tv Options Action CNBC September 10, 2016 6:00am-6:31am EDT
live at the nasdaq on this crazy day for markets. while they're get ready, here's what's coming up on the show. that sums up the market today. if you're worried, we'll tell you how to protect yourself. >> i just want to smash your face in. >> not that kind of trouble. one of the hottest trades of the year that's about to come undone and talk about whoa. >> put that coffee down. >> rise in coffee prices and a soft consumer could sell trouble for one stock in particular. the action begins right now.
>> stocks just posted their worst day since the brexit. the dow getting smoked to the tune of 400 points and that sent the volatility index surging above 16 for the first time in two months. all of today's action begging two questions. will the selling continue and which sectors are the most vulnerable? mike? >> you know, it's interesting because even though the had the big spike we saw today if you look towards the end of the year, you say okay, well, how much are the s&p 2100 strike puts. how much did those go up? the bump was nothing like the one we saw on the vix. it's not like the fear had spread to the end of the year. i think a lot of people were caught by surprise as they took a look at how fast the market sold off. it was an orderly straight down kind of a thing. it was not a big gap, which might have caused those premium to get up higher, but i don't think a two or 3% discount to prevailing stock prices is a huge buying opportunity. >> well, especially when you consider the fact that for the
last eight weeks, the s&p 500 has traded in a narrow range. we know that positioning had been crowded in a lot of sectors where people were looking for yields, so you have this overnight jump for a rate increase a couple of nights out, which we know is not going to happen. all of a sudden, there's a lot of things that got selling going. >> it calls into question, as always the case. the sort of the call to equity. it's good until maybe it's not. you know, an investment is cash on cash return. you have either a renter that pays you something or bought a bond. stock in principle that has no definition. that means that -- point being, sentiment is fickle. what really changed? start raising rates and they're going to go to 4%, probably not.
you know what? more sellers than buyers today, something changed. it's a fickle game. but nothing particularly was there any big news? no. but what we know is there are business cycles. this is a fairly mature business cycle and a lot of things are piquish. it's a matter of time. >> we saw the greatest pressure on dividend sector. we saw selling across the board. which sectors do you think are truly vulnerable at this point? >> you know, if i was worried about anything, i would probably be worried about one of the hardest hit sectors today. that would be the homebuilders. we've had you know, the low rates that we've seen over the course to have last several years manage to do. the housing market. you see this all the time. there are place all around the country where we're approaching all time highs or above all time highs. a lot of speculative activity. building activity and i think if anybody's saying. >> yield proxies got hard to gauge. utilities, and homebuilders got nailed.
i want to talk about technology. it's been a safe trade for all intents and purposes. there's a lot of old tech that has yield. i want to talk about the s&p technology select etf. it's a very, very interesting etf when you look at the makeup of it. apple is the largest holding at 13%. my view on apple if you watched the show last week, i don't think that stock's going anywhere. then you have a bunch of names -- what i call no growth tech. that's the microsoft, the intel, the cisco. i think that they're deemed to be defensive because of their yield, but are not particularly sensitive and they make up a big chunk of that xlk and then the last bucket, this is something people don't think about. 10% of that is u.s. tellco.
you have this budget of stuff that it's cyclical, defensive, it's yielding and it could be vulnerable. i think this xlx have a nice run here. it broke hard today. i don't press shorts on a day like that's the breakout level of 45. 46.40 put spread paying 1.25. that's your max risk. it breaks even at 44.75, then a longer term chart, a five-year chart that shows a uptrend. down near 40 bucks. i think that's what you want to target over the next three months. if you have a pushback away from some of the defensive stuff, the
crowded growth names, the utilities, some of this other stuff, i think the tech fits well. i think you have a move back. >> you could have picked semis. and there are of a beta trade. like tech on steroids. you're doing it as a yield call. >> one of the things that everybody has been looking for has been some form of growth. why? because we have weak economic growth overall. low cap x. declining earnings in the s&p. one thing they're going to do is chase the facebook. which has 20, 30, 40% growth. the biggest constituent, we have essentially 100% penetration for mobile in the united states and don't have the products to fuel that kind of growth. that and microsoft probably on another big growth stock, it's a risk off scenario, then those aren't the two names they're going to chase. >> say -- bad things happen on
friday. there's one of two scenarios. it's either -- >> is that your prediction? >> follow through. you get one of those, then follows through. the thing about the xlx is at&t, apple. you have microsoft. which are fairly loaded and at some point, say there's -- i mean, there's almost no instances in history. >> you don't like the trade. >> why not pick something with more juice. >> the semis is what i -- >> semis real quickly. in the last say 16 to 17 months, we've had $125 billion worth of m and a. i don't think they're done yet. i think that's a sector.
we have four or five stocks, apple, microsoft, oracle, cisco, intel. none of them are growing more than a couple of percent year on year and i think you have a crowding. i think there's a potential for facebook and google to get some back. to make maybe up to 10%. >> got to move on. now to another group of stocks. that have been hit hard today. the homebuilder etf falling 4%. having its worst session since june of 15. one dow stock in particular. >> this is yield. housing stocks are yields, too. cut back to 36. you have a lot of these trades. let's single out home depot. just to put the numbers in
perspective, i thought i'd start with the percentage change on the day and i mean, these are all ring related and housing related. so home building products. household appliances. furnishings, homebuilders themselves and housewares. real estate. construction materials. versus s&p. so you're talking about even adjusted for beta, there's a move in yields and people are coming out of this. also at&t. as we were just talking about in the prior piece, so the issue is talk about a big name. a popular name and one that's going to go the way of these. so home depot. top panel is home depot. the second is their relative performance to equities, to the s&p. what we know is even as home depot was able at least try the make new highs, it's been underperforming the s&p. and again, of all the things that have been tested, tested,
the top two and three factors. attempted to make new highs and get underperforming equities and asset class while it was doing it. now, to put the long-term situation, so you have a current situation of underperforming, but the long-term circumstances of home depot relative to its sector. home depot is so far above other consumer stretches. you have long-term outperformance and now more recent underperformance. not a good setup. and one or two other things and let's quit. share price. earnings. price per share, blue line. look at the multiples. triple top. you could say it's this. same chart. you could say it's broken today, hit here. either way. >> all right and this really fits in with what you were saying about the sectors you were most concerned about.
home building. this is the corollary. >> 40% actually come from the professional customers over there, which i think a lot of people don't realize. the november 130 put, you could spend $4.40 for that. the big pop for individual options have not gone up that much and you'll have an opportunity to spread this. >> listen, it's a fat option, right? it's going to catch their next earnings. he just thinks the option prices are cheap. sell maybe lower strike put and create a virtual spread. this goes back to the spread. coming out with bearish trades. i think these are the strategies, you agree with the take and agree with mike's take. sometime next week, something changed that we haven't seen the last few months.
you look for this opportunity, higher prices you looked at. >> if you got a bounce, i'd be interested in doing with upside call spreads. >> all right, got a question about today's selloff? send us a tweet and for everything options action, check out the website and our cool newsletter. over 100,000 of you have. in the meantime, here's what's up next. >> can you hear me now? >> we sure can, but as shares sell off, investors may not like what they hear. but could they be a buy? plus -- >> having a disney vacation away from your -- >> one coffee stock in particular could be out of gas. we'll give you the name and how to profit when options action returns. hey gary, what are you doing? oh hey john, i'm connecting our brains
so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. scalpel. i have no idea what i'm doing. i'm just a tv doctor. i never went to college. (scream) i don't do blood. but now, thanks to cigna, i can do more than just look the part. is that a foot? we are the tv doctors of america. and we're partnering with cigna to help save lives. by getting you to a real doctor for an annual check-up. so go, know, and take control of your health. doctor poses. cigntogether, all the way.
er 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. welcome back. commodities have seen a lot of volatility this year, but there was one trade that has some pep in its step. no surprise, that's coffee. coffee futures are up about 20% year to date, but 2% pullback today. it's been all about the drought in brazil, holding back growth of coffee bean and spiking those prices. estimates suggest brazil will
see worst crops since 2006 with yields, right now, there doesn't appear to be relief in sight. drought could put next year's crop in jeopardy as well. it's the beginning of the season and without enough water, the plants won't recover even if it started raining today. a little context here. brazil is the world's number one producer followed by vietnam, where there have been issues. so coffee futures may just have a little more buzz. back to you. >> thank you, jackie. futures now fame. carter over there, you say there could be trouble brewing in one of the stocks, which one? >> this is starbucks and not just about their price of inputs. this is also like home depot, consumers, discretionary stock. let's talk about the coffee first. i mean, what you call this right is a loser that's turning into winner.
or i would say bearish to bullish reversal. up some 40% off its low. a major bottoming out type action in coffee. well, for fun, here is a juxtaposition of coffee. doing this. and starbucks. it's not their only thing, they have rent and they've got salaries. this is an important thing, coffee's moved up, starbucks has had some trouble. market s&p 500 sector of which starbucks is a proponent and a big one. a group underperforming consumer discretion. not a good setup. draw some lines. making a bet that's where we're headed.
long-term chart since 2010. six years. we've broken the long-term trend line. >> all right, so mike. >> i think this is a situation where you want to employ a strategy like we did in home depot. partially because the stock has sold off. one of the risks, how much coffee we have in storage here in the united states versus what the producers have, they're down, but not down that much. we're talking about 2.5%, probably from 24 to 22ish, a little below. that could pressure them. if it declines, a put spread. if it rallies, going against the trade pieces that we have you could look to spread them at higher levels. this is a way the trade around
that, advantage of options regardless of what the market's going to be giving us. >> starbucks goes lower? >> i think it finds support here at 54. it has the relative performance. if you guys at home can take anything away from carter at charts, when he says, this stock is down 15%. it's not participating with the market. there is some you know, there are investors scrutinizing the value and growth prospect. you have to remember, when they reported in october, they missed comps in america, europe, china for the second thing. there could be something going on with this business. howard schultz goes on cramer's show after every call and paints a really nice story about it, but the stock has not been going up after those calls so, to me, you have a scenario where the stock is oversold. i think you wait for a bounce. it sets up as great short and the headlines are out in that earnings report. they were talking uncertainty
that wasn't that bullish to me. >> and the level you're citing in terms of maybe oversold. that's the whole point of the wedge. when you get to the bottom of the wedge, you can hover there or respond to it. but the setup implies if you make lower highs. >> we have a lot of strategies to try to continue to get growth. including increasing the ticket size and things they sell, even selling liquor in some of their stores. these are unproven though folks. >> still ahead, apple shares falling to the lowest level in more than a month, but great news for dan nathan. we'll tell you why. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face.
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steve, other than making i'm here atme move stuff,rade trader offices. 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. we take a look back on our open trades. dan thought apple was about to stall. >> want to sell the next week, but use sell of options to finance the purchase of longer dated. what i want to do is think of it as protection trade if you're long financing puts in november. that's going to catch their earnings, so the trade today when the stock was trading about 107.50.
you could sell one of the september 105 puts at about 75 cents and use the proceeds to help finance the purchase of november 105 puts. >> i was wrong on the move. this is why trading can be difficult. that's one of the reasons why i wanted to use the calendar. i rolled this one when it was above the 105 strike. it was up there this morning before it fell a few dollars. and i covered this short september put. still long in november. 105 put and i sold the november 95 put, so i made money on that roll and now, just defined my risk to the premium that i spent for this vertical put spread. long the november spread. i think it probably sees 100 in the next couple months. >> and what are your thoughts on
apple? >> you really need to see something exciting happen to continue to see the kind of iphone sales that you've had. the way they're changing, that could be an impact. doesn't seem like the full story to me. >> just sort of fair price sitting around. >> do you think it's going to fill in the gap? >> it's going to participate in that. probably more interesting is longs or shorts. it's a slow moving animal. >> all right. up next, the final call from the options pit. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face.
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. first up, rough wants to know what's happening ng sky works and pi. is there sufficient volume in options to take a position? carter?
>> nxpi, look, semis have been a big part of the move in tech generally. in fact, the waiting as a subset highest it's been. i think it trades lower. >> what do you think of sky works? >> one thing i was going to say, these companies are not particularly expensive. there seems to be a lot of bad news baked in. when you see a lot of puts, maybe people are getting ahead of themselves. >> yeah and just on the liquidity, these things are pretty liquid. swks is pretty liquid, less so on the option side. so the liquidity is there to trade these things. i think sk works is okay. probably a basket of names that may get acquired by some larger players. >> time now for the final call.
>> starbucks. pick one, pick all. >> mike. >> november add the money puts to do that and look to spread. either way the stock goes. >> i think in all these trades, xlk, you look for a bit of a bounce there. >> looks like our time has expired. see you back here next friday. don't go anywhere. "mad money with jim cramer" starts right now. >> announcer: the following is a paid advertisement for tai cheng, brought to you by beachbody. >> wow, joy, look at these people! they love you! [ cheers and applause ] thank you! it's regis, joy, and i've got big news for you. if aches, pains, and poor balance are slowing you down, keep watching this show because we're gonna tell you about an incredible new program that's gonna fix everything. [ cheers and applause ] yeah! >> announcer: the facts are frightening. 1 out of 3 people over 65 fall each year, resulting in expensive hospital stays, loss of independence, or worse. >> i broke my hip. "oh, my god. what in the world g