tv Options Action CNBC January 28, 2017 6:00am-6:31am EST
. hi there live on the market site. a busy week for the markets. the guyless make sense of it all getting prpd here's what's coming up on the show. >> honestly we're outta gas. >> what the charts are saying about one hot sector. we'll tell what you it is and how you can cash in. plus -- >> $1 million isn't cool. >> buying facebook for just $3. we'll show you how to do it using options, and -- a soaring group of stocks could be in danger of stalling out and here's a hint. we'll tell you how to profit. the action begins right now.
let's get right to it, because the nasdaq closed at a record high and tech is one of the best performing sectors this year and it's bang stock, a standout, facebook, amazon, netflix, alphabet sitting near highs and facebook, could fang give you the most bahng for you buck? >> facebook, 15% garins in the last week will probably get in front of whatever good news they have. one view i have. i think you could put amazon in the same camp. back towards those prior all-time highs made right before they both reported back in q3. there's something important to go on. there was a bit of a rotation that happened. no doubt about it, in the last two months of the year. the fact that investors have come back to them means they're less enthusiastic about thing the they rotated into the end of the year. i'm not expecting, especially google's reaction to its results. not fantastic. the reaction wasn't as batds as expected.
i think a heck of a lot of mess next week. how's that? >> actually didn't respond that well to google's earnings last time, also quite good. on the other side a name like netflix, obviously stock performed very well. >> yeah $50 billion. just saying, $50 billion name versus behemoths approaching -- it's a different ball of wax. >> it's binary. a high, two things happen. fail or exceed. often it's a news event that causes it. it's what caused netflix to break out and what could cause a stock like facebook to break oubt or exactly what you're implying pt the energy is expended and you're back to that high. it is case by case. >> the other thing that's important. people are continuing to look for growth. if you're uneasy about what might, the next 12 months hold in terms of where to invest, top line growth is one thing everybody can bank on.
irrespective of valuation in many cases in the stocks. >> you think facebook could make a new high? >> it's a critical juncture. focus in the context of the general conversation. we know that some had a little trouble recently. that would be google on its news. others, netflix quite good. in a way it is binary. earnings often are. a chart of facebook the last five years. we can all agree basically up trend. to test that theory, exactly what it is. i didn't make the lines fit. they fit. you know? top of the channel, bottom. top of the channel, bottom of the channel. we're kind of at sort of the top third, and i'm thinking here that -- this channel, noth is it going to continue but back to or close to the high of the channel. all right. zero in on this moment right here. we're going to look at this part in detail. here we go. so -- what do we know? well, looks like a triple bottom
of sorts. so those are those lines. here's the prior high. exactly 13350. yesterday's close, 13314. at the high. closed a little below today. sort of make your bets. you're either going to earnings breakout. netflix, or earning disappoint and that. could you say it's 50/50? you could. bet up, bet that facebook is going to exceed the high on its news. >> all right. mike, what's your trade? >> yeah. i think this sets up very well for an options trade for two reasons. one, an identifiable catalyst and secondly, juncture carter identified. well over 7% going into earnings. options are inexpensive implying a move of 5.4%. you can spend $2.85. so just a small percentage of the current stock price, to buy the margin 135, 45 call spread, worth as much as $10.
maximum risk in the case, $2.85. spending premium into catalyst is something that often is kind of a fool's errand. this case, options prices are low and two reasons why the stock might break sharply one direction or the other sets it up very, very well. >> you like the trade? >> if you agree with the potential breakout. you do, the level you're targeting 135. paying a few bucks in premium to do that. have a couple months. that makes a lot of sense. i'm going back to the technicals where, listen, take his word for it over mine. i see double tops in amazon and facebook, if they do what they both did in october. they talk about higher expenses in 2017. >> back away from that. >> that's kind of my view. facebook in particular. a fake news problem. 1.8 billion users that i don't think are going to, they're going to see reacceleration in growth. had measurement problems about key things. how they sold ads last year. >> in support of what -- facebook has beaten the last
eight quarters in a row, up the last seven. most reercht, it didn't go up. went down. if there's -- if you believe it backs away here, that's the other side of the bet. >> of course, that last one also is reflects the fact people understand some of these problems. still talking about 50% top line growth, which is hard to fine anywhere. certainly in a company this size, that also happens to be diversifying their revenue stream. previously, a couple years ago, are they going to make mobile work? have they ever made mobile work? and now looking at other things. investments, people might take an amazon approach. >> i freed to say something. >> pay off -- >> growth, 16. supposed to decelerate massively in 2017 to 34%. a really important point. a little opttive facts there, main man. >> no, no. discounts amazon and -- look at the forward numbers. it's reflecting that to some extent. lowest multiple it's been in in a long time. >> move on to another group of
hot stocks. transports, a new high, up more 23457b 4% on yeert breaking down the move is man who's always on a high. cnbc's dom choo. >> i appreciate that. first of all, thank you. i always move and always going here. i look at the char for the dow transportation index, i think about inner chris berman, motoring, what's your price? never mind. index lower today bhut hit a record high yesterday and today's down day was only the second one in the last eight. yeah, a lot the of strong near term momentum. a biggest drag airline stocks, and ar american airlines reporting earnings in-line with expectations concerns about labor costs and other things dragging lower and the entire industry as well. ishares, iyt particularly, tracks dow transports index. shares the last few days traded more actively than average. like other parts of the market, the index is now trading at at
level well above its 200 day price. average long-term average you see there. the bears may look for a pause or some pullback here. bulls take comfort both the dow industrials and the transportation stocks are making kithd of simultaneous record highs in concert with each other. melissa, transports continue to be a focus for traders battling around record high levels. back to you. >> dom, have a great weekend. >> you, too. >> dan you think transports may be a little choppy here. >> i do. iyt dom's referencing, untradeable vehicle as far as options especially. look at a big component. u.p.s. data points. back in december fedex reported before we had a whole heck of news about the holiday selling season but investors got rattled there about the costs they were going to entail in 2017. for logistics and that sort of stuff. that's the chart of u.p.s. right there. you see that they've topped out and fedex back in mid-december
before fedex's disappointing results. going on here with u.p.s., combination evaluation, too. this stock trades 20 timing expected 2017 earnings, supposed to grow 6%. fedex, flip side, traded 16 times and got 11% expected growth this year. you do the comparative valuation here. doesn't make a lot of sense. considering they're likely to face a lot of the same problems. then think about the rhetoric about trade wars that's heating up. i don't think that's dialed back a lot soon. that says to me they're ability to guide, visibility they have for this year is probably going to be less than some sectors. they obviously rely on international trade. to me u.p.s. sets up as a really good short into earnings next week. imprived move, 2%. doesn't move a lot. last four quarters only moved 1%. to me options prices are relatively cheap. give italities time. right into the trade on a roll here. >> do it. >> i would look at february expiration, stock trading
117.75, buy the 118, 110 put spread in february for $2 paying $2.25 for fed 118 puts selling one at quarter. $2 max risk. break even at 116. trading there yesterday mork and a max gain up to $6 between 116 and 110. the deal, not expecting the stock to go to 110 in the next three weeks but that chart we had up before, the breakout levels is about 112 from november. i think that would be a reasonable pullback level here. this put spread gives me good risk reward and also room to the down side. >> yeah, and this sets up nicely i think for the same reasons facebook did. options here are cheaper than the stock historically has done. debit final catalyst risking small amount of the current stock price. sits here, decent chance you won't lose all your premium anyway, the chances the stock can move 2% over the week or soar following are quite good. this trade i think makes a lot of sense here.
>> also the market on steroids. we know transports endured a bear market down 33% at their lows and had an incredible recovery. the nature of boom/bust cyclicals of the market. airlines great, truckers came out well. look at csx, driving with its news. transports itself back to inherently different level and u.p.s. as well. i think you've got this right. depress it and be aggressive. >> debt to right. >> just to be clear about csx, before that news, stock traded 3% on -- what i'm expecting here. a question? send a tweet to options action. check out our website, optionsaction.c nbc and check out our super coal newsletter. a winning powerball numbers -- or something like that. what are you waiting for? meantime, here's what's coming up next. ♪ fire -in-l >> announcer: oil was on fire last year. something is in the charts that
suggests s the run might be don. plus -- ♪ magic >> announcer: apple shares doing something ahead of earnings. we'll tell what you that is when fkz "options action" returns. "options action" sponsored by -- eam 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. i mess around in the garage. i want to pay more to file my taxes. i want my tax software to charge me at the last second. paying $60 to file my taxes was the highlight of my day.
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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. welcome back to pkz. energy stocks sinking on news of
disappointing earnings. jackie has more. >> good morning. energy stocks and earnings in full swing here. heard from schlumberger, hess, hall la burt rch and today a big miss from chevron. we're hearing part of the narrative we already know. lower oil prices last year continued to be a challenge in the fourth quarter, but still companies seem to be slowly increasing cap ex budgets as prices have risen and stayed over $50 a barrel showing optimism for the future. now, the equity market reaction, a little cautious here. chevron's miss today doing damp to the group. s&p 500, energy sector profits now on track to sink 20% from year ago levels. as are the 1st of the year, only 5% decline according to thomson reuters. meantime, more big names on deck next week. exxon mobile, valero tuesday morning and conoco on thursday. options market is implying a 2% move in either direction for each of those stocks. now, crude oil prices logging
roughly 1% decline today. flat for the week. we seem to be stuck in a range now. frustrating for some. the market is split on which way we go from here. >> thank you, jackie. energy one of the top performers last year but lagged in 2017. the chart master says more pain could be ahead. carter what do you see? >> jackie said, stuck in a range. in fact, future predictions stuck in a range. we do know energy is a sector has the distinction of claiming best performing sector on the year. yet all results in the first quarter. look at crude first. first, just, i have a little tom sawyer going on. sent in the wrong stat. current crude, front contract, 5317. where we are now. what's important. look what the nymex futures contract christmas crude is, 55. and christmas 18 -- is 55. meaning, the market itself has expectations for no progress looking out quite some time. it's a great standoff.
i don't think energy stocks are going anywhere. energy stocks, s&p 500, sector energy. exxon, chevron, schlumberger, whole thing. which, of course, it is a part. we know the energy stocks continued higher. almost for the past 12 months. and even as they're making new highs here at the end of last year their relative performance peaked in april. so that despite the best sector on the year all those results generated in january, february, march and april. if you weren't in early you actually didn't outperform the market having picked energy as a bet. okay. etf, xle, draw it any way you want. some say a head and shoulders bottom. surely is. something on the shoulder here. call that a neckline, but we know this -- very presis linecise lines.
at a minimum, check back to the apex, and/or continue to do this. no great life. we're going to bet this is going nowhere. right paul, do something? but if you're long, don't expect much. >> mike's got something to do. a trade? >> yeah. one of the things you want to do when faced way stock not moving anywhere, you want to sell premium. could sell puts or calls or sell both. when you sell both that's calm add strangle. what we look at here on xle. 70, 78, collecting 55 cents for those and also selling the march 78 calls collecting 30 cents for those. net 85 cents. annualize those returns works out to an extra 8.5% per year. this is due to go x dividend in march. maybe one of the reasons you own xle. don't want to sell it. relying on dividend income. collect additional premium doing
this. point, rally through the upper strike you'll have your stock called away from you. of course, rallies through that put strike, you could be forced to buy more of it. those are two risks you face, but if you really believe that it's going to remain range bound or one of the stocks is a component of this index look at strategies like this to enhance your yield. >> do you like the structure? >> i do. mike and i talked before the show. we wanted to talk about xle, talk about energy hole liistica. not a great strategy. options prices are so low. to look at one of the underlyings, option prices moved up a little because there is idiosyncratic risk, earnings, paid to sell a call at say against the stock that you own and maybe enhance the yield. we know exxon is a 3.5% dividend yield. sell one month out, 3% out of the money, take in half percent. annual lies, get 6%. >> 50% of the index made up of five, six stocks. and already reported.
chevron, also schlumberger the results. whether a big surprise out of one of the other constituents seems unlikely. quick point. true, options are low. a reason. this is not moving. volatility of this, xle now, low as its been in two years. the reason why people aren't really putting much of a bid to the options. still ahead, netflix shares up more than 7% since reporting earnings last week, but that came as no surprise to our chart master who predicted the move to new highs. how did he know? he will explain and tell us where it's going next. "options action" returns. >> nobody knows. >> you knew. >> announcer: "options action" is sponsored by -- trading des 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!
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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. action." time for "total recall." looking back on open trades. a few weeks ago dan off already trade on apple. take a listen. >> i think you want to replace stock. walk in january 3rd here have 10% gain on the year. have 30% gains from earlier in the year if you're long stock and worried about their guidance i think the guidance will be poor, then you may want to replace stock with a call. look at the february expiration. >> i don't know if you caught that, dan was wearing one of those air --
>> what? i can't hear you. what? >> something stuck in my ear. >> anyway, the company reports tuesday. >> yeah. >> what do you do? >> $4 move implied in either direction. the theme of the show here. doesn't sheep that aggressive one way or another. the company reported back in late october, disappointed on guidance. stock sold off a little bit. obviously it's rallied a lot. a big gap to be filled back to that prior high from 2015. if they say anything decent the going right back up there. i still like the idea of having to find risk. >> solid chart. right? and better than what a large -- not $4. seems like a big move. either way. >> netflix, cohen carter thought the stock would soar to new highs. >> here's the setup. here's your gap. nice -- i think we gap again. going to bet long. we like netflix here for a new all-time high. >> i think the best way to play it, look at the march 135, 1s 55
call, $20 wide call spread cost you $5.75 right here. >> they were right. carter what do you see in the charts and does the chart have similarities now to a facebook? >> right. i think it might have said the same thing before. binary. gambling in front of earnings. could have gone in the other direction. luck, insight, got it right. stick with it. stock particularly robust and not extended. >> nice thing about options stick with a bullish thesis and take some of the money off the table. roll the 135s or 140s in which case playing with house money or roll to the 145 calls, which case you've taken your money out, subprofits and still have potential up side. the way to play from here. up next, your tweets and the final call from the options desk. [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.
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
let's take a tweet from cam, who asks, how are you playing gold in this market? looks like it wants to go to 1300? carter? >> i like gold. gold has, the best thing could you have done last year if investing in s&p 500 industry groups. gold's given back a lot. presumption is gold's going to get back on the horse. >> mike? >> yeah. we have a trade on in gold, using gld, options premiums low. something like call spreads sets up well to make bullish bets. >> gold's not your kind of -- >> no. massive down trend. you'll retest the lows from early december. >> all right. >> what make as market. >> cam has a diversity of opinion. time for "the final call." carter? >> facebook long into earnings. >> options cleep in facebook, buy call spreads. >> ethan? >> facebook. nuance, calls against it if you own it. outside of that implied move. >> got to be big. >> there you go. looks like our time expired. i'm melissa lee. thanks for watching "options
action." check out be website and our daily section. see you back here 5:30 eastern time. don't go anywhere. jim cramer "fast money" starts right now. >> announcer: the following program is a paid advertisement for the nuwave brio digital air fryer brought to you by nuwave, the makers of the nuwave oven pro and the nuwave precision induction cooktop. we all love fried food -- french fries, wings, onion rings, fried chicken -- but who wants to deal with the mess and added calories? deep-fried food has been linked to high cholesterol, heartburn, acid reflux, kidney problems, and even cancer and alzheimer's. now you can have all the fried food you love without the added fats and oil. introducing the revolutionary nuwave brio digital air fryer. the nuwave brio uses