, footlocker, costco, so forth. >> yeah. all right. got a question out there, send us a tweet to @options action. check out our website on shuns action.cnbc.com. sign up for the newsletter. over 100,000 of you on the list. if you're not, what are you waiting for. here's what's coming up next.
>> money will always be paper. but gold will always be gold. >> right now, gold's doing something very interesting. and it could lead to a killer trade. we'll explain. plus, it's the contrary indicator that might be signaling a top to the market. how you can profit, 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. premium like clockwork. month after month.
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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. semiconductor stocks surging more than 3% today, posting their best week since february. but chart master says that could be signaling some trouble for the broader market. what do you mean, carter? >> big day for materials. it brought semis up.
not so much about today. structurally, semis have always been considered a leading indicator for economic activity. and over the past many years, they have both bottomed first and topped first before important market tops and bottoms. i just thought i would create this table to put this in context. picture the 2000 peak. the sox peaked on the 14 tl, the s&p about nine, ten days later. the sox led, stopped going up first. at the bottom, in '02, the same phenomenon. just two days later, they led, bottomed first. in '07 in the peak, a lead time. think about in the '09. they bottomed in '08. the market didn't bottom until '09. in 2011. this time, the semis went on. and they topped actually on june 1st. breaking this sort of almost perfect trend. but what i'm seeing in terms of the actual structure of the semi index itself is something not good.
so we know it is a leading indicator. and here's some of those inflection points. in '07, here's the top. right? which happens in the semis went down first, but the s&p kept going. same thing here. the top, the semis go down, the s&p kept going. what we're having is the same thing, the general stall in deterioration. we think that's a problem. so we're going to do a trade on intel here. draw your lines. here's your trend line. what i'm thinking is we're going to revisit the bottom of the trend line. we've been off of this. it's a minor way down, but it's still down and we're going to make a bet here this is closed at 30. i think it's 16 cents today. we want to be short intel buff put in the con text of what it implies for the market. >> you don't believe what applied materials said? that's what really kicked off the rally in today's session. talking about rallies in 15-year
highs. >> applied materials is not a company that typically comes out with really good news. they basically sit there and bat singles all the time. one of their biggest customers is intel. intel is fundamentally quite cheap. so fundamentally, you know, i actually kind of like this stock here. but technically, that's really what we're contending with. we do have the potential overhang going into june. even though on the long-term basis, i actually think we're going to see a product recycle, you know, cyclical refresh for intel, i like the stock. i'm going to stick with carter's take on it, though. basically going out through basically the june fed announcement. i'll sell the july 30, 31 call spread. similar to the other one i recommended. for the similar reasons. pay 65 cents for the 31s. collect 5 cents on a widespread. this is a trade that essentially pays you if the stock sits right here or drops.
if you're gk to take the coin toss on the direction of the stock right here, basically the probabilities line up fairly nicely on this particular trade. >> the other thing i would say about intel, i'm not sure you have to jump in tomorrow, monday, or anything like that. one reason is -- >> jump in and -- >> one way or another, here we are. at the midpoint of the quarter. these guys used to give mid quarter updates. they don't anymore. in a couple of weeks, there was call buying today for qualcomm, the 55 strike, which i thought was interesting. looking at catalysts, ceo speaking on may 24th. i don't know. some of this stuff could happen to kind of snowball a little bit. >> that's a pattern that's bottoming. also this, if you were to look at the 30 components of the philadelphia semiconductor index, guess who's bringing up the rear. today bottom four, intel. intel seems specifically not as good. >> here's the thing. we know this. the pc supply chain and smartphone supply chain is a
disaster. >> but to your point, though, it's priced in already. this is not an expensive stock. trading at probably 40% discount to the rest of the market. if you are going to try to make a bearish bet, do it with a trade like this. >> you wouldn't do it per se. but what do you think of the trade? >> i like the trade. i have a put spread in the smh right now. i'm looking out a bit longer dated. to me, this is something where i think if we have two disappointing quarters, listen to the -- look at everything. it's really bad here. microsoft results just a month ago were not particularly good either. so i think this is a 2016 thing. i think if you get a pop, i think you'll want to give it some time and look out to september. that's my view on intel. >> retail getting a boost and breaking a four-week losing streak. have we seen a bottom, or is more pain ahead? we'll explain. 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. my m...about my toothpasteice. she eveand mouthwash.ice... but she's a dentist so...i kind of have to listen. she said "jen, go pro with crest pro-health advanced." advance to healthier gums... ...and stronger teeth from day one. using crest toothpaste and mouthwash makes my... ...whole mouth feel awesome. and my teeth are stronger too. crest-pro health advanced... ...is superior to colgate total... ...in these 5 areas dentists check. this check up? so good. go pro with crest pro-health advanced. mom's right...again!
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.
time for the upside call. we take a look back at some of our winning trades. last month colin thought the miners were ready to roll over. >> you had your head and shoulders bottom. we think it will stop here. if one's long and capture these gains, i would grab some. if not, we think you can catch this as a short. it's likely to fall back here. we want to sell gdx. >> what i'm looking to do is try to help a longer dated bearish purchase. what i was looking at was the may-july 25 put spread. spend $1. pay $2 for the july 25 put, sell the may 25 puts for $1. basically cut that cost in half. >> the gdx is down 7%. >> the premise being that something that doubles off of its low, 12 to essentially 25, can't work off the overbought condition this quickly. so it's gone sideways essentially. it continues to churn sideways in this range.
you want to be underweight, short, take your profits, however you want to characterize it. >> the first leg of the trade expires. >> it actually expired today. actually, i know, and dan probably knows also, some of the folks actually in this trade covered the short leg on the middle of the week. if you did not, you were up about 50% on the trade, you'll have that stock put to you. you want to unwind that. you're long that longer dated put. you know, up 50% in the trade. you want to get rid of the stock if you have it put to you on the short leg. this was essentially our intent of the maybe it fell a little bit further and faster than we expected. >> next up, it's been a brutal month for the retailers. the xrt falling 9%. that's great news for dan. take a listen. >> i want to look at june put spreads. i want to isolate these earnings events over the next few weeks. simply, you know, buy a put spread. when the xrt was 43, you could buy the june 4238 put spread
paying 75 cents for that. that is your max risk. >> the xrt snapped a four-week losing streak today. have we seen the bottom? >> we took it off this put spread for a nice gain, probably a double on the morning that target was down 10%. when you have those sorts of moves, target down 20% for the last month. equally weighted etf for retailers. you don't get piggish here. take your profits. expect a bounce. i think you want to see this back toward 42, 43 before you get back in on the short side. the "final call" from the options pit. 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.
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." time for your tweets. nathan frederick wants to know what option strategy would you suggest, he wanted to short utilities into a june rate hike. mike, what do you say? >> i would look to the august
4845 put spread. it will cost you about 35 cents. i think we're going to see a floor in the xlu. >> all right. we also have a question from at market trend 24, who asked, the s&p seemed to hit resistance of 2055 today. thoughts on puts for spy? >> i think those are good thoughts. so, yeah, in fact, it did fade. it wasn't all that great a close. if you look at the high, the low and close on the day, we close in the bottom half of the range. markets gave up gains. we very much think one year later we made no progress. you want to be short. >> he agrees with at market. >> i think you want to take a short-term view. the fed meeting is going to shall a june ex per ration. that's call and put premium. the 205 strike is about 3% move in either direction. if you look at puts, 1.5% to buy the 205 put is reasonable given the event we have. >> time for the "final call." >> exposure in nike, take a shot on the short side.
>> the call spread in july, nike is one you want to sell. >> i like the spy june 205 puts for about $3.20. >> looks like our time has expired. i'm melissa lee. check out the website. don't go my mission is simple. to make you money. i'm here to level the playing feel 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. other people want to make friends. i'm just trying to make some money. my job is not just to entertain you but to educate and teach you. so call me. or tweet me @jim cramer. thank evans the s&p 500 broke its losing streak of four straight down weto