tv Options Action CNBC November 20, 2016 6:00am-6:31am EST
welcome back, america. we're still live in times square and as the "options action" crew gets ready behind us, why don't we see what's coming up on the program. >> three, two, one, 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 have been surging, and there's one stock in particular that could be on verge of new highs. the action begins now. all right. that's out of the way. let's get to it. because as interesting as the stock market has been the last few days, the real action has been in the greenback. the u.s. dollar index just hit its highest level since april 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 all intents and purposes has been rotating. the s&p 500 up 2% since last tuesday with that election result, and, you know, one of the most volatile things overnight on noeb november 8th really was the dollar. obviously the stock market was down and the future market was down 5% and the dollar was all over the place and it's up in eight trading days, up 5% or something like that from those lows. that's a massive move when it comes to currency, and obviously market participants were caught offside when you think about the notion of looser fiscal policy
and tighter monetary policy, stronger dollar. >> when you think about the size of the u.s. economy and think about the move that we saw in the pound after brexit, this is a much bigger move that we're seeing here, and the other thing would i add it seems like the market is pricing everything that could happen, not everything that necessarily will happen. you know, i take a look at this and we see asian banks having a hard time defending their currencies, supposedly. maybe they don't want to do that so badly. 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 the yuan, they can really do it. >> the stock market was an ancillary thing the past thing or two. it's 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 1.7 to 2.4 and, of course, the dollar making 13-year highs. >> carter, want you to answer your own hypothesis. do the charts suggest the dollar
run is down? >> i've got a bunch of charts. >> it was 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 defined how you work into, you can call it whatever you want, a sunni triangle, a wedge. it represents the end of a debate. tinically whether it's a stock or currency commodity you almost start to go quiet and then people bet one way or another. yeah, that's what happened, an overshoot and a checkback and here. now the question is what's the next reference point once you come out of that? well, it's the prior tops. all right. here's the next chart. we are right at the prior tops. now, while some might call that a breakout, the real setup for a breakout is not just to move aggressively. you want to back and fill and coil at the high. that gives you the tension for the breakout. so we've returned to a fairly difficult level. i'm thinking here it is a bit
overdone, and -- and the strayed going to be on the uup. 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 and top to the bottom and we're right back to the top. that's not the set up for a breakout. it's a setup in principle for some reaction to this. fade this move. that's my >> thank you, carter. mike, are you trading the dollar? if so, how are you trading it? >> look, this is one of those situations -- we were just talking about the move having been really extraordinary. currencies are usually not that volatile, and 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 money options because there's just no premium in them at all. the way i'm going to look at this, january 26 puts, spend 30 cents for those, a little over 1% of the level of where uup is right now. can you look for opportunities to spread and you probably want to if we do break below 26 in
uup. maybe we get down to 25.5. then you can look to put on a spread if you want to remain bearish at that point. >> good strategy. mean time, a strong u.s. dollar might be a headwind for a number of u.s. companies that sell a lot of stuff overseas. remember, folks, half of the sales of s&p 500 companies come internationally. dan, you're looking at one name in particular that may be exposed? >> yeah. let's look at starbucks here. this is not one of the multi-nationals that you would say has the most exposure. we know that there's a lot of mega cap tech companies that get more than 50% of their sales from overseas and one of the things that's important about a starbucks is that they are pitting much of the future growth on overseas and one about china and we saw this in cisco last week is starbucks sales in the u.s. is pretty stagnant missing estimates for the fourth consecutive quarter. now, they finally had an uptick in china, 6% same-store sales in that quarter just reported. that's a good sign. we know they want to double their stores there by 2021.
they are doubling down. that's what ceo howard schultz said on china, their big bet and when you see the sort of currency move over the last week and a half that we were just talking about, there's no way that can't add versely affect or be a massive headwind towards their sales. when i look at starbucks, couple things going on, stock rallied 10% since november 3rd since they gave a poor fiscal g 1 guidance. it's gone back up to its 200-day moving average and failed there twice over the last six to nine months here and i think it could have a similar setup when i'm thinking about what's the next identifiable catalyst. it's late january, but i think there's just a lot of things going often here. >> first of all, remember, coffee, one of the best performing commodities year to date, up 67%. that at some point matters but the counter trend rally that you were citing has had four of them. over the past year, the stock has declined essentially 20%. october 15 to october 16. four count trend rallies of more than 10%.
this is another one. the bet is it likely stalls here. >> been a flat stock for basically a year and a half with some trading ability. same price. >> one thing i will point on on a valuation basis it's been cheaper than it has been his toreically. china represents a potentially enormous market for them. they are talking about having more stores in china than they have in the united states. the other thing is 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 are basically going to have to hold it down relatively -- >> the look to starbucks is just out to january and it isn't a macro trend of a trade. really taking advantage of the countertrend. it's trading 26 times expected 2017 eps, okay, which is only supposed to grow 12%. that's the slowest eps growth rate that the company will have on 5%. when you do that on a pe to growth, that's actually a fat spread for the stock that hasn't been there in a long time.
i want to look at january expiration. this is going to be prior to their fiscal q1 report on january 26. i want to keep it really simple. implied volatility, the price of options, relatively cheap and very much near the 52-week lows. i want to buy january expiration and buy the 5550 put sped buying for 1.35 selling for 35 cents, a risk of $1 and can make up to 4 between 54 and 50. i like the risk reward of this thing. >> actually i'm surprised that you can get a 4-1 payoff on a spread that goes out over 60 days and basically it's something that's at the money. that actually is a very favorable relationship when you take a look at risk reward for put spread. usually we're 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 to miss that very favorable
scenario? >> earnings, the fiscal year ending quarterly results came out and the next one isn't until after the expiration. i think that's basically what you're getting to take advantage of. options are cheap in between the two earnings results, but a lot could happen. >> i mean, i think probably not knowing you could have picked a lot of stocks. it's a dollar issue. i bet 75% you saw countertrend rallies with a declining trent line. >> yeah. >> there you go. can i make one other point. >> listen, i think this market, especially equities has been very complacent for a long time. we've about trading in a range, still in the range. i think when we get into january, i think you may see high valuation names continue to sell off, a name like this, f.a.n.g. stocks. >> what could happen after the christmas season basically is you could see an uptick in implied volume tilts which means this spread will decay less quickly than you think. >> agreed. you made a good point, carter. watch coffee prices, man. that's been a hot trade. at some put the input costs pay 6 bucks for a small or tall. got a question.
send us a tweet, and for everything "options action" check out our website. "options action".cnbc.com and meantime, here's what's up next. >> there's no place like home. >> you've 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? >> geek. >> jerk. >> idiot. >> moron! >> whoa, whoa, whoa. there's still time to get in, and the charts are pointing to one tech stock for 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. so we know how to cover almost almoanything.hing, even a rodent ride-along. [dad] alright, buddy, don't forget anything! [kid] i won't, dad... [captain rod] happy tuesday morning! captain rod here. it's pretty hairy out on the interstate.traffic is literally crawling, but there is some movement on the eastside overpass. getting word of another collision. [burke] it happened. december 14th, 2015. and we covered it. catchup trade. because we've seen a thing or two. ♪ we are farmers. bum-pa-dum, bum-bum-bum-bum ♪
the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade well, tech stocks finally joining the rally this week. dominic chu joining you go from the cnbc newsroom with more. >> it looks like buyers managed to make headway when it comes to all of the technology stocks. if you take a look at the overall picture, the most important tech stocks out there are the ones we're talking b.viewers and listeners know how much we've spoken about the mega cap ones, the ones lagging the market. the sector has wiped out all the post-election losses and now down just very, very fractionally in that span. so far this week a number of notable mega caps have pulled decent market weights helping the nasdaq hit the fresh all-time high. chip-maker intel managed to mitigate some of its losses and up by nearly a percent so far this week and google parent company alphabet has seen its shares go up by a cent as well.
apple up 1.5% and microsoft up 2.5% and amazon by 3% just this week alone and one of the big exchange-traded funds, the spidr, the s&p tech fund and slk has seen a surge in trading volume. over the last step days, the average trading volume 16.7 million shares. over the last 30 days only 10.4, so, brian, whether the dip buyers have dry powder to use will be the key thing to watch in the holiday shortened trade and of course into the year end. back to you. >> thanks, dom. charter carter, you say the charts are pointing to a gain for a little stock named apple. >> still the king, of course, here in terms of size and let's just even suspend this for fun and pretend it wasn't that. let's look at price action. a downtrend in the break above the downtrend, follow the arrow. and you get an uptrend and a breakdown below and follow the arrow. you get a new, follow the arrow. let's just put it all together.
i mean, you know, if you want to be a chair monkey. it breaks above the line and you get long. it breaks below the line, get short. take your brain out and just follow the price action. to me this looks like you're going to move higher. here's something else that's pretty 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's a $29 move. do you know where it's stopped to the penny? exactly 14.50. 14.50 is half of 29 so that's a 50% retracement. those who get into retracement levels or fibonacci not random that it started there or thereabouts. i'll make the bet that the bounce 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's that exciting for apple other than the fact that the galaxy note 7 basically provided them with an opportunity they otherwise would not have had. the response basically to the number mack book, you know, most of the people i know, it's a more expensive as dan was putting out. the watch, not a huge success. >> those are almost irrelevant to the numbers. >> the iphone is the only thing that matters and maybe it's a big one this christmas but to me i'm really thinking that apple's period of growth is essentially over. so the reason that you're willing to get throng is that the stock is cheap and it's going to get cheaper. this him next year it will be trading five times ebitda and 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, sell the january
110 puts. collect 3.5 dollars for those. downside you'll get long the stock at $3.50 below the strike and then look to sell some calls and i'm basically looking for it to go sideways. >> here's what i know you'll say. it's obvious. let's have fun. s&p are this stock next six months. >> i think the s&p. >> like taking the need in golf, tiger woods against the field. going s&p against apple. >> if equities are vulnerable also, this go down more than equities in. >> let's do this. i know what you're getting at. let's talk about the trade, selling an at the money put at january expiration. a holiday woke, probably go sideways, christmas and new years, probably a lot of sideways action, to play a move like this if you're not massively convicted you want to sell premium especially over the period of time mike is talking about. i don't like selling the at the money put. this stock bottomed out a couple days ago at 103. i suspect the company was in there buying stock and what some
of the options activity earlier in the week, right at support at the 200-day moving average and i don't like the story. a story out of nikkei in japan overnight that 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. they need to fund the buyback, the dividend, the r & d which has been stepped up and need flexibility in m & a. >> they have been repatriated by taking on debt, that's what they are doing and deduct interest on the debt payments. >> but to your point, that's the way to return the cash to share holders. >> this stock may be in a position next year they need to make a large transformative acquisition. a lot better to have this cash over here. >> i know it's "options action" so it's a little more macro, microsoft in a way used to be apple, 10, 12 years ago. shocked everybody. one morning they said, hey, which the barracks special one-time dividend, $4 a share i think it was, $50 billion in
cash on the stock >> you know what the stock did after that, brian? >> went sideways for five years. it's not too different than that facebook news tonight. there's something more that you have to read into about the sentiment when it comes -- >> tech names, qqq versus this or this versus s&p, meaning if you were in the uncomfortable position of, a long only manager and count on hold cash and you have to make decisions, do i want to chase banks or chase industrials or fade the reits, would apple be equal weight, underweight or overweight? >> i think it's equal weight, think of the balance and dividend yield. this is the first year in 15 years that they actually had sales and eps decline and they declined 8% and 10%. >> i actually anticipate further declines and the street is anticipating further declines or it wouldn't be priced the way it is and it isn't that comparable to microsoft which owns an infrastructure. this is a hardware company and beyond it being a hardware company it's a one-trick hardware company on top of all of it. it's the iphone -- >> i would argue that people can
live without outlook and excel but not without their phones. >> i can't live without outlook and excel. >> you're the one. >> well -- >> up next, the one big box retailer that could be on its way to new highs. we'll give you 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. it's how adventure begins. credit card. and with the miles you can earn, it's always taking you closer to your next unforgettable experience.
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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. all right. puck bam. why don't we take a look at some of our open trade. now a few weeks ago dan thought retail stocks were about to fall. listen. >> i want to look out to january expiration when the stock was trading about 41-45 today, you could buy the january 41.50, 35 put spread paying $1.45 for that. >> all right. retail did take a hit today. some names abercrombie, gap got crushed more than 10% and overall up since that trade. dan, what do you do? >> a mixed bag, home depot good and lowe's bad, walmart bad and target good. so it's been a mixed bag. >> abercrombie down 14. >> obviously that was a bad entry there a couple weeks ago. a lot of bad entries in the market if you're trying to short anything. i just want to make the one
point. this is up of the sectors where people think that all of the stuff priced into the market that we may not see and may be good for the economy have shifted very quickly. so here's a situation where this spread is about one-third of what you would have paid down at 31.5. i think you take it off. 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, mike, carter in. >> they move with the election, right, but as you say, i mean, if they were vulnerable and they get reset higher. that doesn't necessarily remove the vulnerabilities. just makes it a better entry point. >> let's start with a different retailer and the big box that you know, giant orange sign, last week mike thought home depot would rally on earnings. >> the way i would play this, yewsing is called a call spread risk reversal in home depot. we'll look out to december, the 120, 130, 135 call spread risk reversal, sell them for 110 and buy the december 120 for 3 and
sell them against it for 115. net-net you'll spend 75 cents. >> the stock up slightly since reporting the numbers on tuesday. your take? >> it fell first, and that's basically been supported by the market, the reason the thing has been basically sideways. we lucked out because since we bought more options than we bought that decay worked for us. the 75-cent package can be sold for $1.to and the way stocks are performing, i'll defer to carter, take the money and run. >> i agree. it's sort of stuck and almost more thematic. we know that things like shaw performing poorly and whirlpool and mohawk and home builders themselves, look at the xxp have had a count trend rally in line with other consumer ends but it doesn't improve the situation. in a way it makes it more vulnerable. >> very broad dan school of thought which is super mac row. interest rates have spiked but up 60, 70, basis points. people will refi left. is it that simple? >> really could. we've seen rates so low for so
long. people haven't had to fight to do this and refi quickly and they may be thinking about saving some money now after like a last ditch refi and going out and spending it on an 80-inch flat screen. >> we did see some activity the last time we saw an increase in rates. people try to race in and do that last minute thing. after that i expect a slowdown. >> 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 so we know how to cover almost alanything.ything, even mer-mutts.
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. he's asking if there's a trade on citi group? >> i would look out to january. buy a put sfroed fade the rally. >> okay. time now for our final call of the day fingwith you, carter. >> want to bet apple long side dollar on the short side. >> okay. mike? >> selling the jan 110 puts in apple. >> can? >> the starbucks and count trend, you made it it and look
at january put spreads. >> all right. guys. do appreciate that. thanks for taking it easy on me. my final call is don't talk politics with family members over the weekend and maybe stay off social media. go for a nice long walk. everybody calm down. have a great weekend. we're going to see you monday. i'll see you monday at 1:00 eastern time on "power lunch." take care, everybody. >> announcer: the following is a paid advertisement for the shark rotator powered lift-away from sharkninja. in 2014, shark reinvented the vacuum and redefined the very idea of what an upright could be. shark proved a full-size upright vacuum could have incredible maneuverability... >> the maneuverability with the rotator is amazing. >> i didn't even know that a vacuum could handle like this. >> this thing is amazing. >> announcer: ...unparalleled versatility... >> they've given me every tool i need in one product to clean my entire house. >> announcer: ...and true no-loss-of-suction. >> the powered lift-away has incredible suction power. >> the most powerful vacuum i've