tv Options Action CNBC October 27, 2017 5:30pm-6:01pm EDT
we're live at the nasdaq market site. the guys behind me are getting ready. while they're doing that, here's what's coming up in the show hey, you want to see something really scary >> you bet >> well then, look at what youtube just did to media stocks there's something in the charts that suggests it's about to get worse. plus miss the rally in large cap tech >> d'oh! >> and later, why is this man dancing?
maybe because mike khouw has a way to buy baba for two bucks ahead of earnings. we'll break it down for you. it's time to risk less and make more the action begins right now. >> let's get right to it we're officially more than halfway through earnings season. check out some of the names reporting next week. mastercard, pfizer, under armour, apple, starbucks, and tesla. which should you buy let's get in the money dan is looking at a sleeper pick >> if you think about earnings season, it started off with bank stocks we moved into industrials last week and saw some really big moves. now we're seeing mega cap tech, all-time highs, massive, eye popping moves. the key to this earnings season, now we start to think about maybe some consumer names, consumer staples act really badly, one of the worst sectors today was retail i want to look quickly at starbucks. options market is implying about a 4% move in either direction. that's been the average in the
last four quarters this one is pretty interesting to me because it massively un r underperforms the broad markets, down 52% from all-time highs in june since it reported in late july it's a fiscal q3, the stock has been trading for the better part of the last three months between 53 and 55 bucks. when i think about next week, i think about expectations that aren't particularly high the stock gapped in july because they actually guided this quarter sale, same store sales down below expectations after median the way i think about it as i look at the earnings, if they were to beat the fiscal inning j 4, same store sales, were able to leave fiscal 2018 estimates intact, consensus is looking for 15% eps growth, 10% sales growth, i think the stock bounces. it could fill in that gap towards 60 i want to do it with defined risk all that being said, why do i want to do it with defined risk,
the stock goes straight to 51. for me, i want to give this thing some time to play out if the stock were not to actually immediately pop on this. but today when the stock was trading at 55, you can buy the december 55-60 call spread, paying $1.30 for that, buying one of the december 55 calls for 1.47, selling one of the 60 calls at 17 cents, that breaks even at 5630 you have gains up to 370 between 5630 and 60 bucks. that's where you're capped i like the risk reward of this trade. if you get the direction wrong, it will be hard to make money on this thing i like the risk/reward, i like the sentiment setup. >> mike? >> i do like the trade we've said this many times you think it's a reality or realistic to assume that the stock could move a buck and a half between now and christmas or thereabouts the answer is clearly yes. they still have some areas that have real potential growth
they never really took off in europe but they have done pretty well in asia, that's still an area of growth, 20% potentially there, although it's a relatively small percentage of their business still. same store sales, as you point out, it really be the operative thing. i don't think there's going to be a lot of growth outside of that in the u.s. >> i think as is often the case with managing the risk, there's a lot of risk to this, and you know that. so when a stock drops and gaps on its earnings, it's very rare that it's isolated, right? typically, just as when you gap up, you often gap again, because good news is obviously not modelled in. the street's under, then they miss it again, it gaps again the fact that it did drop and gap on its earnings on july 28th and then its relative strength since then has been so poor, i would say the risk of a gap down, what you're citing, the 5 level, that seems like the better bet >> let me tell you what i got looking at this stock, nike had a gap, foot locker's really bad earnings back in august, the stock gapped 0% or something
like that. it spent the last month and a half also kind of in this consolidation period near the low. you see what happened this week, they had an analyst meeting, the stock rallied into it, it's up 10% in the last week or so to me, i actually think investors are looking for stories where maybe the news that got them down a couple of months ago is not going to keep them down. >> ibm, talk about popping >> look at intel, look gm, rallying 30% in the months ahead. >> google, intel, that's different. but a stock that has a proceeding gap, the burden of proof is on the -- >> if you had your druthers, carter -- >> i think the odds are higher >> they also have new management, they're still playing out to see whether the company -- the last time howard schultz left the company, they had a problem. he came back they obviously recovered now we're going to figure out whether the new management team is able to deliver >> this is a really good discussion about playing things
into events. at the end of the day, i wouldn't buy starbucks playing for that gapfill, because i don't know what the numbers are going to be. i don't know what the probability of success is. i like the risk/reward of buying a december call spread that gives me more than six weeks for this to play out if nothing happens, i'm still in the game if it sells back to the lows, i've only risked 130 if you think the sentiment could change in a raging bull market, this is a stock that people come back for >> alphabet surging to all-time high today after reporting better than expected earnings. one of the drivers of the quarter was a stunning performance of youtube josh lipton is in san francisco with more on that angle of the story. >> reporter: melissa, alphabet doesn't break out youtube's numbers but ceo sundar pichai says the platform as 1.5 billion users who on average spend 60 minutes a day on mobile. this is the big number that
caught people's attention. consumers are now watching 100 million hours of youtube from their living rooms every day now. and that is up 70% in the past year alone so why is that important well, the company has said in the past that the majority of viewing takes place on mobile devices. we are seeing a shift that could directly compete with traditional tv youtube has been laying out that strategy for some time now pay tv distributors are losing subs in q2, it was the worth quarterly loss ever, an estimated 941,000 subscriber losses youtube trying to capitalize in the cord cutting trend we've been seeing in this industry, they're launching a slate of ad-supported digital programming, partnering with ellen degeneres and kevin hart, to push into products like youtube red or youtube tv seems to be working, its paid tv
channel launches this year pichai did not reveal any numbers for youtube tv, but said it's available in 15 metro areas. melissa? >> thanks a lot, josh lipton in san francisco. those youtube numbers are putting pressure on traditional media stocks disney, cbs, discovery, viacom, all lower. chart master sees more coverage in the space break it down, carter. >> almost chronically so for the last six, nine months of the year the real insidious thing is that they were such outperformers take a look at this, look at this relationship. this is the s&p 500. this is the s&p 500 median index, it's about 16 stocks worth about $800 billion and you can see that of the last sort of three to five months, they've diverged you say maybe we could play for convergence, get long media.
watch the next chart, watch the orange line. it's media on top, media was such an outperformer during this bull market that this recent weakness is quite nascent, quite new. go back to this. i think this is just the beginning of what will be much more trouble for media so that's the group itself here's via comcom, your lines. a break in trend will typically follow through at the downside now let's talk about -- look at this look at this i mean, you're talking about a stock that peaked in 2014. it's almost impossible not to be up viacom straight down from the group of which it's a part how far can it go? anywhere your imagination wants it to go the only thing i can say you could see is this. that's a pretty well-defined
formation. that's the all-time low over here lower. sell >> wow >> options are the only way to press a short in a stock that is trading about one-third the valuation on a historical basis. this is trading six and a half times earnings there are some real problems here i was looking to january, the 22 1/2, 20 push spread. the strikes are about 2 1/2 dollars apart, the first out of the month strike we could get on this thing this is a company that has some really troubled assets we were talking about it before the show mtv, vh-1, these are the things we watched when we were kids my kids don't touch the stuff. >> they probably don't know what it is. >> they don't. when is the last time we realized these channels existed? i was on the airplane and hit the channel button too far and it went up to the upper reaches,
it was that and the country music channel. they don't have of course. you can see where they're going and they're not going here they have a real problem paramount studios also had significant underperformance >> as far as the trade, you're risking a certain amount to get back to a certain level that it hasn't traded at in seven years. you look at the parts, we look at what is causing this. it's google, it's facebook obviously it's netflix it's going to be apple, it's going to amazon. i wonder at some point if those guys, if jeff bezos just says, doing what he did with whole foods. >> what other sectors have valuations that are as basically cheap as this? retail names like macy's. they're facing the same tough competition. and every single time, you try to draw that line in the sand and say, it's so cheap, it can't get any cheaper. people realize that the business is really deteriorating severely
that's when they go lower. >> it's 24, 25 bucks >> question for you, carter. why wouldn't you play disney back to 90 rather than pressing this one >> i think the most important thing here is it's not idiosyncratic. it's dish, it's disney, it's cbs. the whole thing is under so much pressure, it would take a lot to fix it >> when you look at their closest comps, this is the worst of the group >> down 90 to 25 disney, there's a -- >> price level doesn't matter if the underlying business is deteriorating. >> i know, mike, but theidea o a stock that's gone from 90 to 25 -- >> we're risking 70 cents. >> okay. >> obviously he doesn't like the trade. that's all right, though for everything "options action," check out cnbc.com. check out our scary good newsletter here's what's coming up next look, up in the sky! it's a bird!
>> it's a plane! >> no, it's shares of alibaba. if you missed the move, we'll tell you how to get long for $2 ahead of earnings. calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air, when "options action" returns. >> logical i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back the nasdaq soaring to new highs today after blowout earnings by amazon, alphabet, intel, and microsoft. 94% of tech stocks have beat
estimates so far next week, facebook and tesla. wednesday, options market is predicting 5 and 6% moves for those stocks apple and alibaba reporting on thursday together, these four names could represent an $84 billion shift in market cap. mike khouw has a way to buy one of these high fliers for less than two bucks >> we'll talking about using a call spread risk reversal. we're targeting alibaba. importantly, elevated options premiums are what we're seeing implying about a 5.7% move, which is larger than the last couple that we've seen also this is a stock that's up a lot. one of the things we're looking to do here is risk less than if we were just going out and purchasing the stock here. so taking a quick look, we're going to be -- you can see the kind of move that we've seen and basically, what i'm trying to take a look at here, if it's
going to move 6% down, that's the risk essentially i'm trying to avoid it moves 6% to the upside, that's what i'm looking to capture when i'm using a call sp spread risk reversal sell the 180, two and a half for 270. this entire trade you could do as a dollar 70 for slightly better than that around 10:00 this morning, i was trying to put this trade on. i lost my market data. by the time it came up, the stock had rallied sharply. this is a trade i'll be looking to put on on monday. i didn't manage to get it today. >> what do you think of the trade? >> worst case scenario, you get the direction wrong, the stock goes down a bunch. you're basically putting the stock at the premium your spending plus that short put strike, 162 and a half if that's a level that you would be willing to buy the stock if there's some bad news on the earnings, you should feel pretty good about of this the choice of expiration, i like a call spread
risk reversal targeted event short dated. you're just doing one week, you're not giving it a ton of time, it's trading the event, if you're wrong, you're going to move on. >> when you use trades like this, and the expirations you choose are relatively long dated, sometimes they don't behave exactly the way you think they will. this is one of those situations where you'll know the answers next friday. if it goes through 175, this will be a winner if it falls, you're essentially getting the long the stock at 62 and a half the options market is implying a move of about that size or less. that would represent the stock closed right about 177, so that's a $15 decline, essentially. if you get down to the 162 1/2 level, that would be more than the options market is expecting. the downside risk is less than if you bought the stock. >> the same setup as every one of these names today weakness of late amazon has had, google and if you're betting that it will do the same thing, it's going to be big. now, there's one that has
faltered, it's baidu at this point the better bet is that it's up >> one thing, maybe this is just my perception, but taking a look at this in time for earnings season, it seems like with the exception of a basidu, a handful of isolated incidents, but in general it seems like the market is favoring tech, regardless of how the earnings come out, the news is viewed more positively >> the buy is to the upside. >> which isn't true this earnings season. despite the move, there's one rate sensitive sector that's holding up well. plus send us a tweet, if it's a good question, we'll answer it in the show. more "options action" still ahead. i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and?
>>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.
comcast business is different. ♪ ♪ we deliver super-fast internet with speeds of 250 megabits per second across our entire network, to more companies, in more locations, than at&t. we do business where you do business. ♪ ♪ where you do business. well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to look at some of our open
trades in september, dan played for an apple bounce >> i'm going to look out to november expiration. it's going to catch all three of those events next week, the launch of the device, and the next earnings event when they'll give guidance today when the stock was trading at 159, you could buy the november 160, 170, 180 call butterfly, paying $2 for that. >> it has been a wild ride for the tech giant the stock initially took a dive but has since rallied back we have earnings next thursday what are you doing, dan? >> in light of, you know, amazon becoming one of the biggest stocks in the world today, up 13%, the move that google had, i don't think you want to be in a butterfly into this event anymore. the stock has moved up, the trade has appreciated. i would take the profits and roll it into just a straight call spread. if these guys beat their estimates they raised last quarter and then beat again, especially given all the sentiment about supply for these iphones, or maybe demand for the
iphone 8, if they raise, the stock is going higher, it just is at the end of the day, i don't think you want to be the structure like a butterfly you want to be in a call spread. i would take the profits and roll it out into a call spread where you're buying a call spread and selling higher. one month ago, khouw and carter said utilities are going higher >> this is where i would draw the line we've kind of come back to support. two, that we're on this trend line but either way, i think you've got a pretty good chance of, after this 5, 6% selloff in the xlu, a bounce. i would be long at this point. >> i was looking out to january to the 53 call you could spend $1.45 for those, those are the at the money calls. >> the utilities have rallied slightly and held up pretty well in the face of rising rates. carter >> so we know in the past 30 days, rates have gone from 227 to 247
utility is up 3.7% more than the s&p. i think that resilience is impressive not so much for russ aus, but w says for this area of the market holding up i think you want to stay with of it >> we bought this call for $1.45. it was worth $2.50 today what you should do here is actually sell this one, buy the 55 you're basically taking all the original risk off the table and you're now long the 55 call. we're basically playing with house money. >> if this chart didn't say xlu, it said anything tech-related or something growthy, you would be buying it for the breakout you guys have identified the potential headwinds of the trade. is this the rate cycle, that sort of thing. to me, i think mike's rolling the trade makes sense and using the house's money. up next, tweets and the final call from the options pit. i think it's terrific.
your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade. and the wolf huffed like you do sometimes, grandpa? well, when you have copd, it can be hard to breathe. it can be hard to get air out, which can make it hard to get air in. so i talked to my doctor. she said... symbicort could help you breathe better, starting within 5 minutes. symbicort doesn't replace a rescue inhaler for sudden symptoms. symbicort helps provide significant improvement of your lung function. symbicort is for copd, including chronic bronchitis and emphysema. it should not be taken more than twice a day.
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well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.
welcome back to "options action." time for some tweets our first fan asks, i bought facebook november 3rd 190 calls for 45 cents >> i think it's a low probability, only saying there's a 13% probability those are in the money. it depends on your conviction. >> angelo asks, how do you feel about the january 90 calls thank you, love "options action." thanks, angelo mike >> tough week with the news coming out i think you're looking at this the right way. buying calls in something like that at this point, if you're going to make a bullish bet, that's the way to play it. >> perfect trend line, bounced beautifully. biotech is up, and all those big names, they're all down. play the bets. time for the final call. carter >> viacom. get away from it, however you can. >> mike?
>> going into baba, the options are expensive, use a call spread risk to sell more options than you're buying. >> dan >> i'm using defined risk. >> all right looks like our time has expired. i'm melissa lee. check my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey i'm cramer wlk to mad money, welcome to cram america other people want to make friends i just want to make you some money call me 1-800-734-cnbc or tweet me @jim cramer the tech bulls simply could no longer b