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tv   Options Action  CNBC  October 29, 2017 6:00am-6:30am EDT

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hey, there we're live at the nasdaq market site on any friday afternoon after a big week for the markets. guys behind me 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 and there's something in the charts that suggests it's about to get worse plus, miss the rally in large-cap tech >> oh! >> relax, because there's one name reporting next week that some traders think is a real sleeper. we'll give you the name. and later -- why is this man dancing?
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maybe because mike khouw has a way to buy baba for less than 2 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, because we are officially more than halfway through earnings season, and check out some of the names reporting next week. mastercard, pfizer, under armour, apple, starbucks and tesla. so, which should you buy let's get in the money and dan is looking at a sleeper pick. >> yeah, you know, if you think about this earnings season, it started off with bank stocks and they acted decently for all intents and purposes, no big news one way or the other, then industrials last week, we saw big moves. now mega cap tech, all-time highs, massive, eye-popping moves. so now when i think about the cadence of this earnings season, we think about consumer names. we know consumer staples acted really badly, one of the worst sectors today was retail, but i want to look at starbucks. they report next week, options
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market is implying a 4% move either direction, the average over the last four years this is interesting to me because it massively underperforms the broad market it's down about 1% it's down 15% from making 52-week and all-time highs back in june. and since reporting in late july, its fiscal q-3, the stock has been trading for the better part of the last three months between 53 and 55 bucks. so when i think about the earnings event next week, i think about expectations that aren't particularly high the stop gapped down late in july after the earnings print because they guided this quarter's same-store sales down below expectations after beating them the way i think about it this way, as i look at the earnings event next week, if they were to beat the fiscal q-4 same-store sales and were able to leave fiscal '18 estimates intact, consensus is looking for 15% eps growth, 10% sales growth next year, i think this stock bounces. i think it could fill in that gap over the next few weeks back towards 60, and i want to do it with defined risk. all that said, why i want to do
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it with defined risk is if they guide down, the stock's going straight to $51, that's it i want to look at december expiration, give this thing time to play out, if the stock were not to immediately pop on this but today when the stock was trading at $55, you could buy the december $55-$60 call for $1.30, buying one of the december $55 called for $1.47, breaking even at $56.30. you have gains up to $3.70 between $55 and $60. i like the cap risk reward of the trade. it gives you participation playing an event we know it's hard to do that if you get the direction wrong, it will be hard to make money, but i like the risk-reward and the sentiment setup. >> mike? >> i like the trade. we've said this many times, you think it's realistic to assume that the stock could move $1.50 between now and christmas or thereabouts, and i think the answer to that is clearly yes. i mean, they still have some
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areas for 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, probably 20% potentially there, although it's a relatively small percentage of their business, and same-store sales will be the operative thing because i don't think there will be a lot of growth outside of that in the u.s. >> i think dan started out, and often is the case with managing the risk, because there's a lot of risk to this. and you know that, right so, when a stock drops and gaaps on its earnings, it's very rare that it's isolated timically when you gaap up, you 13 weeks later you gaap again. they miss it again, it gaaps again. the fact that it did drop in gaap on earnings and relative strength since then has been poor, i would say the risk of a gaap down, just as you're siting the $51 level, that seems like the higher odds bet. >> let me tell you what i got looking at this stock for. nike had a gaap and footlocker's
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really bad earnings in august, the stock gaap'd 10% or something like that and spent the last month and a half in this consolidation period near the lows and this week they had an analyst meeting, the stock rallied into it and it's up 10% in a week or so. to me, i think investors are looking for stories where maybe the news that got them down a couple months ago is not going to keep them down. >> and remember what happened with ibm, talk being a gaap pop -- >> dude, look at intel, gm, all of these stocks that rallied 30% in like a month and a half. >> gaap up in a strong stock, move -- that's different, right? but a stock that has a proceeding gaap, the burden of proof is on the bull, because most often this next gaap is also -- >> if you had your druthers, carter, which way would you say -- you say lower. >> i think the odds are higher that it's lower. >> also they have new management in there, still sort of 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 really able to deliver. >> you know, this is a really
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good discussion about playing things into event. at the end of the day, i wouldn't buy starbucks playing for the ga gap fill been becausi don't know the success, but i like the call spread with six weeks for this to play out if nothing happens, i'm still in the game it it sells back out to the lows, i've only risked a little bit and it could be down $3, $4. i like the risk-reward and this is a stock people will come back for. now to alphabet, surging to an all-time high after reporting better-than-expected earnings. last night, one of the key and perhaps most overlooked drivers of the quarter was a stunning performance of youtube josh lipton's in san francisco with more on that angle of the story. hi, josh. >> reporter: melissa, alphabet does not break out youtube's numbers, but ceo pundit pa chi released new numbers and says the platform has over 1.5 billion users who on average spend 60 minutes a day on mobile but here was the big number that
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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 this strategy for some time now traditional pay tv distributors are losing subs. in q-2, it was the worst quarterly loss ever with an estimated 941,000 subscriber losses youtube, of course, trying to capitalize on the cord-cutting trend we've been seeing in this industry they're also investing in new, original content, launching a slate of ad-supported original programming and partnering with the likes of ellen degeneres and kevin hart for them to push into products like youtube red or youtube tv it seems to be working its pay tv service launched earlier this year, but again, you have competitors like
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amazon, hulu, sling tv, directv all in this space trying to tap into the live streaming market pachai says it's available in 15 metro areas. melissa, back to you. >> thanks, josh lipton in san francisco. well, those youtube numbers are putting pressure on the traditional media stocks vai cam, disney, cbs, discovery all lower, viacom falling more than 2%. the chart master sees more carnage in this space. break it down, carter. >> this has been a very bad space, almost chronically so for the last six, nine months, almost a year. i think the real insidious thing is that they were such outperformers. so, take a look at this. look at this relationship. this is the s&p 500. and this is the s&p 500 media 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 and you can say, maybe we could play for convergence, meaning get long media, but watch the
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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 really quite nascent, quite new and so, 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 viacom. here are your lines. you've broken trend. i mean, that's quite clear, yes? the idea is that a break in trend typically will follow through to the down side and now let's talk about -- look at this. look at this i mean, you're talking about a stock that peaked in 2014. equities -- it's almost impossible not to be up. viacom straight down from the group of which it's a part how far could it go? i mean, anywhere your imagination wants it to go, but the only thing i could say you could see is this. that's a pretty well-defined formation.
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that's the '09 low down over here i mean, lower, south 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 that the s&p is. this thing's trading about 6 1/2 times next year's earnings both the equity and actually the options market, too, are saying that there's some real problems here i was looking to january, the 22.50-20 put spread. the strikes are about $2.50 apart. that's the first out of the money strike we could get on this thing you know, this is a company that has some really troubled assets. we were talking about it right before the show. i mean, mvt, vh1, these are the things that we watched when we were kids. my kids, they don't touch this stuff. >> probably don't know what it is. >> they don't! they don't i mean, i was thinking, when's the last time we even realized these channels exist is when i was on the airplane and i accidentally hit the channel
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button too far, where it was the upper reaches, that and the country music channel. this is the kind of stuff, they don't have viewers we can see where they're going and they're not going here so they have a real problem to resolve. paramount studios also had silgt underperformance. >> you're risking a certain amount to get back to a certain level that it's not traded in seven, eight years, something like that. the only thing i worry about at such cheap valuations, you look at the sum of the parts, look at what's really causing this you just said, it's google, facebook, it's obviously netflix, but it's going to be apple, amazon, that sort of thing. i wonder if at some point jeff bezos does what he did with whole foods, just takes in the studio. >> what other sectors have valuations that are basically as cheap as this? retail names like macy's. and they're facing the same types of competition. >> secular thing. >> that's right. and every single time you try to draw the line in the sand, you say it can't get any cheaper, what happens people realize the business is
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really deteriorating severely, and that's when they go lower. >> it's 24, 25 bucks, all-time lows >> question for you, carter, why wouldn't you play disney back to like $90 rather than pressing -- >> it's probably a better one, but it's dish, disney, cbs, it's omc, the whole thing is under so much pressure. it would take a lot to fix it. >> yeah, but when you take a look at their closest comps, this is the one that's the worst of the group. >> but it's also down from $90 to $25 i'm saying disney, there's an obvious level -- >> the price level doesn't matter if the underlying business is deteriorating. >> but the idea of pressing a stock that's gone from $90 to $25 -- >> we're risking 70 cents. >> obviously doesn't like the trade. that's all right, though. for everything "options action," check out optionsaction.cnbc.com, and while you're there, sign up for our scary good newsletter. what are you waiting for here's what's coming up next look, up in the sky! it's a bird! >> it's a plane!
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>> no, it's just shares of alibaba. but if you miss the move, we'll tell you how to get long for just $2 ahead of earnings. plus, 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. >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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. hi, i'm the internet! you knoarmless bowling.lt? you got this, jimmy!
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witness katy perry and left shark. or a card shark. grandma? witness katy perry work. witness katy perry firework. witness katy perry swish. witness katy perry... aaaaaaw look at that dog! katy perry: with music videos and behind the scenes footage, xfinity lets you witness all things me. 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.
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welcome back to "options action." the nasdaq soaring to new highs today after blowout earnings from alphabet, amazon, intel and microsoft, added roughly $150 billion in market cap today alone. 94% of tech stocks have beat estimates so far, and it's not over yet four more tech giants are set to report next week, facebook and tesla on wednesday, the options market's implying 5% and 6% moves respectively for those stocks and apple and alibaba are reporting on thursday, apple implying a 4% move either direction and baba a 5% move together, these four names could represent an $84 billion shift in market cap. and mike khouw's got a way to buy one of these high flier's for less than 2 bucks. hey, mike. >> we're going to talk about a call spread risk reversal. we're looking at baba, targeting a catalyst in this case its earnings, which they're going to report midweek importantly, elevated options premiums are what we're seeing, implying about a 5.7% move, which is larger than the last
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couple that we've seen also, this is a stock that's up a lot. so 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 is i don't want to take -- if it's going to move 6% to the down side, that's the risk i'm trying to avoid, and if it moves 6% to the up side, that's what i'm looking to capture with a call spread risk reversal looking at weekly options, i could buy the $1.75 calls that expire next friday, sell the $162.50 puts at $1.25. this entire trade, it's $1.70 for slightly better than that. around 10:00 this morning. i was actually trying to put this trade on. i lost my market data. by the time it came up, the stock had rallied sharply. so, this is a trade i'll be looking to put on on monday. i didn't manage to get into it today. >> dan, what do you think of the trade? >> i like the trade. i think the most important thing is recognize the fact that
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worst-case scenario, you get the direction wrong, the stock goes down a bunch, you're basically putting the stock, at the premium that you're spending, plus the short put strike $162.50. if that's a level you'd be willing to buy the stock if there's bad news on the earnings, then you should feel pretty good about it, and just about the choice of separation, 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 here. it's trading the event and if you're wrong, you're going to move on. >> i mean, 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're going to know the answers next friday. and if it goes through $175, it's actually above there right now, runs up, this will be a n winner if it falls, essentially you're getting long the stock at $162.50. the options market is implying a move of about that size or less, so that would represent -- i mean, the stock closed above $177, so that's a $15 decline, essentially, if you get down to that $162.50 level that would be more than the
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options market's expecting so the down-side risk, you know, it's obviously a lot less. >> it has the same setup as every one of these names today -- weakness of late. just what amazon has had, and google >> right. >> 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, right? in this area but it's a stand-alone and at this point, the better bet is that it's up. >> it is -- you know, one thing -- and maybe this is just my perception of it. but taking a look at this entire earnings season, it seems like with the exception of maybe a baidu, there's a handful of isolated incidents but in general, it seems like the market is favoring tech here, regardless of how their earnings come out. the news is viewed more positively than it has been -- >> the buys are to the up side. >> yes, which isn't true across every sector this earnings season. >> all right. up next, the yield on the u.s. ten-year surging to its highest level since march this week despite the move, there's one rate-sensitive sector that's holding up very well plus, got a question for our
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traders? send us a tweet and if it's a good one, we'll answer it in the show i think it's terrific. >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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.
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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.
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welcome back to "options action." time to look back at some of our open trades. back in september, dan played for an apple bounce. >> i want to look at a call butterfly. i want to look out to november expiration it's going to catch all three of those events next week, the launch of the device, and thin their next earnings event where they're going to give guidance so today when the stock was trading at $159, you could buy the november $160, $170, $180 call butterfly, paying $2 for that. >> well, 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, so what are you doing, dan >> so in light of 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 for the reasons that the stock has moved up here. this trade has appreciated dollar i'd take the profits and roll it into a straight call spread. if these guys beat their estimates that they raised last quarter when they gave guidance and then beat again, especially
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given all the sentiment about supply for these iphones and maybe demand for the iphone 8, if they raise, this stock's going higher it just is so you know, at the end of the day, i don't think you want to be in a structure like a butterfly. i think you'd want to be in a call spread. so i'd take the profits and roll it out into a call spread where you're buying one call spread and selling a higher strike. one month ago, khouw and carter said utilities were headed higher. >> two ways i would draw the line one, 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% sell-off in the xlu for a bounce here. i want to be long at this point. >> i was just looking out to january to the $53 call. you could spend about $1.45 for those. those are the at-the-money calls. >> since the time of the trade, the utilities have rallied slightly and they've actually held up pretty well in the face of rising rates. so carter? >> that's the bizarre thing. in the past 30 days, rates have
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gone from 2.27 to 2.47 and utilities are up 3.7% more than the s&p in the same period i think that resilience is impressive, not so much for us, but what it says about this area of the market holding up in a move like that in the ten-year i think we want to stay with it. >> we bought this call for $1.45. it was worth over $2.50 today. and interestingly, you could buy the $55 strike calls for a little over $1.10. what you should do is actually sell this one, buy the $55s, so you've basically taken all the original risk off the table, and you're now long the $55 calls. so we're basically playing with house money. >> what would you do with this >> if this chart didn't say xlu, it says something tech-related or something that was kind of growthy, you'd be buying it for the breakout it's a great looking chart, and i think you have identified the potential headwinds of the trade is this rate cycle, right, and that sort of thing so to me, i think mike's rolling the trade makes sense and using the house's money. all right, up next, tweets and the final call from the options pits i think it's terrific.
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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.
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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.
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welcome back to "options action." time for some tweets our first fan asks, "i bought facebook november 3rd, 190 calls for 45 cents what do you think? dan? >> i think there's a low probability. only a 13% probability those are in the money, so it really depends on your conviction on this one. >> all right our next fan, angelo, asks "with the pullback to the trend line in xbi, how do you feel about the january 90 calls thank! love "options action." thanks, angelo mike >> tough week with all the news that's coming out, but 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, i think that's the way to play it. >> just as angelo said, perfect trend line, bounced beautifully, and in the market, biotech is up and all of those big names today, google, they're all down. play the bets. time for the final call on the options pits carter >> viacom, i know, what do you
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do just get away from it, however you can. >> mike? >> going into baba, options are expensive, so use a call spret risk reversal where you're selling more options. >> start-ups, i'm using defined risk, playing it in a contrarian way. >> all right, our time has expired. i'm melissa lee. thanks so much for watching. for more "options action," check out optionsaction.cnbc.com - [narrator] the following is a paid program for the kitchenaid artisan stand mixer and attachments. stay tuned for the newest offer to try the kitchenaid artisan stand mixer and select attachments in your home, risk free. if you're passionate about preparing, enjoying, and sharing great food, if you love being creative in the kitchen, then come along with us for the newest addition of every day with kitchenaid. today, we'll visit the kitchenaid culinary center showcase events in cool and vibrant southern california, soulful, spicy new orleans, and the tropical paradise of florida. come watch along with other passionate home cooks like you

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