tv Options Action CNBC May 21, 2017 6:00am-6:31am EDT
hi there. we're live on the nasdaq market. 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 just be flashing a buy sign. we'll explain. plus, miss the move at nvidia? relax. we have a way to get long on the stock for under $10. and one dow stock has gone para bollic. but something suggests the run
might be done. here's a hint. >> let's get right to it because retail is on pace for its worst month since january of last year. thanks in part to disappointing earnings from maysies, dig's and jcpenney. there were a few bright sports. walmart up 5%, target 3%. could names like these be bargain basement buys? let's get in the money right now. >> you just mentioned walmart. walmart doubled that of the s and p 500. it's really obviously impressive, especially relative to the xrt. you mentioned target, though. that's the other one. i think there are a couple size mick shifts going on in retail right now. last year u.s. at $5.5 billion in retail sales. when you think about amazon,
there is other things going on, t too. there is a lot of potential winners here. i think a lot of those other stocks, department stores are down an awful lot, pretty oversold. it is a tough trade. the s and p has support at 40. >> the biggest distinction between the targets and walmarts and world versus the department stores you're talking about, walmart and target are selling groceries, household cleaners and also you have a different demographic. both of those things suggest that amazon is not necessarily going to be selling the toilet paper and mink these guys are now selling. neverthele nevertheless, at some point in the future you hope they adapt their businesses at well.
>> we know the consumer section had quite a good year. but it's so skewed to a few names. if you look at the equal weight, it's up 2.5. while there might be little bounces along the way and that might be what you're looking for, i don't think it changes the structure of what is a big and serious problem likely not to get better. target had i guess earnings a couple years ago. >> but i guess what i want to take on is this narrative that all retailers are dead. i think a lot of them will have a difficult time. and target for fundamental reasons. i want to look back at walmart in 2015. they walked about major investments they were going to do. they were obviously trying to watch amazon, a lot of shipping options and pricing options. here's the point about target. this is why i want to focus on
this one roigt now. i think this is their year. back in late february, they guided down the full year. this quarter they reported, there was a big beat on the front here. i think they will get active in acquisitions. i think we could be near an inflection point that target trades at a big discount. look at that trade. i think it's got a lot of support. i think you want to position for a late year rally, somewhere in q3 and use a call calendar to do this. guy a short dated call and a longer dated call. this is when the stock was trading 56 today. you could buy the july 56 -- excuse me, the july 60, october 60 call calendar paying $1. you're buying one of the july -- excuse me t october calls for 1:55 that costs you $1.
you want to move toward that 60 strike. that july 60 call is going to expire worthless. what you want to do is have that stock move up towards that strike and then you want to look to something something higher and catch a move to fill in some of those gaps. >> target has the gaps, obviously, the 60 and the 65. >> even if it does run through that strike, you may be all right. that call may be in the money. but you actually have a band that's bigger than you think. it is not just the $5 up to the $60 strike. between $55 and $65, this trade makes a lot of sense and the total prem yum is less than 2% of the stock price. to me, plus if you have any later in the year voltivety, you own that. >> you studied price action and so all things you describe were all said on the call. they are going to spend cht they are trying to get online going, smaller stores and all this good
stuff. what did you think of the price actually the day of all of that, the flaring up, euphoria and by 3:00 closing on the absolute low. that's not a good thing. >> i guess the important point is walmart made lower lows after they guided down. i think what's going to come around in this -- sentiment has gone so one way in we tail i think there is going to be some winners. if you can look past some of the near term devastation, i am going to bet target is going to be a winner. >> are you saying the chart looks terrible for target? >> dan is citing support. he's putting up very specified level where it gapped down and apply the options and try to profit from that and spend less. but is this really a stock that, as we look out six to nine months, is it something up and out to the right? i don't think so. >> this trade also isn't the up, up and to the right. this is not a bet they are going to win. it is a bet they are going to
survive and they will not be betting it is not going to and i think that's why this trade actually does make some sense. >> what we don't want to do is get people long out of the money, calls and puts and that sort of stuff. this trade strategy helps you finance a longer dated call. forget the technicals. you are thinking about fundamental things. you are defining your risk. >> nasdaq has been sizzling and that's fast food. check out shares in wendy's. dominos and mcdonalds up 12% and young brand is up 9%. mcdonalds and yum both hit highs today. >> look at mcdonald's. it is the big guy in the room. there are a lot of restaurants. they probably traded 40 plus on the russell, 3,000. what i wanted to look at mcdonald's specifically. time to take profits in.
if you are a short seller maybe you could make a buck here. as always a comparative chart, two lines. what i have in blue is mcdonald's and what i have in orange is the s and p. and, you know, your eyes are working. you can see there is a difference there. so at some point how much is too much? let's go to the next chart. i want to introduce all restaurants. while some have been good, if you look at these they are equal weighted. restaurants are really quite poor compared to mcdonald's and compared to the market. so let's zero in on mcdonald's. and this is a little detail. all right. here we go. now, i'm going to draw some lines. the first thing i would say you would do is the following.
114 sessions down and exactly the same 115 sessions back up, right? to prior high. that'ssymmetry. now i've drawn the lines. let's look at it again. you have a decline right back to the high and then you get your break-out. right? you get a textbook break out. there is something called a measured move for a break out. how far can a break out go? here's the head and shoulders bottom. the one way you could say fau far something could go. you see this huge move here. take a look at the next chart. so again we have 114 sessions down. remarkably symmetry, 115 back up. what you do is you measure is width of the range. so the width of the range is 130
to 110. yes, that's a 20 point range. if you add 20 points to the high of 130 you get 150. it has almost met its price objective. i want to take profits in mcdonald's. >> mike, what is your trade? >> i am looking out to july and i'm selling the 150, 155 call spread. you can sell those july 150 calls for $2.20. buy the 170 against it. net credit to you. we caught calls in this stock before. this is a company doing a lot of things from an operating per spect i have. >> the trade strategy makes a lot of sense. i was a little skeptical at the time, but it made sense. at this point i like what you are doing with the call spread, selling it, because you are defining your risk and i like
the risk reward, potentially taking in 145. the risk/reward is one to two? >> basically, that's exactly right. you're looking to, if you can, when you are selling call spreads if you can get somewhere near 30%, 40%, that's a good risk/reward relationship. this is a trade that will make money if it just levels off here. i leave it to the technician to tell us if that's what we think will happen. but apparently we have good reason to think that maybe we've reached the apex. >> got a question out there? send us a tweet. for everything, check out our one site. you can check out our newsletter. they may turn it into a movie next year. in the meantime, here's what's coming up on the show. >> >> if you missed the move, we'll tell you how you can still buy it for less than $10.
plus, reach into your pocket, grab your phone and tweet us your question at @optionsaction. get tomorrow's news today with a futures now news letter. stay ahead of the headlines and make today's events tomorrow's profits. sign up now at cnbc.com/futuresnow e-mail. i'm here at the td ameritrade trader offices. steve, other than making me move stuff, 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
oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. 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. welcome back. locking in their gains. 7% this month. there is one name in the group that's been a real stand out. breaking it down is dominic. >> melissa, stock is as hot as the new york weather right now. as far as on fire, i think on the back burner these days. we're talking about 7% in terms of performance this week. 30 plus % gains over the year period and 211% over the last 12 months. if that wasn't impressive enough try this comparison. so far year to date it has gained $24 billion in value. that's just like adding on a company the size of united continental airlines in less
than five months and six, count them six record highs so far in 2017. yeah, last're ease best performance stock is all about the bulls, but are things due for a cooling off period. the stock is 10% above the market price as tracked by fact set. 53% of analysts say buy. 34 say hold and 13% have a cell rating. so either analysts revise up their targets or perhaps we start seeing some downgrades based on valuations. who knows. back over to you guys. >> thank you. have a good weekend. if you are still looking to get into video, we've got a way you can do that for less. this call to action. take it away. >> sure. so with mcdonald's, you were talking about selling a spread. when would you want to buy one? when you are moderately bullish. and i don't know if you are very bullish or moderately bullish or if you want to commit less
capital to the trade and you want to mitigate that downside risk because the stock, as we can take a look over here at the chart has been quite volatile. you can see here we had this sharp move up here. if you take a look, this drop we just had this week, stock was $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 can spread $7 for that. when i was looking at this earlier today. and again pointing out $7 not a lot when you consider how sharply the stock has been moving. 165 represents 20% appreciation from where the stock is right now. this is a way you can get in, intend less and risk less but still have the participation to be outside if this continues. >> i think if you are going to do it here, that is the way to do it. you are not getting a heck of a lot. you are paying $8 and change. that is your max risk. but you have to think about it
this way. you could have said at any point during the last year, this is a short. this is a bad run stock. this is important, though. at one point last year it was thought to be a take-out candidate. now it's got an $80 billion market cap. texas instruments will probably do 14 billion dollar in sales. it is a very expensive thought. it is priced for perfection. i can't tell you so sell it if you own it, but i think the strategy for bulls makes sense. >> we know the semis as a group, just one thing to keep in mind the sox has not had any sort of intermediate give back in about 11 months. the stock doesn't go back more than 20 years thrks is one of the longest stretches. >> definitely the reason why if you own the stock you might consider selling it and putting this on instead. because you obviously have some significant risks. but of course this is a different story than texas
instruments as well. now you've got data center and the auto business. there is a lot of other things and that's the reason it's trading at this high level. >> silver staging a come back and there is something in the charts that suggests more gains. dig deep into those pockets and pull out your phones because we are taking your tweets. much more 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.
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
expecting earnings. impressive... what's up, tim. see options data like never before. with thinkorswim only at td ameritrade. welcome back. time for the upside call where we take a look back at some of our winning trades. a few weeks ago, he thought silver looked oversold. >> we have this much more to go and we're going to get down into here. i think it's over because of the 14 data. >> i'm looking out to august and buying the 15.5 17 call spread. you can spend 50 cents for that. >> the metal bouncing 1% today. what do you do with this trade? >> you can actually roll it up to the 16s. take at least half the amount of capital you usually committed to the trade and still have upside up to that 17 strike we sold.
>> i'm good there. this is early goings. 1%. so let's play for more. >> what does the dollar chart look like? >> commodities, we had a huge rebound in oil today and this week. in fact, in commodities in general, this is the most important besides silver. s&p is up half a point. that's the biggest message. anyway, silver we think higher. commodities are all over this. copper is rolling. sink is rolling. >> from silver to social. last week we thought dan put snacks back after disappointing earnings. >> yeah. i think the stock is going to pop. get back towards $24. that was the level it broke down from. i know there is not a whole heck of a lot of history to this thing, but i want to target a move back to the high 20s. so buy one of the august 24 calls for 60 cents and then two
of the august calls for 30 cents each. costs you 60 cents. snap has regained half its losses. what's next? that trade structure was an overlay. if you were long 100 shares yorks you would buy. that's what you have to think about, not the stock is at 20. that position could have been put on for even money. it is about the same now after a $2 move. to me this was kind of a stock repair. so 27 is where you would get called away. >> you do these trades when the stock is down and volatility is up. volatility was and remains high, so the structure is still good. >> no pattern. >> right, right. >> all right. up next, we got your tweets and the final call from the options base. hey gary, what are you doing? oh hey john, i'm connecting our brains
so we can share our amazing trading knowledge. 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. 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.
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.
well dock back. time to take your tweets. our first tweet asks is buying vic's calls a safe way to profit from washington turmoil? i don't know if vic's and safe go on the same line. >> i don't know if that would be classified as safe. you need to understand those are actually options on individual futures contracts. so the first thing you need to do is familiarize yourself a little bit with the futures trading and what the structure looking like. >> i would stay away from those, like anything. here is a popular trade that institutions do all the time. one thing that's interesting is they almost trade mid market. and they're very, very liquid. so one thing when people are bullish, they sell and they use the proceeds to buy an out of the money call spread. they looked for even money and it's cash settled. when you get a pop, you look to take that off quickly and then
you have that call spread. >> for you guys, obviously watch that fear index that hit an all-time high this week. what does that imply? is it because premiums are actually lower on the hulls or is it -- >> so that is a function of two things, the implied volatility on the options in the s&p of a 30 day duration and the other is where the s&p is. if it drops, it will lower options. so there is basically a sensitivity to the price of the s&p in there as well. >> the bottom line is no vics atfs. >> no. >> that is not a good investment play. >> time for the final call. carter worth. >> if you're long, take profits in mcdonald's or sell short. >> well, here is the thing, we had a debate about the target. it is not trying to pick a falling knife or anything, but setting up for some fundament events. i like it.
>> it looks like our time has expi expired. check out the website. meantime v a great weekend. we will see you back here on monday on fast. mad money with jim cramer starts now. a paid presentation for the abdoer 360 fitness system proudly brought to you by thane direct [ male announcer ] 20 years ago, millions of people in over 80 countries discovered a revolution that rocked the fitness world. one of the most successful tv fitness products ever became a worldwide phenomenon -- the abdoer. ♪ i love it! this is really a lot of fun. it feels really good. i never realized that a machine could work out your abdominals