tv Options Action CNBC September 16, 2016 5:30pm-6:01pm EDT
hey there, we're coming to you live from the nasdaq market site on a strange week for stocks. by the way, a lot of traffic tonight. the guys are getting ready for the show. while they're doing that, here is what's coming up. ♪ who let the dogs out >> whoever did is a genius because the dogs of the dow are running wild. we'll tell you the one name that could really break out. plus -- >> wreaking havoc. >> that's what some are saying about the u.s. economy after a slew of bad data. and --
♪ >> it keeps getting worse for oil. we'll tell you just how low some traders see it going. the action begins right now. and let's get right to it because only one thing will matter next week, the fed. will they ruin the rally and what trades look good ahead of the event. let's find out. might be, wh mike, what do you say? >> i hear everybody saying they're not going to raise and they're never going to raise, not in september, not in december. 25-basis point raise is really not that meaningful. we were talking about it before the show. i don't even imagine it's going to change the long end of the curve all that much honestly. i think there might be a couple members over there saying to themselves maybe this is our one chance. it's not going to hurt things that much. >> not a shot. when you think -- >> even the tools in the -- >> they do it when they want to ease monetary policy. on the upside they do not do it. there's no point. i agree with you a 25-basis point moch which would only be
the second is in ten years would not be that big of a deal -- >> it's global though and every -- they have a license in some position because -- >> when we're all in it, here we are, we're in it. the market just closed. monday we'll be in it. when we step back at some point in 10 years, 20 years, people talk about doves, hawks. what is it really about? these are turkeys. those are grown men and women. we will look back and say there they were for a decade and they couldn't even screw up the courage to put 25 basis points on the cost of money. i mean, it's absurd. the market is hanging on its every word. >> if they haven't done it for the entirety of 2016, the idea an apolitical fed would do it makes in sense. they do not want to be on the hook for letting a maniac into the oval office, in my opinion, and that's what could happen if they did get really hawkish. >> the fact of the matter is seeing the forest through the trees is fine and all except we are seeing essentially a taper tantrum whenever the idea is floated that the fed could actually raise rates in
september. >> that's the absurd. >> the markets freak out. that's the absurdity we have to live with. >> they're freaking out for two reasons. the other reason is also valuations. this is an epic set of valuations for bonds. this is pretty heady valuations for stocks, and not a lot of economic justification for it. so they're going to freak out about anything. you know, i mean, they're going to hear the door close too loud behind them and they will run out of the stock. it has nothing to do with the fed and everything to do with valuation and economic justifications for owning them. >> if they were to hike into a weakening economy, we had bad ism data, a miss in the jobs data. i don't think they're going to september. i think december is 50/50. . we get some misses on nonfarm payroll for september and august, then december is often the table and that's why i think you want to look back at bond proxies again. >> so utilities. >> yeah. >> let's look at the xlu, the etf that tracks the utility sector. down 7.5% from the 52-week high it is made in early july. i think is sets up really
interesting into the end of year. i think december is on the table. if for any reason the economic data doesn't support it, then you want to be in sectors like utilities. so today when the xlu was trading at $49, you could look out to december expiration and buy the 4954 call spread paying $1.50 for that, buying one of the december 49 calls for $1.65, selling one of the december 54 calls at 15 cents when $1.50 is your match risk. 3% of the underlying etf price, and my trade here is really to get it back up to those prior highs and possibly get a bit of a breakout. if they don't raise in december, this thing is going there. jild certainly rather be long than yuts than bonds at this point. i don't dislike all the bonds proxy. that's the thesis behind the verizon trade i am sticking with. they have been a little bit hurt. this is one of the situations. also just to keep this in mind, ten years from now utility rates
are going to be higher so you actually have a little bit of inflation adjustment component that goes into something like utilities that you don't get if you buy bonds. >> i have a question though. whatever the fed does, what we've seen this week is the long end of the curve, the yield is going higher. so in that scenario, do you still want to be in these bond proxies? >> if this is all sort of a forward looking and discounting measure, there is quite a bit of possibility that were they to do that, the long end is priced a good piece of or if not all of this huge 25 basis points in. that's the issue. >> isn't a piece of the fact though that we've seen that long end going up though the fact we saw somewhat higher than expected inflation data? aren't utility rates impacted -- they basically track up with inflation. so the inflation component isn't going to affect this sector as much as it is u.s. treasury approximates. >> i also think let's just say we do have a scenario where people are looking for defensive, they're looking for yield. there's a lot of uncertainty about the economic data. i think utilities also work in that environment too. and i agree with you guys as far as rates.
they've already moved up from that epic low in july, and, therefore, they may be incorporating any sort of increase, so i think this trade probably works okay under most scenario. >> it's been a very tough week for the u.s. economy. we have bad retail sales weighed down by the autos, declining production. michigan sentiment holding at the lowest level since april. and carter says there's one risker that could be at risk. what are you looking? >> i'm looking at industrials. this is a situation of an area that is both good and bad, but it's good for the wrong reasons, and let me tell you what i'm trying to make by that point. this is the sector industrials as measured by the etf that matches the s&p 500. what you can see clearly is that it was able to eke out a slight new high before turning down. but it's all about relative performance, meaning you could have put your money into this, but as someone managing money,
you have underperformed the alternative, and the alternative is the market itself. so you have this very bad and consistently failing at this relative down trend line for the last two, three years. so even as this sector was going up, it's underperforming the market, and some of that is softening, and i would think this is a place to not be. i want to make the bet that this is going lower and be short the xli. so draw your lines. i think that's a decent way to draw the lines. an uptrend and i'm thinking here that we're going to break based on the heavy volume and the way this came down. you have a gap here, and i think we're going to actually make it to a new low. now, the long-term. this break, if we were to break that trend line, right here, they talk about mega phones. they don't always play out but they often do. if we were to sort of play out like that, this projects quite a bit lower. i'm a seller of industrials and i would do it through xli.
>> from a bigger picture standpoint, mike, it's sort of the same directional trade as dan's. it's sort of the belief that things are bad, so therefore the economy is bad, industrials will be bad. >> we often sound like this, don't we? but we can only tell you what the data gives us, and the data isn't all that compelling. look at the biggest constituents of the xli. a lot of these companies are probably 20% above their historical valuations. those that are not might have involved historically some kind of a super cycle like cat. there's probably only one name on the lead page of xlis constituent stock that is i like, and that's boeing. and it's the only one -- but you can't buy that etf based on that. so i'm with carter on this. normally i would, and in fact, we've talked about this, when volatility is lower, i go out and buy a put but we have seen a bump up in implied volatilities. the best way to play this is to look out to december and buy the 5651 put spread. you can pay $1.15. buying 51 for $1.75.
selling the strikes against it for 60 cents. that's less than a quarter of the distance for the strikes. we'll let the decay of that out of the money option. it's not going to cost you a lot in decay as we progress. >> this trade makes sense. you're talking about the components of the xli. ge is one of the biggest, and they have more than 55% of their sales come from overseas. do you know what happened today? the dollar moved up in a meaningful way. oracle was down almost 4%. they were talking about the adverse effects of the dollar. i know that sounds so last year, okay, but it still is a big thing. so this is a sector that is obviously very exposed to dollar, and i think that when you get earnings in the next month or so this could be an issue. >> that's definitely a good point. certainly true for telecoms. they don't have that much exposure. >> even today just day to day the market was able to kind of climb off the low. this sector closed on the absolute low.
relative performance matters. not good action. >> all right. we've got a news alert here on twitter's nfl streaming numbers from last night's game. let's get to julia boorstin in l.a. julia? >> the nfl reporting that a total of 2.1 unique viewers checked out its first live streaming game on twitter last night, but to count as unique viewer you just had to watch for at least three seconds. now, cbs says a total of 15.7 million viewers viewed across all platforms including it's broadcast network. when it comes to that twitter viewing, the average audience watching was just 243,000 with each viewer watching an average of 22 minutes of the game. now, to put that in context, for the opening game of the nfl last thursday night, nbc reported over 25 million viewers and online nbc sports digital reported 1.2 million unique viewers and a 278,000 average
au audience per minute. nbc digital properties had more people watching at one time while twitter had more people check out the stream overall. twitter's total number was less than 1% of its total logged in user base. we'll have to see how much ratings grow for the neck game or if it has any impact on the number of people who log into twitter. >> julia boorstin, thank you. dan, twitter bowl. was this good? >> i think it's great. i was in a cab. the second half i watched it in the cab on my iphone. i got home, i turned on apple tv and opened the app. it was fabulous, it was seamless, and really well done. like julia said, i think it will catch steam and i think it's an inflection point. they use it for sports, for politics. >> thinking about sports, i mean, the nfl, but imagine if you had college games on this. imagine if you were streaming that ut/notre dame game which was the most watch eed collegia football game in history, i think this thing would catch fire. i love it. >> wow. >> let's just say this --
>> did it come up on your star tack last night? >> exactly. but, i mean, the burden of proof is on the bear. look at the last two years. if you're going to get better, show me. for now -- >> couldn't you say that the burden -- when the stock gets to the midteens, investors buy it, and i think that's really important, so i think you have a few dollars of downside even if they have a bad q3. that's where you buy it. >> got a question out there, send us a tweet. for everything "options action" check out our website optionsactions.cnbc.com. check out the super cool newsletter. what are you waiting for? here is what's coming up next. okay. who brought the dog? >> well, keep bringing them because the dogs of the dow be winning again, and one stock in particular looks ready to break out. plus, here is what tech stocks have done this week. we'll tell you if the rally has more room to go 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. i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call now and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, it could save you in out-of-pocket medical costs.
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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 to "options action." i'm dominic chu. there's one strategy for investors that may be paying dividends figuratively and literally so far in 2016. that's the dogs of the dow. that's the strategy where you buy the ten highest yielding stocks in the dow at the end of each year, hold them for a year and repeat the cycle. this year it's produced a gain of 13% on average and collected an average dividend of north of 3%. the idea is by buying the high-yielding stocks in the index, many are underperformers that could be due for a rebound and pay a larger relative dividend. this year some of last year's
big underperformers are doing great this year. take ibm, a business services giant, which lost 14% in 2015. the stock is up 12% year-to-date and has a 3.6% dividend yield. or retail giant walmart which lost 28% in 2015. it's up 19%. and then there's caterpillar. it's now up 21% so far year-to-date with a current dividend yield of 3.8%. of course, longer-term investors still have a ways to go before making up some of the whole down trend for many of these names, but, melissa, the strategy doesn't always work, but for now it seems to be intact. back over to you guys at times square. >> thanks, dom. >> have a great weekend, mel. >> you too. the leaders in the dow this year inspiring a call to ashtion from the chart master. carter, take it away. >> here is big blue. i want to talk about ibm and
look at it on a chart perspective. then i'll do a little fundamentals and turn it over to mike. market performer. past 12 months. here is the s&p in blue. you have ibm in orange. just to pull this back, of course, this is either the problem or the opportunity. quite a spread. we know this is a business with no growth and we know that's not the case for the s&p over time. optically you have something of a head and shoulders bottom. and the recent action relative to the market is appealing. so the chart. you can call this anything you want. yes, a lot of people would call this a cup and handle and it broke out again and now it's falling back to support where you might want to play for the rebound again. in fact, that's what these lines show. that's the bet that i want to make, that we're down to support here and then we're also down to this trend line. so make the bet that this is going to bounce here having given back a good chunk of what it just recently did. all right, a little bit of
fundamental fundamentals. the current pe. it was expensive in the dotcom era and with no growth you could say maybe it's still expensive. but it's trading at a 10.9 multiple. compare it to the s&p at 20. that's your relative pe. it's the lowest relative pe essentially in 20 years. let's talk about yield. its dividend yield is 3.6%. how does that compare to the dividend yield of the s&p at 2.1%? well, here is your relative dividend yield. a record. now, remember, well covered, almost covered three times. that's not the case with a lot of stocks that have high dividend yields. finally, relative yield to treasuries. again, a 3.6% versus 1.7%. at a near record. we're going to make the bet that ibm bounces right here. get long ibm. >> mike, how do you see it? >> you know, so the market is clearly pricing in that their legacy business is not going to be replaced by their new
businesses. basically what they're calling their strategic imperative which is the cloud business which is right now going basically at price war. you have google and aws fighting over that space, but they have been growing in this area. the other is the cognitive piece. you keep seeing the adds for watson. there are opportunities if they're able to capitalize on that business. the growth has been slowing but obviously if they can do that, you are picking the name up at a relatively cheap level and they have a solid balance sheet right here. i think it's worth a play. that said, the market hasn't really been loving it. so i think the way to play this is actually using a call spread risk reversal. the one i'm looking at is the november 145 1shtion 55, 1 6 5. you you sell the 165s against it for $1.25 and also the 145 puts for about $2.85. net net you're paying between 50, 60 cents. it's essentially nothing when you think about it to own a $10 spread. the stock goes up 6%, you will
make 10 bucks. for you to lose 10 bucks, it has to drop to 135. that's a decline of over 13%. obviously if it floats around between the 145 strike of the put that you sold and the 155 call that you bought, no harm, no foul. >> what do you think? i like the trade structure. again, it's being cognizant of the fact you're being short this put. it's not so far out of the money. you will have an earnings report in mid-october. we talk about hewlett a little bit. have you seen hewlett enterprises, it's at all time highs. hewlett-packard even the crappy part is up 22.5%. they split last year. something has to happen here with ibm. if you really think that's going to be some sort of corporate action where they split this up and focus on the faster growing businesses. you do not want to be long a call spread. you wait for some sort of corporate action to happen. >> quick last word? >> no, no. that's a fair point. >> up next, the tech sector is this week's big winner but could the party be over sooner than you think?
we have the trade. much more "options action" still ahead. 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.
ffices. 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. welcome back to "options action." time for the upside call where we take a look back at some winning trades. carter and mike made a bearish call on the oil services sector. >> some people think this is a head and shoulders bottom. but if it were, it should have done that and not this. what i'm thinking is this, that you've worked yourself into a point where we're going to break down and this tells you a lot about i think what's not the upside for crude. >> from my perspective that bounce is something we probably want to fade. i think you can do that very easily. oih has bounced a little bit. look at the october 2825 put spread. spent 95 cent to put that trade on. >> so what now? >> stick with it. >> stick with it. okay. >> mike? >> roll down and out, very simply. >> okay. last week dan made a call to bet
against the tech sector using the xlk etf which was the big winner this week, up nearly 3%. take a listen. >> so you have this bucket of stuff that it's cyclical, it's defensive, it's yield, and i think it could be vulnerable. there's to names, the facebook and google stick out, that obviously facebook has tremendous gains in year. google is very near it's all-time highs. i think if you have any hiccups between now and the end of the yef year, i think this xlk goes lower. >> wrong footed here. so i have this one on a very tight leash. if it makes a new high from last week, i'm going to cut the position, but in long premium trades i use a 50% premium stop and that's what i think you should do. i got the caple thi apple thing wrong and that's making me rethink this. >> lets say the fed doesn't move. will technology and growth catch a little bit? if we are to believe dividend stocks still have buyers because people are searching for that incremental growth, is tech going to be the answer?
>> when economic data rolls, the best performing typically is either growth or yield because people are like, all right, i don't want to play beta anymore. i think you stay long tech as an overweight and you also do it with telco and utilities. >> you don't have any other choice. >> you don't have any other choice. >> up next, final call from the options pits. 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.
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 to "options action." let's get to a tweet here. first one, carter, i would like to know the chart master's opinion on apple's next move. >> you know, i have to tell you, i have considered this sort of a dull thing, not particularly weak, not particularly strong. no bets but it's been very strong and the presumption is that it continues. gapping, price correlation bullish. go for it. >> final call. carter, back to you. >> i want to be long ibm and short industrials, xlo. >> mike. >> put spreads in xli to affect your bearish bets. >> xlu, i'm using a $40 stop.
>> i'm melissa lee. for more "options action" checks out the website and our daily segment inside "fast money." meantime, have a great weekend. don't go anywhere, "mad money" with jim kranl er 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, and 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 make you some money. my job is not just to entertain you, but to educate and teach you. so call me at 1-800-743-cnbc or tweet me @jimcramer. another day where we have the total absurdity of oil being in control of the stock market. it is so breathtakingly stupid that i often hesitate to even tell you