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tv   Options Action  CNBC  January 15, 2017 6:00am-6:31am EST

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hey there, live at the nasdaq market friday afternoon. the guys are getting ready behind me. while they are doing that, here is what's coming up on the show. >> the money is coming your way, you don't ask any questions. >> the money is definitely coming into netflix. but if you missed the move, we'll tell you how you with profit next week. plus -- >> we're out of gas. >> that's what traders are saying on the run on the banks. there's one name in particular that could come into the cross-hairs next week. we'll explain. and the one dow stock some traders say is poised for a bad fall. here is a hint --
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the action begins right now. ♪ >> let's get right to it. with the markets record highs, the inauguration a week away, could it be time to fade the trump trade. let's get in the money now. dan. >> could be right. the last 60 days we've had this really parabolic move in a lot of sectors thought to be beneficiaries of a more pro growth environment, higher in the u.s., reflation trade globally. the last month or so, last 30 days, we've seen a bit of a stall out. the focus after the inauguration, what does the first 100 days of the administration look like. are they going to lay out policies moved on, investors expecting this sort of thing. as wets into spring and doesn't go as smoothly, you're going to see specifically the transports, this was a sector and i know carter wants to talk about it,
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topped out in 2014. it finally made a new all-time high and never kept pace with the broad market. i think some of the components within the transports could be vulnerable. >> for a couple of years we've had ceos of industrial companies saying we have an industrial recession going on in this country. obviously as the oil patch slowed down, hurt the rails, serviced them significantly. this is a situation where we've seen declining revenues in a lot of these companies. we've spoken about caterpillar, but there's tons of them. obviously come back to live in enormous ways, priced in all kinds of good news. i don't know if they are going to roll over necessarily. but eastbound if everything goes according to plan, they basically priced that in already. >> two things. general subject of industrials, which haven't outperformed since trump. if you look at the performance of s&p 500 industrial sector from november 14th, the first monday after the election week to now, they have performed the
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market. specifically transports have been quite burdened if you look at where they have come from in the last two weeks. i think we have a chart here. that's a two-pablo chart shows transports back to an all-time high and yet they have consistently still not made a relative high to the s&p. it's a price index with a few big names, fedex, ups carrying the weight. dow theory says you have to confirm the highs in the industrials. two years and two months later we're still below where we are in november of 2014. >> so trouble for the transports and therefore, dan -- >> i want to look at a rail, csx, tuesday after the clothes implying move, it's up 8% from 52 week lows last february, 70% the year, 20% since the election, double the performance of the iyt, dow jones transport index. that's the five-year chart stalled back at the chart from
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'14, '15. this is a spot to look out 100 days, reprays the risen reward at those levels. to me ncsx not a trade for earnings although that implied move is hefty may exploration 3850 today, may 3833 put spread paying $1.50 for that. that's your max risk. you're selling one of the may 33 puts at 80. that's your 150. make up to 350 below 36 1/2 down to 3. risk one, make up to three. i chose 33 strike on the downside. if we have a one-year chart real quickly here, that was the level it broke out from from november 8th. here is a scenario giving yourself room from the downside. not a target but retracement if things not to go as planned. >> this is an interesting situation. there is a little bit of debt on this balance sheet. that's one of the reasons you don't want to be short, options outright. however, there has been an ewe
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particular in the cost of options, which is why using a spread like this makes a lot of sense. we are trading at peak valuation despite 10% decline in revenue from their peak within the last five years. this thing is basically trading on all kinds of good news. even if they get back, hard to see how they go higher. i think it makes sense. >> pointing to a prior peak. prior peaks are inherently dichl that's the point of this. also, while transports have pulled back over last two, three, four weeks, this has not. that makes it more vulnerable to a presumptive pullback in life with others. >> is it possible things have gotten better for csx on fundamental basis, oil and gas not factoring in -- >> okay, fine. >> can i tell you something. this is really -- that's a great point. this morning credit suisse eblgt research had a report out on the rails. they basically said for the first tomb in seven quarters north american rail volume actually increased up 2.2% year over year.
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here is the thing they raised numbers for 2017 and 2018, here is a stock trading 21 times trailing, 19 times forward well above market multiple. it's a rich stock. to me i just think we have to's a trend confirmed. i want to see this data three months from now and say, okay, pay 20 times for csx because we are on a rail reflation train in north america. i don't buy it. >> shares presumptively ahead. that's the whole point. price moves before. the very thing you cited, good news recently, 22 to 38. that's the whole point. now probably you fade in response. not buy more. >> very least valuation baking in, all kinds of good things happening here including what's going on in oil patch. >> now to another group of trump stocks, banks. big earnings from jpmorgan, wells fargo too much. didn't move too much. with morgan stanley and wells fargo reporting next week is it safe to say gains are priced in.
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chart master? >> exact same thing as transports. you get a big move in anticipation, anticipating further rate hikes, good results. here come good results today and no movement in price. price discounting things coming out like earnings today. i want to look at the circumstance of back and forth, nasdaq, 300 stocks. bkx index, big stocks. jpmorgan, citi, wells. what's the difference? new all-time highs. see, so much more to go. that's because they all diluted their shares. if you were to plot not the collective share price of the banks but market cap, bkx is already here. it's already exactly in line with small cap that didn't dilute because they didn't have wall street crisis on their balance sheets. so first and foremost, this is not a relative -- you don't talk
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about catching up new highs we're at new highs as a reference point. let's talk about the here and now. here is last three, four years, draw lines any way you want. i think you draw them this way. take it away, put it back. tension. then huge breakout. rate resumption, election. this is a 60% move. now whey want to focus on is this. this tight, tight action. all right. so i'm going to draw the lines. now, let's really zero in on that. there it is. we now have a 25 session range of 4 1/2%. going back to recession of bkx index that's only happened 19 times in 20 plus years. how does it typically get resolved? if the preceding period was very strong, and then you have a stall like that or consolidation the bull would argue it's about to do this, but the facts are
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otherwise. if the preceding move is big, usually this is met with that and you come back towards the trend line. so i'm going to make that bet that banks and today's action is telling, could move higher with good news. we're going to make the bet that is exactly what happens. here are the stats that speak to that, the probability of this happening. range very low. we're going to, again, make the bet that banks have priced in everything possibly they are going to get. >> mike, how are you trading the banks here. >> i still think on evaluation basis it might be one of the more attractive sectors but definitely feels like it's running out of gas. i was taking a look at citibank. citibank is an interesting case. they get much more revenues f m from -- wells fargo has plenty of problems all its own. the other thing i was noticing. they are going to be reporting -- this is a situation
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where they are implying a larger move than they normally v they barely move at all on earnings, 2.4 on average. you want to be short some premium, you don't want to be naked short. i was looking to march. can you sell 60, 62.5 call spread for $1. 235 for 60s, this is a situation you're going to get paid even if it drifts higher the most risk is $1.50. the way to take advantage of higher options premium and basically bet it stalls here or goes a little bit lower. >> yeah. i think there's a good chance the banks do stall here. same conversation we had about transports in a lot of ways. they are discounting a lot of good news in the next 100 days. we're going to see what it looks like for banking deregulation. does it mean higher leverage ratios, lower return on capital, worse profitability. maybe some of these money centers trading book again, maybe they got to where they should be and that's it. we really have to see what happens over the balance of the
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year. to me the fact the baex could take a pause makes a lot of sense. >> or continue the pause they are taking or give back. there's two ways you work off, you either work it off by time or by price, give back. transports have done it by price. if anythings doing it by time. either way it's not enough time or not enough price for transport. presumption sideways or down. >> by selling call spreads as far as time goes we're letting time work for us, collecting options premium each day. >> i do like the trade because i like his technical levels, trade strategy. risk reward selling that $2.50 call spread and taking that sort of premium it's pretty fair especially if you agree with his technical setup. >> got a question, tweet "options action" for everything "options action" check out our website. while there check out super cool newsletter, a mix between "catcher in the rye" and a beautiful mind. i don't know what you're waiting
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for. in the meantime, here is what's coming up next. >> just keep buying. >> that's what traders are saying about netflix shares. there's something in the charts that suggests more gains to come. plus here is what tech stocks have been doing. if you miss the moves, we've still got a way to profit and we'll show you how when "options action" returns. hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies. optionsy, option option ox o-opposition opposition option option action option "options action" "options action." so we know how to cover almost almoanything.hing, even a rodent ride-along. [dad] alright, buddy, don't forget anything!
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[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. talk to farmers. we know a thing or two because we've seen a thing or two. ♪ we are farmers. bum-pa-dum, bum-bum-bum-bum ♪ anything with a screen is a tv. stream 130 live channels,
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plus 40,000 on demand tv shows and movies, all on the go. you can even download from your x1 dvr and watch it offline. only xfinity gives you more to stream to any screen. download the xfinity tv app today. what?pony neighing] 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.
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action." i'm julia boorstin in los angeles. all eyes on netflix shares after the company's report wednesday afternoon the the streaming video giant adding another 3 1/2% on another analyst upgrade. deutsche banks you raising to $110. in part on confidence results exceed management guide absence on subscriber growth. netflix projecting 5.2 total streaming subscribers. 3.75 million of those from overseas. analysts projecting the company will report $2.5 billion in revenue and $0.13 in earnings per share. netflix on the rise a total of 8% so far this year after netflix won two golden globes sunday night for its new series the crown. jpmorgan added to u.s. one, liberty media's john maloney praised haitianings for breaking the mold.
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in addition to the all important subscriber number, investors are watching for insight into potential impact of the trump administration on regulatory issues and whether netflix will integrate into more cable boxes as it has with comcast and how that will boost its bottom line. of course we can expect haitianings to field some questions about competition especially now that apple is expected to jump into the original content game. melissa, back over to you. >> thank you very much, julia boorstin. chart master, do you think netflix can hit a new high on earnings? >> that's the bet we're going to make. we'll figure it out. before and after. here is before. here is after. a well-defined series of lower highs, higher lows and massive breakout. here us your setup. under the circumstances into this apex and bang. now, here is the next reference point, the prior high. do you break out? don't you break out? make your bets. let's zero in on it. here is the chart. these are very well defined
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these tops, as you can see. the presumption is, you see that gap there? that was a quarterly bead. here we are coming up to our next quarterly result. we're thinking you're going to gap out of this. here is the setup. here is your gap. nice. we gap again. we're going to bet long. we like netflix here for a new all-time high. >> mike, what do you think? >> deutsche bank upped their price target $133, a hold with price target $20 below where the stock is trading. part valuation basis look at what they are trading times sales, which is six times sales. but they are growing the top line at 25 to 30% and much like we had with amazon for the longest time, people aren't looking at, you know, the bottom line here, folks. what they are looking at is top line growth. frankly most people tuned into their screens at night, this is very likely the screen they are tuned into. someone is going to want to have
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that. what's also interesting, going into earnings. this is a stock that moves very sharply on earnings, more than 13% on average. yet this time, strangely, only about 8.5%. so this definitely one of those situations where it could be expensive normally to buy options but less expensive this time making bullish bet best way to play it, 135, 155 calls. that's a $20 call spread. that will cost you $5.75. so you're spending about 5% of the stock price from here to march to make a bullish bet on a stock that normally moves more than 13%, you can risk 5 to make bullish bet, capture up to $20 on that spread. i think that's the way to play it. options are setting up nicely going into this catalyst for you to make a bet this way. >> if you're feeling brave that is the way to do it with defined risk especially given the facts options aren't the movement over the lifetime. that's moved -- since it's gone public 10 years or so, 10%.
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that's astounding for a company this size. let me say this. i could have changed my tune last summer when stranger things dropped and became a phenomenon. you think about doing this again and again. golden globes, hbo getting blanked. who cares apple coming in, these guys have delivery mechanism. take it a step further, telephone, time-warner. $85 billion to vertically integrate. i said before this whole cycle is said and done these guys -- >> own content, buying it from everybody else, big issue was content cost was going to compress their margins. now that they are doing it, it's compressing their margins and nobody cares. that's the thing. we've learned our lesson here. parental that's not what investors are looking for. >> not for feint of heart. binary earns, as documented is very low on wall street. either it's going to break out or it's going to do exactly the opposite, back away from
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breakout. >> 100 shares $13,300. this call spread cost you $575 but could be worth as much as $2,000. >> this is an options show but that call spread has a much lower probability of success. you're risking less. here is the thing. if you bought the stock here and it goes down $7 versus your call spread you lose two more. the chance is, much higher chance on march expiration back in the money. the main point is, it is a binary bet. you're willing to lose. >> hotte estest trade of last y about to cool off. what has them so nervous when "options action" returns. 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?
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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 c'mohappy birthday! i survived a heart attack. i'm doing all i can to keep from having another one. and i'm taking brilinta. for people who've been hospitalized for a heart attack. i take brilinta with a baby aspirin. no more than one hundred milligrams as it affects how well it works. brilinta helps keep my platelets from sticking together and forming a clot. brilinta reduced the chance of another heart attack. or dying from one. it worked better than plavix. don't stop taking brilinta without talking to your doctor since stopping it too soon increases your risk of clots in your stent, heart attack, stroke, and even death. brilinta may cause bruising or bleeding more easily, or serious, sometimes fatal bleeding. n't take brilinta if u have bleeding, like stomach ulcers,
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hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. 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 to options. time to look back at open trades. last week dan bet that tech would drive nasdaq to new highs. take a listen. >> if you want to make a bet that the nasdaq is going to continue to breakout, just buy a call, at the money call fed 122 call when etf trading 122, offered 220, less than 2% of the
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underlying stock price brakes even 124.20. >> nasdaq closed at a record today. so what's next, dan? >> this goes back to other other conversation betting on earnings without making the bet apple, amazon, facebook, microsoft, google, you know the drill here, are going to do something extraordinary. the qqq they make about 40%. this is a cheap way, the way options prices were underlying stock price i think you stick with it. >> stick wit. now to one of the hottest trades of last year. caterpillar, a few weeks ago thought the rally was about to fade. >> specifically the one that i was looking at here is in caterpillar. i'm looking at january 89, '85, put christmas tree. buy 93 strike puts and sell one of the 89s and one of the 85s against it. that entire package is going to have a net debit of about $0.90. >> the stock is pretty much flat sin then. so carter what do you see in the charts? >> it is sort of flat,
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interestingly worse on the market. we haven't been paid. i think you stay here, the presumption that cat has gone too far off its january low. >> the spread we have on it is going to expire in a week. we can roll it out for what it's worth now, down $0.40, $0.50 where it's trading today roll it out to march similar structure, 92 pounlt 5, put trade, keep celebrating christmas here, folks. basically same downside break even. this is actually one of those trades where the decay of those two puts allowed us to keep this bearish bet and will allow us to do it another two months. >> up next, made a big deal of fast money 10th anniversary, "options action" celebrating one of its own. more on that after the break. [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.
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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. still trying to find how ara good site.going? they all...want...to... charge me. have you tried credit karma? credit karma doesn't do taxes. does credit karma do taxes? yeah, and they're totally free, so they'll never take any of your refund. oooh, credit karma...huh? we... probably still want those. yeah, good call. file your taxes for free with credit karma tax.
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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
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welcome to the premier of "options action," your front row seat to the smart money. i'm melissa lee, here's where the action is tonight. >> yes. eight years ago and a lot more hair. "options action" made its television debut. night owls recall back then we aired at 11:30 p.m. on a much more modest set. we've got a much better timeslot, grander stage, heart of the show remains the same, risking less to make more. from all of us here want to thank you for eachnd every friday making the show the success it is. >> if options is about timing, think about '09, that's a good time to start something. that's the absolute low. >> we saw the absolute low a couple months after we got started. back in those days general electric owned the network. that's one in big trouble, the big financial thing, talking about whether they could
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rebound. obviously they have. so did options volume, materials on the web. great stuff. >> our time expired. i'm melissa lee. see you back next friday. don't go anywhere. "mad money" starts now. have a great weekend. the followg is a paid advertisement for time life. who are you? what are all these people doing in my living room? (laughter) (announcer) he was america's clown prince. i'll never drink any more. i'll never drink any less but i'll never drink any more. (laughter) (announcer) his heart was pure gold. if i knew you better, i'd just give you a real big kiss. -i'm george. -i'm alice. (laughter) (upbeat swinging music) ♪

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