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tv   Options Action  CNBC  May 20, 2017 6:00am-6:31am EDT

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the guys are getting ready behind me. while they're doing that, here's what's coming up on the show. yeah. that's what happened to retail stocks this week, but one of them might be flashing a buy sign. we'll explain. plus, miss the move in nvidia? relax. we have a way to get under the stock in ten months. we'll explain. and one dow stock has gone parabolic, but there's something in the stocks that suggests the run might be done, and here's a
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hint. the action begins right now. let's get right to it because retail is on pace for its worst month since january o last year. senging more than 4% since the start of may thanks in part to a deluge of disappointing earnings of names like macy's, dick's, and jcpenney. could these name, could names like these be bargain basement buys? let's get many the money right now, tan. >> i think they could. you just mentioned walmart. walmart's performance has doubled up. obviously pretty impressive relative to the srt. you mentioned tar get. that's the other one. ily are a couple of obvious seismic shifts going on. i think it's important to remember that last year in 2016 u.s. had $5.5 trillion in retail sales. when you think there's other
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things going on there too, amazon had probably less than $100 million in retail sale. there's lots of potential sales. obviously walmart is participating, target could be one of those names. hi think some of the other big box retailers, they're down an awful lot. they're down. i think there's probably some good fundamental ideas out there. >> the biggest distinction between the targets and the walmarts of the world versus some of the department stores you're talking about is whether you're talkinger staple purchases or discretion nair purposes. walmart and target are selling among other things, groceries and household cleans and things like that and you have a vegas different demographic. amazon is not going to be selling ought of the toilet paper and milk and things like that that these guys are all selling. nevertheless at some point in the future, you hope they're going to adapt their business as well. >> in terms of stepping back to sector overall.
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we know the consumer discretion has had a good year, up 99%. if you look at the equal weighted performance, it's up only 2.5%. i think that's the real story. while there might be little bounces along way and i know that might be what you're looking for, i don't think it changes the structure in what is the big problem and like will not to get better. target had, i guess, earnings a couple of days ago. it flared up. volume was $22 million. >> target is for fundamental reasons, i want the look at walmart back in late 2015. the company guided town for the full year. they talked about major investments hay were going to do. it was going to weigh on earnings per share. what they were going to do is, amazon, matching and they made a lot of acquisitions. so here's the point about target. this is why i won't want to
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focus on this right now. they guided on the full year. the quarter they just reported, there was a big beat on the eps front here. i think they're going to get active in acquisitions. i think we could be very near an inflection point at targeted trades at a big discount to walmart. that chart right there,ite goeset a lot of support. i think you want to position for a late rally. i want to use a call calendar to do this. in this instance, i want to look to buy the july -- this is when the stock was trading 56 today. you could buy the july 56, october -- excuse me july 60, october 60 call calendar, paying $1 you're selling one of the july 60-call sets. within one of the october calls for 1.55 that costs you a dollar. what you want to do is move toward that 60 strike.
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ielt is go doing to expire worthless which is out of the money for a dollar. that's s your max risk but you want to move it up toward the strike and catch a move back to fill in some of the gaps. >> target the gaps. >> you actually have a decent amount of run. that call may end up in the money, but the one that's long is going to be appreciated by at least as much, so you actually have a band that's probably as big as you think. it's not just that from the 55 up to the $60 strike. but between 55 and 65, between now and july expiration, it makes a lot of sense. the total premium is less than 2% of the stock price. plus if you have any later in the year, september typically, you own that. >> yep. >> you study price action and so of all things you describe were set on the calm they're going to spend, try to get online going and so forth and so on going. all this good stuff. >> yep. >> what did you think of the price on the day of all of that
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news, that flaring up. euphoria, and then within the session, by 2:00, 3:00, closing on the absolute low. 's not a good -- that's not good. >> no. i guess the important point is walmart made lower lows after they guided douchblt it really needed to cycle out of it. i think what's going to come around, it's gone away on retail that there's going to be some winners. if you think past some of the near term devastation, i can make a bet target is going -- >> a lot of retail stocks move on their earnings. >> are you saying that the chart looks tearn't f s terrible for ? >> where yo oar going to gap down and try to profit from that and spend less, but is this really a stock that's as we look out six to nine months is this going to be something that's up to the right? i just don't think so. >> but this trade also isn't the up up and to the right. this is not even a bet they're going to win. not even in the short term. it's bet they're going to
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survive. i think that's why the trade actually does make sense. >> to you -- >> can i have the last word? >> yeah. >> what we don't want to do is get people long out of the money and calls and puts and that stuff. this trade strategy helps you finance a long data call. you're thinking about some fundamental things. you're defining your risk. i like this trade strategy o do that. >> fast food. check out shares of when din's up 17%. shake shack up 15%. mcdonald's and yum! brand up. some have come too far, too fast. look at mcdonald's. big guy in the room. there are a lot of restaurants trading on the ross 8,000. what i want to look at is mcdonald's specifically. if you're long you take profit,
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if you're short selling you can make a buck. as always, comparative chart here. what i have in blue is mcdonald's and what i have in orange is the s&p. you know, your eyes are working. you can see there's a difference. at some point how much is too much. let's go to the next chart. now, e want to introduce all restaurants. and while some have been quite good, all restaurants if you look at things like chipotle and red garden, buffalo. restaurants are really quite poor compared to mcdonald's and compared to the market. so let's zero in on mcdonald's a little bit. this is going to be a little detailed. this is the same long-term chart. i'm going to move on from that. here we go. i'm going to draw some lines. the first thing i would say you can do is the following. 114 sessions down and exactly
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the same 115 sessions back up right to the prior high. that's symmetry. let's look at it another way. now i've drawn the lines. let's look at it again. now i've drawn those lines. so you have a symmetrical, 15% to 70% declean. right back to the high and then you get your breakout, right? you get a textbook breakout. there's something called a textbook move for a breakout. how can a breakout go. here's a head and shoulders bottom. how far something can go, you see the huge move here, that's where it broke out on its earnings. take a look at the next chart. so, again, we have 114 sessions down. remarkable symmetry. 115 back up. what you do is measure. these are measured in the 1930s, 40s. the width of the range is 130 to
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110. if you add 20 points to the high of 10, you get 150. it's almost met its price objective. i want to take profits in mcdonald's. >> mike, what's your trade? >> i am just looking out to july and i'm selling the 155 call spread. when i was looking aet this earlier today, you can sell the july calls for $2.25 buy against it for 75 cents, net credit to you for $1.45 we bought calls in the stock before. this is a company doing a lot of things right from an operative perspective. the operations are getting pretty heady, i think outside of the operational things hae a doing right. >> the trade strategy makes a lot of sense. i was a little skeptical at the time and it made sense for technical reasons, fundamental reasons. at this point, e like what you're doing with the call spread, selling it, because you're really defining your risk and i like the risk reward kind
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of potentially taking in 145. the risk reward is 1 to 2 or something. >> basically that's exactly right. you're looking to -- if you can, when you're selling call spreadsyou can get 30%, 40%, he's a pretty good risk/reward relationship. this is a trade that will make money if it just levels off here. i have to leeb it to the tech nickian whether that's going to happen to. me this looks like it's taking off to the moo. but apercentagely we have good reason to think may we've reached the apex. >> got a question out there, send us a tweet. for everything "options action," check out. rumor has it they may turn it into a movie next year. in the meantime, hear's what else is coming up on the show. >> here's what share of nvidia have been doing. if you missed the move, we'll tell you how you can buy it for still less than 10 bucks. plus calling all "options
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action" fans. reach into your pocket, not your phone, and tweet us yourance at "options action." if it's nice, we'llan answer itn air when "options action" returns. >> get retime trade updates. stay ahead of today's headlines. sign up now at cnbc.com/futuresn cnbc.com/futuresnow. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. see options data like never before. with thinkorswim only at td ameritrade.
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welcome back to "options action." there's one name in group that's been a real standout. breaking it town is a man who's always on fire, c n bcnbc's dom chu. >> i fool like the back burner these days. not like in nvidia stock which is one of the top ten s&p performing stocks this weeking a volatile one at that. we're talking 7% in terms of performance this week. 30% gains over the last period and 211% over the last 12 months and if that wasn't impressive enough, try this relative market comparison. so far to date, in nvidia has gained around $24 billion in value. that's like adding on a company the size of united continental
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airlines in less than five months and six record highs so far in 2017. yeah, last year's best performing stock still definitely about the bulls but are things due for a cooling off period. it's now 10% above the average of about $123 in change. 53% of analysts say buy. 34% say hold and 14% have a sell rating. melissa, either analysts revise their targets or we see downgrades based on valuations. who knows. back over to you guys. >> thank you, dom. have a good weekend. mike is over at the plaza with his call to action. take it awhat i, employee feawar cho. >> i don't know if you're very bullish or obviously bull. it's obviously hat quite a run. number two, if you want to
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commit less capital the trade. and finally and this is probably the most important, if you want to mitigate it. if we take a look over here at the chart it's been quite volatile and you can see here we had this sharp move up here. in fact, if you take a look, this drop that we just had this week, stock was more than $7 lower than it is right now, which is one of the reasons why i'm taking a look out to september and specifically i'm looking at the 140, 165 call spread. you could spend $7 for that. when i was looking aet this earlier for today. again, pointing out, $7, not at a lot when you consider how sharply the stock has been moving. 165 represents about 20% appreciation from where the stock is right now. so this is a way that you can get in, spend less, and also risk considerably less but still have participation to the upside if this move should consider. >> what do you think of this trade? >> i think that's the way to do it. you're not getting a whole heck of a lot. you're getting pate 8 and change. to me, you have to think about
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it this way. you could have said it at any point over the last year. this is a badly run stock, will's no doubt about it. this is important. at one point last year it was thought to be a takeout candidate. he's the same market cap as texas instruments and texas instruments is probably going to do $14 billion in sales and in nvidia is going to do about $8 billion for sales. i think it makes sense. >> not just in nvidia. with know that the semis as a group, one thing o keep in mind, the songs have not had any sort of intermediate giveback in about 11 months. if you look back, this is one of the longest stretches, 11 months, without a meaningful giveback of 6 to 7%. >> definitely if you're long on song, you might consider selling it. you obviously have some significant risks to downside. of course, in nvidia is a different story than texas
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instruments as well. now you've got data center business, auto business and there's a lot of other things. >> all right. still ahead, silver stafrmging a comeback this week and carter says there's something that suggests even more gains. he'll tell you what that is. plus, dig deep into your pockets. we're taking your phones. more on tweets. much more "options action" after this. [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.
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whoa,i just had to push one button to join. it's like i'm in the office with you, even though i'm here. it's almost like the virtual reality of business communications. no, it's reality. intuitive one touch video conferencing is a reality. and now it's included at no additional cost with vonage business. see why 3,000 companies a month are switching to vonage. business grade. people friendly. steve, other than making me move stuff, i'm here at the td ameritrade trader offices. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock
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expecting earnings. impressive... what's up, tim. see options data like never before. with thinkorswim only at td ameritrade. welcome back to "options action." a few weeks ago cho and carter thought it could be sold. >> we have this much more to go. we ooh going to get down into he here. i think this where i want to go. >> i'm looking out to august and buying the 15 1/2 to 17 call spread. you can spend 50 cents for that. >> the metal boyning about 1% today. so, mike, what do you do with this trade? >> i think you can roll the 15 1/2 calls up to 16, take at least half the capital you committed to the trade and still have upside up to that 17 strike that we sold. are you good there?
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>> yeah, i'm good there. this is early going. 1%. let's play for more. >> what does the dollar chart look like? >> well, this obviously -- look. the common -- commodities -- i would say hold aside silver. you have crude oil up and energy is up half of 1%. that's the biggest message at all. that's something in the crude. silver, we think higher. copper is rolling, zinc is rolling. >> last week dan thought snap could snap back after disappoint disappointed earnings. >> i think stock is going to pop, get back toward $24. that's the level it broke down from. i know there's not a whole heck of a lot of history to think, but i want to target a move back to the high 20s. so you would buy one of the august 24 calls for 0 clements and sell two of the august 27
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calls for 37 cents each. it would cost you 60 cents. >> snap has regained some loss. what's next? >> that was an overlay against the long stock position. if you were long 100 shares, you would sell two of the 27s. the most important thing is the 27. that's what you have to think about. that position could have been put on for even money. it's the same after a $2 move. this was a stock repair, lever oversight. >> you to these trades when the stock is down and volatility is down. implied volatility was up and remains high so the structure still remain as good one. >> yeah. what you started with last week. no pattern to interpret. >> all right. up next, we've got your tweets and the final call from the options pits. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge.
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that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.
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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.
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welcome back to "options action." time to take your tweet. the first tweet is from edwin who asks is buying vix calls a safe way to profit from washington turmoil? i don't know if vix and safe goes in the same sentence. >> i don't know if you would classify vix as safe. first of all you need to understand those are options on individuals' futures contracts. the first thing you need to do is familiarize yourself with futures trading and what a faw turs structure looks haic. >> what about all of those etf vix, dan? >> i would stay away interest those. one of the things that's interesting about vix options, they trade mid market. they're very, very liquid. one thing when people are bullish on vix or they think they're going to spike, they sell the in the money put. that u look to do it for even money. like mike said, it's cash settled. when you get the pop, you look to take the pop off quickly. >> he's what happens in the
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vicks. so when you monetize -- >> you obviously watch that fear index that hit an all-time high. what does that imply? because premiums are actually lower on the calls or is it -- >> so the fear -- i mean the spot vix is a function of two things, it's where the s&p is. when it drops, you're going to lower strike options. there's basically is it. >> the bottom line is no vickx e etfs. >> all right. tomb for the final call. last world from the options pits. carter worth. >> take profits from mcdonald's or sell khouw. >> sell picks. >> looking aet a few months, i
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like it. >> it looks lime time has expired. for more go to cnbc.com/optionsaction. "mad money" with jim cramer starts right now. >> announcer: the following program is a paid advertisement for the hd mirrorcam, brought to you by inventel products, llc. yep, they're out there, driving recklessly, causing accidents, and driving up your insurance rates! this is a show about car accidents... ...classic cars... ...and the hd mirrorcam, the personal security camera for your car. this is... "accidents caught on camera" with the hd mirrorcam. today, we're going to hear from people who have been in

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