tv Options Action CNBC November 18, 2016 5:30pm-6:01pm EST
still live in times square. as the "options action"s crew gets ready behind us, why don't we see what's coming up on the program? >> 3, 2, 1, liftoff! >> that's pretty much what stocks have done since the election. but if you missed the run to new highs, we've got a way for you to play catchup with one mega cap tech stock. plus, call it king kong versus godzilla. that's because the strong u.s. dollar could be a headwind for a handful of widely owned stocks. and we've got the name poised to get hit the hardest. and --
♪ take me home tonight >> home builders surging and one stock in particular that could be on the verge of new highs. the action begins now. all right. that's out of the way. lets get to it. as interesting as the stock market has been the last few days, the real action has been in the green back. the u.s. dollar index just hit its highest level since april of 2003. a big run in just a few days. let's get in on the money on that. dan. >> like you said, the stock market for you will intents and purposes, has been rotating. the s&p 500 since last tuesday with the election result. and, you know, one of the most volatile things overnight on november 8th, really was the dollar, obviously, the stock market was down and the future market back down 5%. the dollar all over the place. now up in eight trading days, up 5% or something like that. that's a massive move when it comes to currencies. and i think obviously market participants caught offside. when you think about the notion of looser fiscal policy, that
means stronger dollar. >> and we were talking about this. when you think about the size of the u.s. economy and you think about the move that we saw in the pound after brexit, this is a much bigger move that we're seeing here. but the other thing i would add is, it seems like the market is pricing in everything that could happen. not everything that necessarily will happen. you know, i take a look at this, and you know, we see asian banks having a hard time defending their currencies, supposedly. maybe they don't want to do that. we know that japan doesn't necessarily. but china still has over $3 trillion foreign reserves in the u.s. dollar. so if they really wanted to defend -- they definitely can do it. >> it's all about macro. the stock market this past week or two, it's all about two things. yield and currency. and we know that you've had one of the biggest three or four day moves in yield ever. and 17 to almost 24 and the dollar making 13-year highs. >> all right, so carter, i want you to sort of answer your own hypothesis. do the charts suggest the dollar run is done?
>> we've got a bunch of charts. >> it's a random question. imagine how that works. >> just right over here, magically. so here's the setup. now, it's -- you know, it's fairly well-donned how you work into -- you can call it whatever you want, a triangle, a wedge. it represents the end of a debate. typically, whether it's a stock or currency commodity, you almost starting to quiet and then people bet one way or the other. well, that's what happened. an overshoot, checkback. now what's the next reference point once you come out of that? well, it's the prior tops. all right, so here's the next chart. we are right at the prior tops. now, while some might call it a breakout, the real setup is not just to move aggressively through. you want to back and fill and coil at the high. that gives you the tension for a breakout. so we've returned to a fairly difficult level. i'm thinking it is a bit
overdone. and the trade is going to be on the uup. so the uup is not quite at the level -- i think it's going to stop on any further strength, and i think you want to fade this, and bet against this move having moved from the top of the range to the bottom. top to the bottom. and we're right back to the top. that's not the setup for a breakout. that is a setup in principle for some reaction like this. so fade this move. that's my bet. >> all right. thank you, carter. so mike, are you -- how are you -- are you trading the dollar? if so, how are you trading it? >> this is one of those situations -- we were just talking about the move having been really extraordinary. currencies usually not that volatile. what that means is, options premiums tend to be very, very low. so it's hard to do spreads where you're going to look to sell out of the moneys options. the way i look at this, january 26 puts, you can spend 30 cents for those, a little over 1% of the level where uup is right now. you can look for opportunities to spread and you probably want to. if we do break below 26 in uup,
maybe we get down do 25.5. then you can look to put on a spread if you want to basically remain bearish. >> good strategy, mike. thank you. meantime, a strong u.s. dollar might be a headwind for a number of u.s. companies that sell stuff overseas. nearly half of the sales come internationally. dan, you're looking at one name in particular that may be exposed. >> let's look at starbucks, not one of the multinationals you would say has the most exposure. we know there is a lot of mega cap taxpayers that get more than 50% of its sales. important about a starbucks, they are pinning most of their future growth on overseas, and specifically on china. and one thing that's really important, we saw this in cisco this last week. that starbucks' business here in the u.s. is pretty stagnant. they miss their same-store sales comp. in north america for the fourth consecutive quarter. they finally had an uptick in china. and that quarter just reported. and that's a good sign. we know they want to double their stores by 2021.
they are doubling down. that's what ceo howard schultz said on china. that is their big bet. but when you see this sort of currency move we had over the last week and a half we were talking about, there is no way that can't adversely affect or be a massive headwind towards their sales. so when i look at starbucks here, there are a couple things going on. the stock has rallied 10% since november 3 since they gave this poor fiscal q1 guidance. look at that there, it's gone back up to its 200-day moving average, failed twice over the last six to nine months and i think it could have a similar setup. what i'm thinking about, what's the next identifiable catalyst since late january. but i think there is just a lot of things going on here. >> first of all, coffee, one of the best performing commodities year-to-date, some point matters. but that counter trim rally, it's had four of them. so over the past year, the stock has declined 20%, october 15 to october 16. four trend rallies of 4 to 10%. the bet is it likely stalls
here. >> basically a year-and-a-half. with some trading ability. >> yep. >> same price. >> one thing i will point out on a valuation basis, it is cheaper than it has been historically. china represents an enormous market potentially for them. they're talking about having more stores in china than they have in the united states. the other thing is that of the currencies that have potential weakness relative to the dollar, because of that enormous foreign reserve, because of the huge current account deficit that we have with china, that's actually one currency that they're basically going to have to hold down. >> here's the thing. the trade i'm looking at in starbucks is just out to january. and it really isn't -- it isn't that macro of a trade. it really is taking advantage of counter trade. one other point. you talked about the valuation. it's actually trading 26 times, expected 2017 eps, which is only supposed to grow 12%. that's the slowest eps growth rate the company will have in 5%. when you do that on a pe to growth, that's a flat spread for the stock and hasn't been there
in a long time. i want to look at january expiration, this prior to the report on january 26. i want to keep it really simple. the price of options relatively cheap, very much near the 52-week lows. i want to look at january expiration and buy the 55-50 put spread, paying a dollar, buying one of the jan 55 puts for a buck 35, selling at pa cents. that's my max risk. i can make up to four between 54 and 50. obviously, 50 there is some good support down there. i like the risk/reward. >> the risk -- i'm surprised you can get a 4 to 1 payoff on a spread that goes out over 60 days basically something at the money. that actually is a very favorable relationship when you take a look at risk/reward for a put spread. usually looking to spend 20% of the difference between the strikes is actually a very nice way to make a bet. >> mike, how do you think it got to be that way? what has the market missed? >> look, we just had their
earnings. basically, their fiscal year-ending quarterly results just came out and the next one isn't until after the expiration. i think that's basically what you're getting to take advantage. options are cheap in between those two earnings results. but a lot could happen. >> i think probably -- just not knowing, you could have picked a lot of stocks with the dollar issue. you like technicals, i'll bet 75% you saw counter trend rally declining trend line. >> okay. could i make one other point? i think this market, especially equities, has been very complacent. we have been trading in a range. still in that range. when we get into january, you may see some high evaluation names continue to sell off. a name like this, fang stocks. >> what could happen after the christmas season, basically, you could see an uptick in implied volatilities which means this goes less quickly than you think. >> just watch coffee prices. that input cost, paying 6 bucks for a small or tall or whatever it's called. got a question, send us a tweet.
and for everything "options action," check out our website. "options action".cnbc.com. in the meantime, here's what's up next. there's no place like home. >> you got that right. and we've got the one home builder stock that could be on the brink of a breakout. plus, missed out on the rally? >> jerk. >> idiot. >> moron! >> whoa, whoa, whoa. there's still time to get in. and the charts are pointing to one tech stock from the ultimate catchup trade. we'll explain when "options action" returns. ♪ hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. we only do it for everyone gary. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary.
wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. or the freedom to choose what doctor you want to see. so if you have medicare parts a and b, consider an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, these let you choose any doctor who accepts medicare patients. you're not stuck in a network, because there aren't any. plus, these plans help cover some of the part b medical expenses medicare doesn't pay. so why wait? call now to request your free decision guide and find the aarp medicare supplement plan that works for you. like all medicare supplement plans, you'll be able to stay with the doctor or specialist you trust, or look for someone new - as long as they accept medicare patients. but unlike other plans, these are the only ones of their kind endorsed by aarp.
rates are competitive. so call today. and learn more about choosing the doctor's you'd like to see. go long. hthis bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade tech stocks finally joining the rally this week.
dominic chu rejoining us with more on tech. >> so sully, it looks like dip buyers managed to make headway when it comes to the technology stocks. if you look at the overall picture, the most important tech stocks are the ones we're talking about. viewers and listeners know how much we have spoken about the mega cap ones, the ones lagging the rest of the market since the election. well, the sector is pretty much wiped out all of the post election losses now down very fractionally in that span. so far this week, a number of the notable mega caps helping the nasdaq to hit the fresh all-time high. chip maker intel now managed to mitigate losses. actually up by nearly a percent so far this week. google parent company alphabet seeing its shares go up by a percent, as well. apple up 1.5%. microsoft 2.5% and amazon by 3% just this week alone. and one of the trade exchange funds, the xlk has seen a surge over the last ten trading days,
the average trading volume 16.7 million shares. over the last 30 days, 10.4. so brian, whether the dip buyer, it will be a key thing to watch in next week's holiday shortened trade and into the year-end, guys. back over to you. >> thank you very much, dom. carter, you say the charts pointing to more gains for a little stock known as apple. >> that's good. so we've got the king here, still the king, of course, in terms of its size. and let's just even suspend this, just for fun. we're going to look at price action. you get a down trend and break above the down trend. follow the arrow. you get an uptrend and break down below, follow the arrow. you get a new, follow the arrow. let's just put it all together. i mean, you know, if you just sort of be a chair monkey, it breaks above the line, get long. it breaks below the line, get short. take your -- just follow the price action. to me, this looks like you've going to move higher.
here is something else interesting. the absolute low of just six months ago, $89.50. keep that number in your mind. the absolute high of about two weeks ago, $118.50. that is a $29 move. do you know where it stopped to the penny? exactly $14.50. $14.50 half of 29. so that is a 50% replacement. those who get into replacement levels, it's not random but stopped there and started to bounce. i'm going to make the bet that the bounce that's here is going to continue. so just going to get long apple, playing for more of this, more of this. just going with what's happening. going to be long apple. >> you know, i'm -- willing to accept the fact that maybe it's not going to continue to decline here. the problem that i have is that there's really not anything out there that that's exciting for apple, other than the fact that
the galaxy note 7 provided them with an opportunity. they otherwise would not have had. the response, basically, to the new mac book, you know, most of the people i know, it's a more expensive as dan was pointing out. the watch not a huge success. >> those are all irrelevant to the numbers. i mean -- >> the iphone the only thing that matters and maybe a big one this christmas. to me, i'm really thinking that apple's period of growth is essentially over. the stock is cheap. and is going to get cheaper. if the stock price stays here, trading five times, seven times earnings and that's just silliness. so that would be my reason. and i think what you can do here, if you expect it to go sideways, is sell the january 110 puts. collect $3.5 for those, so collecting more than 3% of the current stock price. down side, you get long the stock at $3.5 below the 110 strike. and then you can look to sell some calls against it. i mean, i'm basically playing for this to go sideways. >> here before you go, i know
what you'll say. let's have some fun. s&p are this stock next six months. >> i think the s&p -- >> take taking the field in golf. tiger woods against the field. >> if equities are vulnerable, will this go down more than equities? >> let's do this. i know what you're getting at. let's talk about his trade. he's selling an at the money put in january expiration. a holiday week next week, probably go sideways. christmas and new years. to play a move like this, if you're not massively convicted, sell premium, especially over the period of time mike is talking about. what i don't like is the idea of selling at the money put. remember, this stock bottomed out a couple days ago at 103. i suspect the company was in there buying stock, that's what some of the options activity earlier in the week suggested that they might have been doing. right at support at the 200-day moving average. but i don't like the story here. and i've got to tell you, there was a story out of nikkei in japan they may be considering doing iphone production here in the u.s. never going to happen. in any way, shape or form. in a big way, okay?
and i think it's just window-dressing. these guys need their cash. they have over $200 billion in cash. overseas. they need it back in the u.s. at the need to find the buyback. the dividend, r & d stepped up. >> they have been repatriating that cash by taking on debt. essentially, that's what you're doing and then you can deduct the interest on the debt payments. >> to your point -- >> this company may be in a position, in the next year, that they need to make a large transformative acquisition. may be better to have that cash. >> and i know this is "options action." so it's a little more macro. microsoft in a way used to be apple. ten, what, twelve years ago. shocked everybody. and said, hey, by the way, special one-time dividend, four bucks a share, i think it was. they had about 50 billion in cash on their box. >> you know what the stock did after that, went sideways. >> i'm just wondering -- >> the absolute -- it's into the to different than the facebook news tonight. there is something more you have to read into. >> other tech names. if you had to say qqq versus this or this versus s&p.
meaning if you were uncomfortable -- long-only manager, cannot hold cash and you have to make decisions. do i want to now chase banks or chase industrials or fade the reits. would apple be equal weight, underweight or overweight in your portfolio, if you were bunched against the s&p. >> easy equal weight when you think of the balance sheet. and dividend yield. >> this is the first year in 15 years sales declined. >> i actually anticipate -- >> is it actually the street anticipating further declines or wouldn't be priced. >> microsoft owned an infrastructure -- this is a hardware company and beyond being a hardware company, a one-trick hardware company on top of the rest of it. it is the iphone -- >> i would argue that people can live without outlook and excel and can't live without their phones. >> i can't live without it -- outlook and excel. >> up next, the one big box retailer on its way to new highs. the name when "options action" returns.
[pony neighing] what? hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade.
hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. we only do it for everyone gary. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias.
get help on options trading with thinkorswim, only at td ameritrade. welcome back. why don't we look at some of our open trades. a few weeks ago, dan thought retail stocks were about to fall. listen. >> look out to january expiration, trading at 41, 45 today. you could buy 35 put spread paying $1.45 for that. >> all right. retail did take a hit today. some names, abercrombie, gap, crushed 10%. overall up since the trade. what do you do? >> a mixed bag here. home depot, good, lowe's bad. so it's been an -- >> abercrombie down 14. >> i think -- obviously, a bad entry a couple weeks ago if you are trying to short anything. i think this is one of the sectors where people feel all of
this stuff priced into the market that we may not see, that may be good for the economy, has shifted very quickly. so here's a situation where this spread is worth about a third of what you would have paid down at $41.5. i think you probably take it off. it's a very long shot here. but i like the entry here. i liked it down there. i like it here. and i think you want to look out to possibly february. >> any other view on retail on the desk here? >> they move with the election, right? so you've got -- as you say, if they were vulnerable, and they get reset higher, that doesn't necessarily remove the vulnerability. >> let's stay with a different retailer. and, in fact, a big box you know. giant orange sign. last week, home depot would rally on earnings. >> the way i would play this, you can use something called a call spread risk reversal and home depot. we look out to december. the 120, 130, 135, call spread risk reversal. sell for 110, and buy the calls for $3 and sell the 135s against it for 1.15.
net-net, spend 35 cents. >> the stock up slightly since reporting numbers on tuesday. >> it actually fell first and i think it's basically been supported by the market is the reason things has been basically been sideways. we looked out because since we sold more options than we bought, the decay worked for us. it can be sold for $1.20 and i'm going to defer to carter on this. my inclination is, take the money and run. >> i would agree. it sort of stuck and it's more thematic. shaw performing poorly and whirlpool and mohawk. and look at the xhp, about in line with other consumer names. in a way, it makes it more vulnerable. >> very broad school of thought, super macro. interest rates have not spiked, but they're up 60, 70 basis points. home depot -- is it that simple? >> it could. we have seen rates so low for so long. people never had to actually fight to go do this and re-fi quickly.
and they may be thinking about saving some money now after like a last-ditch re-fi, going out and spending it on an 80-inch flat screen. >> we did see activity and people try to race in. after that, i expect a slow down. >> up next, your tweets and the final call in that order. hey gary, what'd you got here? this bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade
i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. you tweet, we listen. actually, we read. and your first tweet comes from trent grinkmeyer, asking if there is a trade on citigroup. >> i would look out to january and maybe buy put spread to fade the rally. >> okay. time now for our final call of the day, beginning with you, carter worth. >> apple. long side. holler on the short side. >> okay, mike. >> selling the 110 puts in apple. >> dan. >> the starbucks counter trend carter is talking about, i think it faded.
look at january put spreads. >> we appreciate that. thank you for taking it easy on me. my final call, don't talk politics with family members over the weekend and stay away from social media. go for a long walk. everybody calm down. have a great weekend. we'll see you monday at 1:00 1: eastern time on power lunch. take care, everybody. 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 but to educate and teach you. so call me at 1-800-743-cnbc or tweet me @jimcramer. new money coming in. we're hearing about it now. we're seeing it. sure, the averages got hit today, dow backsliding 36 points. s&p dipping 0.24%.