tv Options Action CNBC June 10, 2017 6:00am-6:31am EDT
hey, there we're live at the nasdaq market site on a very tough day for technology guys here getting ready behind me while they're doing that, here's what's coming up in the show >> snap out of it! >> that's what investors in snapchat hope will happen. and there's something that suggests now might be the time to buy we'll explain. plus, this is the market, and this is your portfolio, and if you're trailing, we'll tell you how to catch up. and -- ♪ banks are on fire, having their best week of the year, but there's a key event next week that could set them back we'll tell you how to profit the action begins right now.
♪ we start tonight with a move in the financials because while tech stocks took it on the chin today, the banks actually surged the xlf rallying 2%, posting its best week since early december, this as bank of america, wells fargo, jpmorgan and citigroup were all up 2% or more the rally on the heels of a dodd/frank rollback ahead of the key fed meeting next week. so, is the bank trade on track or should you fade this move dan? >> listen, you mentioned the two events, they're pretty well known. it's important to mention this week we know that the fed is going to raise 25 basis points next week. what happens to the 2.10 spread? it really didn't move this week. also last week, what did we get from a lot of these banks? we got commentary from management that q-2 is not shaping up particularly great. you know, yeah, they need a little volatility. they don't need the sort of volatility that we saw in today's action in the nasdaq personally i don't think they do so when i look out to the 3.5% that the xlf, the etf attracts,
the bank stocks here, i think it sets up as a really good opportunity to once again take some profits or short and shoot against that $23 support level that's really been in place since mid-december. >> i think what was very interesting today is, and we were talking about this before we even came on, is the fact that of course the market has not been very volatile, but i think it's been fragile and evidence of that merge -- we saw that in amazon and the tech sector generally and that's something people need to be aware of you shouldn't be complacent because there's simply been very little volatility or because something continues to go up, this is not a reason to get long the sectors that happen to outperform on a pretty dismal day for tech. >> right, and you don't always have to have the packed cliche of rotation. just because it comes out of tech -- sometimes there's net selling in general in the equity market so we know that rates didn't move, just as dan said, especially at the long end, and the banks are just coming off six-month lows so what, they bounced.
it doesn't really mean a thing and i think you do fade. >> i have two quick charts, can we run them? >> sure. >> i have a two-year chart it's interesting to look at that $23 level. it held it like a boss as they like to say at the charts. >> never said that. >> okay. >> under any circumstance, but go ahead. >> that is a level and look at this one back to 2010 to me, i think this is a target to the down side it's the intersection from that up trend that had been in place from the european sovereign debt crisis low, and then the breakout level in november so -- >> so, what's your trade >> get to the trade. >> it's simple here. because option premiums are relatively low right now, price of options, you really don't want to do spreads you want to look out and place your bets and define your risk i want to look out to september, catch q-2 earnings and q-3 guidance it will be a pretty volatile political environment over the course of the next few months, so when the stock was trading today at $24.25, you could buy the september 24 puts paying 75 cents for those. that's about 3% of the stock
price, breaks even down at $23.25, right above that big support level. and to me, if we were to get a bit of a giveback of some of this week's gains, then i would look to spread by selling possibly the september 21 puts again. >> what do you think of the trade? >> well, i mean, it's fairly clear, given the fact that options premiums have been depressed for quite some time now that i think being long premium, especially in the inth crease and in the sector groups like the xlf and the xle, is the best way to play these things, certainly. and today i think just was all the evidence you need that that's the case. >> what would you really say about that chart that dan had? >> right, let's go to the first one, because first of all, there are a couple of things first, they didn't hold their gain secondly, dan just did a trade short goldman, very efficacious, and is now after this bounce in financials, making the bet that the bounce will end. but if you look at that first chart -- and there it is -- that has all the makesings of head-and-shoulders top it's very well formed and nothing has changed with this
little bit. >> holding like a chap. >> like a boss. >> like a boss. >> efficacious is more his speed. >> all right, let's move on because everyone's been focused on the move in the nasdaq. quietly, small caps are surging. the russell 2000 up more than 3% in june, outperforming every other major index so far this month. it's also managed to eke out a gain today, setting a record intraday high. chartmaster says this could be the ultimate trade what do you see, carter? >> there's no excess here. it might just be that this rotation has some legs to it, so i have some charts let's look at them together. the first setup is we know that over time -- and this is the point of this first chart -- small caps outperform large caps it's because new, innovative things outperform big, clunky things like ibm and proctor and gamble now, those numbers are the numbers and you can see quite clearly what kind of dispersion we're talking about. now, let's keep going. i want to point out the setup
maybe that makes this all possible this is a two-panel chart. the top is the russell 2000 at the end of 2015. and the bottom is relative performance to the s&p so, what's important here is while this is nowhere near its low absolute, the actual relative performance was at the financial crisis low i mean, so bad was the performance of small cap to large that we were back to where we were in '09 and then what happened, of course, is this. fast-forward a massive catch-up and then a little bit of a giveback so, the issue is, can we ultimately get back to relative highs to the s&p, even as we've made new absolute items? i think that's presumptively in the cards. so, let's take a look. here is the tight range of the russell 2000, and it's about six months in the making it's only happened one other time in the history of the
index, this tight, a 7% range. and the last time it was resolved by a huge explosion to the up side. in any event, you could draw the lines that way, and you can make the bet that this standoff -- and we've just peaked above it today -- you could draw the line this way, which is in technical parlance and the tring langular wedge, but i think you have a better bet here than in the extended supercap names and i think you want to be long iwm. >> when you see this action in the small caps, carter, and you have this expectation for it to go higher, does that necessarily mean anything for the rest of the market or other sectors within the market? >> now, to be fair, easy pushback to this is to say if the market's in trouble, generally, small caps typically underperform, because then you get into the big, heavy utilities and things like proctor and safe, steady names so, that is something that has to be sort of known, but i think for now, we're not in any kind of crash shape for the market. i'd rather be here than s&p.
>> all right so, you heard the man. mike, what's your trade? >> you know, we were talking about this earlier, options premiums are low looking to september, you can buy the 1.43 calls for $3, less than 3% where it's currently trading. i want everybody to ask themselves a question, which is, do you think that the small cap index could move 3% one way or the other between now and september? and i think the clear answer anybody would provide is it could easily move that much. it's very likely to move that much and this is effectively equivalent, if you owned this in your portfolio, to insuring it with a put, but you don't need to you could commit a relatively small amount of capital. and of course, if it does make that move, then you're going to have an opportunity to spread or take profits. >> just a quick -- again, sort of there's always the other side one thing we know is that financials are a very large component of small cap, much larger than they are the s&p so that argues against, we were just saying you play the financials, yet how do you get long there's always that circumstance in the market.
there are various sides of an argument and so, you could say which is more important, the financial weighting, which is oversized, or the fact that the russell maybe catches up because the supercap it's a little bit of both, but that's what judgments are about, making a bet. >> i can't disagree with the charts that's a constructive looking consolidation. i think the trade idea makes perfect sense. options premiums are low, you're not risking a whole lot. if you get the breakout, you're going to be break even very soon my thought is similar to the bank stocks. over the year, we've seen the trump trades come undone looking at the dollar, treasury yields, commodities, oil stocks, and then you look at banks since march 1st. to me, this fits right in there. if this legislative agenda really does get held up, then this group, which has been underperforming the s&p this year, not from the november lows, is going to underperform so to me, it's actually another leg of the trump trade i'll just make one other point you guys had a great discussion on "fast money" about rotations out of these highly concentrated
sediment names in technology, and then today the xlf closed on its high, the xle closed near its high that looked like a pretty good rotation with ugly action and then iwm closed pretty well. to me, i think you might have lost one leg of the stool today, of the bullish thesis, and i think you could see it play out in the summer. that's kind of my view. >> you know, that may very well be the occasion, but everybody's not going to run out and sell all their stocks right now this is a way that you could maintain a long position, hedge, commit a very small amount of capital. i think it's an easy play. >> mike, i think it's important to remember, people didn't run out and sell all their stocks today with the nasdaq down 2.25%. >> no, they actually sold -- >> headed for the door at the same time, and you had some of the biggest stocks in the world down 4%, 5%. >> it's not -- >> and for anybody to be glib about that -- >> no, but that speaks to fragility. that goes to whether or not you could sell all your stocks even if you wanted to, and the fact is you can't what creates market fragility is a lack of bids, not basically an onrush of sellers.
you need somebody supporting the market -- >> last comment. >> there was no person all of a sudden on apple and amazon these are computers, we know that it was so synchronized, but for whatever reason, the computers that's it. >> send us a tweet t to @optionsaction and check out optionsaction.cnbc.com while there, check out our super cool newsletter. it's going to be so hot this weekend, you'll want to bring it to the beach in fact, yeah, you'll need to have a beer or two with it that's coming up next. apple shares are getting crushed, but if you own stock, we have a way to protect yourself for free. plus, snap is a disaster ♪ [ screaming but we've got a way to make money if shares go up, down or nowhere at all we'll break it down when "options action" returns
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 only at td ameritrade.
it all adds up to our most reliable network ever. one that keeps you connected to what matters most. 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. i was snap i'm not quoting the great bismarcky. i'm talking about shares of snap inc., which tanked this week, trading just above its ipo price. julia boorstin's in los angeles
with more on this. julia? >> reporter: hey, that's right, melissa, snap shares dropped another 4% today, bringing the stock down a total 22% over the last month now the latest blow, today citi lowered its estimate and cut its rating on the stock from buy to neutral, citing concerns about user and revenue growth as well as the pending lock-up period expiration looming, which starts at the end of july this is the fourth critical analyst note just this week as investors become increasingly concerned about snap's ability to grow its daily active users in light of growing competition from facebook and instagram. now, analyst anthony diclementee put a reduced rating and $14 price target on the stock and issued a note highlighting data from sensor tower, indicating declines in the number of worldwide downloads of snapchat's app in the first two months of this quarter now, earlier this week, oppenheimer weighed in with concerns about new advertiser adoption of snapchat, saying it's slower than expected but
added that revenue should ramp up in the second half of this year all of this is in sharp contrast -- in contrast to this negative sentiment on snap, today piper jaffray issued a new note on facebook, saying that facebook could triple its revenue by the year 2022 with an overrate rating on the stock, piper jaffray also says instagram revenue could increase from $2 billion last year to $22 billion in just four years melissa? >> boy, different views. julia, thank you snap basically all over the place. what's a good options strategy to use to make money mike's at the plaza with this "call to action. take it away. >> this is an interesting case this is definitely a buyer beware type of stock and you know, i was asked earlier what were ways to make a moderately bullish play, and if you thought it was going to manage to hold that ipo price. so, we'll look at selling a put spread, a trade you will do when you're moderately bullish. you obviously do this because you're selling premium, when options premiums are high. they absolutely are, and that's
not surprising, given the more than 20% decline to this and finally, you want to do a put spread, rather than selling puts because you're looking to minimize risk and we've clearly seen there's plenty of risk here you can see that in the chart and the decline that obviously julia was describing the trade we're going to look at, we're just going to look out to july and we're selling the 18-17 put spread you can collect 50 cents for that now that's a dollarwidespread. this is basically a coin toss trade. if this stock holds here or declines slightly, you can collect that premium obviously, if it plummets, goes down to the $14 target we just heard about, you can only risk 50 cents to the down side. so this is one of those situations where, you know, if you have a lot of questions, you're looking to make a coin toss trade and you want to collect some premium, you can look at selling a put spread like this. >> dan, what do you think of the trade? >> it makes perfect sense. we talked about it a little bit on "fast money" last night the low float and high cost to borrow before we get to this lock-up is causing premiums to be elevated so mike's taking
advantage of that. it wouldn't take much for the stock to be an easy winner and one point about the sentiment. listen, it's gone from bad to worse, from clearly a sentiment standpoint -- i'm not talking about the way the stock's trading -- reminds me a bit similar to facebook, you know, back in 2012 after its ipo and this thing could get ahead of that lock-up, and you could see the thing in the midteens. and then you probably have a situation where you're going to want to be selling puts in front of whatever event there is coming down. >> there's not a lot of price history, right and what we know is obviously we trade on the desk. i think after the gap on may 11th, try to catch but stepping back more broadly, i mean, is this a serious proposition, right this is a stock that came out of the gates, and the only one that be happy is the person who sold it to the public, got their shares, got their money out, or the person who bought the ipo and sold two days later because it's at a 52-week low and it looks like death. >> there is also significant short interest and one other point which we didn't discuss here, but you can
use options to look at where the options markets truly believe the stock is going to be in the future we have seen this in many other cases and we're seeing it here, that actually, the options market is not overwhelmingly optimistic about snap. the forward price is lower than it is right now. and that's the reason put premiums are so elevated. up next, apple tanking 4% for its worst day in over a year, but fear not because dan has a way to limit your losses he'll lay it all out. plus, got a question send us a tweet t to @optionsaction. if it's nice, we'll answer it later in the show. more still ahead [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?
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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 to "options action." looking back at our open trades, apple got smoked today, but if you listened to dan last week, you could be in the clear. here's what we mean. >> if you're long the stock, you closed around $155 today if you look out to september xrisi expiration, you could buy the september $170/$140 collar for even money you'd be selling one against is00 shares of stock, you'd be selling one of the september calls and using the proceeds to buy one in september $140 puts. >> what's next, dan? >> here's the deal, this was a
trade strategy against long stock into an event that was widely known my view simply was that expectations were kind of running high and i didn't see anything coming out of it. now, i did not foresee a sort of day like today the idea of using september expiration was to give yourself time it was giving you 10% to the upside and then protection down 10%, or actually once you get to the 10%, below that. here's the deal, the stock's down 6 bucks since then. this trade is worth almost $250. you paid almost nothing for it it's mitigated half of the losses that's how you use the options against long positions to protect here, especially with a stock up 30% coming into the week. >> here's a question for carter on a day like today -- did we see anything that causes you concern, any sort of damage in the charts that you see? >> sure, but it's not specific to apple, right? >> right, exactly. >> we saw it in every major sort of, whether -- >> right, across the board. >> across the board, and particular in certain names. but when you have a very wide range, outside day so make a new high to close on the low and buy
on expands, it's usually the sign of an intermediate top. and by all accounts, that's not going to be contained to one day. so, the presumption is lower and just to put it into context, apple up 30 versus 15 for the nasdaq year to date, up seven over 12 months >> let's get to nvidia now, getting crushed after short seller andrew neft said it sells like a casino earlier on the move it's up 40% in the last month and that's good news for mike kho khouw. take a listen. >> you can see here we had a sharp move up here in fact, if you take a look, this drop we had this past leak, the stock was more than $7 lower than it is now, which is one of the reasons why i'm taking a look out to september, and specifically, i'm looking at the $140-$167 call spread. you could spend $7 for that when i was looking at this earlier today. >> mike, what do you do with the trade? >> this is a situation where you've got to take the profits we have modest profits here,
probably $450 per spread that you put on but that kind of reversal we saw today looks pretty disastrous. in fact, actually, earlier today you had a really good opportunity. >> that's what i was just going to say quick question it went right to your top short strike if you saw that, like, was it the opportunity to take a profit because at that point, you have to wait for september to get the full width of that call spread >> no, i think the time -- >> the rule is what i'm saying to consider. >> actually, what i would have considered, because i think you are actually short premium, and if you thought it would continue to migrate up at the steady pace it had, that would be one thing. but when it started to roll over and started to head towards that opening price and below, i think that's the opportunity you have to take to take your money off the table. >> the ultimate place for stock. number one, a one-year, three-year, five-year, it is a key reversal 90 million shares trade today, 15% of the float. >> these downside reversals in every market i've ever traded -- when i was on the nymex, trading commodities, equities, it doesn't matter when you see this, you have to
pull the rip cord and take a stem step back if there's an opportunity to get in, you'll probably still see it. >> final call from the options pit next 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.
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 "options action." time to take your tweets joseph asks, "hey, guys, how are you? carter, how are you? [ laughter ] >> i feel okay i think i look okay, but you know, you've just got to get your next trade right. >> i'm well, thanks. >> dan, i think you're all right. you've got a scratchy float, but -- >> i'm a little agitated. >> he's agitated. >> that's his normal state brian asks "what is the best way to use vix options to hedge, long call spread or the one by two call spread" mike. >> one by two would be disastrous if that event took place. i might avoid that, as sexy as it may sound. >> time for "the final call. >> long iwm small cap stocks for
a presumptive breakout. >> mike? >> i think buying september calls is the way to play that. >> mr. agitated. >> next week we have the events, the fed meeting. i think the xlf sets up to be short. >> looks like our time has expired. thank you so much for watching i'm melissa lee. check out optionsaction.cnbc.com "mad money" starts 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 accidents and used the