tv Options Action CNBC May 27, 2016 5:30pm-6:01pm EDT
we're coming to you live from a hot and sultry nasdaq market site. it's so hot, the guys back here need a moment to cool down. while they're doing that, here's what's coming up in the show. ♪ >> ahead of opec, crude may be done bubbling up. we'll tell you what have some traders so bearish. here's mcdonald's plans to increase sales. ♪ >> we'll tell you why combos are the latest craze for the golden arches, and how you can profit. and, how would you like to buy
apple and spend nothing? >> nothing? >> yep, nothing. we'll show you how. the action begins right now. let's get right to it. the s&p just had its best week in three months. flirting with all-time highs once again. if you missed the rally, whar the names and sectors you can play for a catch-up. dan is taking a look at the offense/defense kind of trade. >> i think health care stocks are quite interesting. there's issues there, obviously, with valuation. there's really poor relative strength there. but i think if you go upstream a little bit, the big pharma stocks, there's good performance there. there's actually reasonable valuations, and relative to the growth that look healthy. there's also some very constructive technical setups that i think carter would speak to. so i want to look at the xlv. i know the guys were just talking about the xbi. the xlv is the top five holdings, companies like johnson & johnson,
bristol-myers, merck, things that act very well. i think there's a potential for some of the other names to play a little bit of catch-up. some of the stocks that are well off of their 52-week highs versus the ones i just mentioned. a few percent from the 50-week high. >> how much of a weight is biotech? >> that's what's so interesting. traditionally, the real key here is traditionally this is a defensive area of the market. biotech has skewed all that. in terms of the -- in terms of what's important here, the top is the big pharma names. what does act well, devices act well, health care facilities act well, managed care, so forth. you need a little bit of play from some of the big biotech names and this thing can -- >> some of those companies actually, if you're taking a look at what the valuations look like, those are actually the cheaper names in the group right now. the big cap names you're talking about, johnson & johnsons, 22 times multiple names, actually trading in the mid-teens and
have much more growth potential. from my perspective, they don't present a great deal of risk to the group but offer a good potential tailwind. >> has it found some sort of floor? >> we've been talking now for it seems almost a year about some of the regulatory issues. we know there's hiccups in m & a that has been driving the strength before it topped out. biotech etf is still down 30% from the all time highs. the xlv is obviously heavy pharma, is only down 8%, 8.5%. i think we're all speaking the same language here. we don't need the xbi a lot of that biotech to really go on a massive ramp. we need it to start performing better. the ones that are acting better -- you know, to break out to new all-time highs. >> trade very specifically in the xlv. when you look at the price of options, it's very cheap.
that makes a lot of sense for a whole host of reasons. you could look out to july expiration, the xlv, by the july 71 calls. breaks even at 72 1/4. that is your max risk. the trade is here, you get a move back towards the highs in the xlv, about 5%, 6%, 7%, that sort of movement. if you think the s&p is going to break out, i think you have a lot of laggard sectors perform well. >> you mentioned device makers, stocks performed well coming out of that. i take a look at this. i actually like the trade. it's a good way to make a decksal bet. >> just a flow. if there is momentum in the market, money is always looking for the next thing, you've done it with banks, with energy, even picked up certain industrials, rails, this is the kind of thing that the money's waiting to find something. it will go here. >> the last thing that you said, though, if you think the s&p is going to break out.
your commentary recently doesn't indicate to me that's going to be the case, though. >> we're going to know very soon, what i need to see in the s&p 500 is really establish a new range above those prior highs. that would be somewhere above 2100. the s&p needs to make a new high from the may -- >> you are concerned about the potential for a breakout, then calls are the way to play it. not just in here for that matter. options prices are actually quite cheap. tim was making that point earlier. if you want to play for breakout, long calls. >> moving on here. crude breaking $50 a barrel this week for the first time in eight months. with a crucial opec meeting next week, the chartmaster said now might be the time to take profit. carter? >> what's important, crude, we're below where we were a month ago in s&p 500 energy. stocks discounted this move. and now we have a situation where this has finally caught up. i want to look at a few things. there are a lot of rules of symmetry in markets.
let's just look at a few charts here and see what we can do. so optically, quite symmetrical. you could draw your lines this way. the double bottom. these various matches. literally, symmetry this way. symmetry this way. symmetry this way. 69 sessions down. 72 sessions back. again, right back to sort of where you have this almost perfect v. v bottoms are very rare. but if you do get one, you still get corrections typically. so if this symmetry were to persist, what i think one can expect is, a lot of backing and filling, or that would be to mirror this. or some backing away. to mirror this. now, if that were to happen, i think a reasonable price objective is come down to the 100-day moving average. so i'm thinking into the low 40s, and we're here at 48, 49. and it's not mysterious that it stopped at 50 and started to struggle. okay. let's move on to something that
is a little unusual. over the weekend, exxon mobil, which i have here compared to the entire s&p 500 energy sector, orange, the entire s&p 500 sector equal weighted, and then all energy stocks in the russell 3000. i think what's important is these have all dipped. they're actually down on the month. yet exxon has just continued on its own. another way to juxtapose this. exxon versus major other integratives. you've got dp, royal dutch, all dipping or correcting in some way. exxon just unto itself. to me this is the face of fear. getting into a trade that maybe you have to be exposed. i want to look at a long-term chart. this is s&p 500, and s&p 500 earnings over the last 30-plus years, going back to just before the '87 crash. look at the same chart for exxon
and its earnings. market and its earnings. exxon and its earnings. even when we bottomed before exxon turned up, as earnings turned up, this time it's turned up but earnings have not. to my eye, i think what you'll get is this bottom panel showing you in the last five years, every time we've gotten 10% above the moving average is when you back off. take profits in exxon. we want to write calls. try shorts, do something. >> exxon is the best manager in the integrative suppose to have the lowest lifting cost. but to carter's point, since 2011 it's seen its revenues fall by half. its earnings have fallen by more than 70%. the valuation, is down 15% from its all-time high. that just doesn't seem to line up to me. i agree with him, you know, crude is going to do whatever it's going to do, it always goes farther and faster than you think it will, up and down. but right now i think you can
take an advantage of selling the july 90 call spread. collect $1.10 by selling for $2.10. this is a way to collect some premium, even if it remains range bound. >> we've been talking about the rotation that's been happening in the market. is energy one of those rotations? >> carter really wants to play for a pullback. mike really wants to sell cheap options to basically play for a consolidation. there's a little bit of a divergence in thinking from what i can tell here. i think from a technical standpoint, if you take all their mumbo-jumbo out, i could see that. what's mike is saying is i actually probably see this stock up or down a buck or two over the period of time you're choosing. that's a pretty good chain. sometimes buying cheap options is a smart trade.
>> relatively cheap options. the other issue is, though, the equity markets to me, i haven't been quite as bearish. i do expect us to get a rate increase. that should be obviously hurtful to commodity prices. so from my perspective, this is the way to play sideways. >> we nor equity markets discount. >> by the way, guys, we're showing you, a live shot of space x rocket launch. this is happening right now. again, space x. got a question out there? only one place to go. go to our website. we've got great articles. sign up for the award-winning newsletter. over 100,000 right now. space x's rocket launch happening right now. here's what's coming up next. >> that was cheesy, but it might be true. because something is happening
with mcdonald's menu and it could send the stock higher. plus, calling all "options action" fans. we're taking your tweets. before you start your holiday, tweet us at options action and maybe we'll read it on air. 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.
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." memorial day travel is on track to hit record highs. fast food chaps are pulling out all their stops. susan li has all the details. hey, susan. >> hi, melissa. we spent the day here at the new jersey turnpike, talking to families, individuals, and they are well on their way to their
memorial day weekend holidays. stopping by here at vince lombardi for a break or so on their journey. to grab a bite to eat. let me show you what you can get for $4 at burger king. this is what they call the 5 for $4 menu. as you can see, you get a lot. burger king has the 5 for $4, wendy's 4 for $4, and they're bringing in a lot of customers. 100 million extra meals has been sold so far in 2016. that's up 20% from 2015. in fact, it's so popular now that one in every three visits is to take advantage of these deals. that's really helping the likes of mcdonald's, burger king. mcdonald's reported impressive comp sales. burger king saw sales up over 4% in april. it makes you wonder about those
companies that don't have these bundles options. they're rethinking that, too. starbucks, which is on the background, they need to bundle up their products and meals so they're offering an $8 power lumpl, a sandwich and salad. you have ptif offering the menu that offers you an entre and appetizer. economically, what does it say about the health of consumers with the value options? >> we're slowing them in a way from the dollar price point. a lot of the things we've seen, 2 for 2, and 4 for 4. that ultimately raises the average size. you can start to see the meals proliferate over a longer period of time. i expect to see them out there for some time. >> yeah. melissa, there you go. the story here from vince lombardi. >> susan, what was in that $5 combo extravaganza you had?
>> you've got two chocolate chip cookies, a bacon double cheeseburger, fries, large coke, and, you know, what else did they offer? that was about it. i think that's all you needed, right? >> i think that's plenty. susan, thank you. susan li at vince lombardi plaza. carter is over at the chart board checking on mcdonald's. >> this is a great winner which was not for a while. but it may be a bit too much of a good thing. wow, 1974, to 2016, you've got mcdonald's in blue. the s&p. i wanted to just zero in on the more recent activity. wa we know is that this was a very fallow security. it underperformed in '12, '13, '14, '15. here's the range. there's the breakout. an old-fashioned term of a measured move. the width of the range, 85 to 105, $20, you tack on 20 to the top. so if you add 20 onto 105,
right? you get roughly 130. i want to show you exactly where the stock stops. hits its head. stock market is going straight up for four, five, six sessions. mcdonald's not participating. relative strength very poor. we've broken our trend line. which think maybe this is too much of a good thing. maybe they've priced in all-day breakfast. you've got to have good profits. take them. if you're a short seller, go after the short side. >> all-day breakfast baked into the cake. the only thing in the high growth market, that's the real question market. we've basically seen flat revenues, flat eps for five years. now people are a little more optimistic. i would actually use the action of the august 120, 115 foot spread, cost you $1.30. a cheap way to make a bearish bet on this one. >> what do you think? >> listen, these guys have been all over this. all over the breakout when it broke out last year. trying to call a top is one thing at the very tippy top.
but it's broken trend. i would make one point. mike, when sales topped out, they were $28 billion. they're expected to be $24.5 billion. sell as much as you want at the $2 price point, you're right. >> am doing up next, in the past month apple has added over $50 billion in market cap. and dan has found a way to make just a little bit more. he he'll explain 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.
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." it's been a terrific run for apple. great news for one of our traders. and here's why. on "options action" it's how we trade, where we can make more. that's what dan tried to do with his bullish bet on apple. dan thought apple was about to bounce back. but 100 shares would cost $9,000. dan bought the october 100 strike call for 250. now to make money, dan needs
apple shares to rise above $100 by more than the cost of the call. or above $102.50 by october expiration. but spending 250 just to bet on apple? relax, no need to get so worked up. spend even less, dan then sold the october 80 strike put for 250 and created his risk reversal. he made making money easier and here's how. between the 250 he spent on the 100 strike call and 250 he collected on the 80 strike put, dan was able to put on his trade for nothing. >> nothing? >> that's right, nothing. and now dan can see profits of apple shares just one penny above $100 by october expiration. of course, nothing is for free. in this case, there is a tradeoff. because dan sold that put, he could now be obligated to buy the stock for $80. even if it falls well below that
level. but since the time of the trade, apple shares are up more than 11%, making dan a big winner. "options action" fans across the world are flooding itunes, and they only want to know one thing, what will dan do next. all right. let's get the answer to that right now. dan, what are you doing? >> the most important point from a risk standpoint is that you're down side put. way out of the money. the put will be covered for 85 cents. i think you do that here. this is really a riskless trade other than the difference between what you paid for the october 100 call, which was 250. now that's trading for about $6. you have some profits and optionality, no pun intended here. 9 thing is, you could take the profit. if you thought the stock was going to have continued gains, look to turn it into a vertical call spread, maybe sell the 110 call in october. and have on the 100, 110 call spread, probably sell that for about $2.35. you're kind of locking in some of those gains, too, and you
don't have any risk to the down side. if you're really optimistic, sell the higher strike call also. there's some stuff to do there. >> we were talking about catch-up trades at the top of the show. is this a catch uptrade? >> you're into the gap of late may. that would carry to 105, were you to fill the whole thing. >> filling the calendar here is probably the best thing to do. we've had quite the run off the bottom. i like selling puts in apple, around the 90, 92 1/2 strike. i think you actually lay back into that. >> what do we know about $90? we know berkshire hathaway, that's important, but psychologically, i think people will have 90. that was the 2014 breakout level. i would make one point. i think when we said this at the time two weeks ago, the company did not buy any shares in accelerated stock in the march quarter. that's what was like lie going on in the last couple of weeks. maybe you sell that 90 put
against that call. >> up next, the "final call" from the options desk. 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. tmom didn't want another dog. she said it's too much work. lulu's hair just floats. uhh help me! (doorbell) mom, check this out. wow. swiffer sweeper, and dusters. this is what i'm talking about. look at that. sticks to this better than it sticks to lulu. that's your hair lulu! mom, can we have another dog? (laughing)
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 to get to your tweets. the first one, is uvxy a bad way to create volatility? >> if you are in this trade the wrong way, the one thing you don't want to do is wait before selling. the reason is that this, like a lot of other etps that are based on futures, they have something called a roll cost. this is a good way to make a short-term bet but not a long-term one. >> next one up, put options in rig, july ideas. >> july 10 puts, around $10. the july 10 puts close around $1. doesn't seem like a good
risk/reward here. earnings aren't until july 31st. this is probably not the best way to play it. not even for protection against long stock. >> how do the charts look in this? >> an energy stock that really hasn't bounced, this is a tell. this hasn't come to life. stay away from it. >> you know, this is one of the areas that hasn't seen a comeback. it's going to be a while before you see offshore kridrilling in particular. >> time for the "final call." last one for this week. carter? >> exxon up 36% on its low. take profits. mcdonald's, starting to roll. do something there too. >> i don't know which way crude is going, but exxon is grossly overpriced. just remember, revenues down more than half from their peak. i would be a seller in exxon. >> dan? >> yeah, just real quickly on that point. listen, we're in this period now where volatility could get a lot cheaper. that being said, i think xlv, you have a directional view,
that's one way to play it. >> looks like our time is expired. i'm melissa lee. thanks for watching. check out the website. have a fantastic memorial day weekend. "mad money" with jim cramer is up next. my mission is simple. to make you money. i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you final it. "mad money" starts now. hey, i'm cramer. welcome to cramerica other. people want to make friends. i'm trying to make you money. call me at 1-800-743-cnbc or tweet me @jim cramer. next friday, we have the unemployment statistics. if the numbers are strong we'll get a rate hike. so