tv Options Action CNBC December 20, 2013 5:30pm-6:01pm EST
this is options action, tonight -- >> oh, my god. becky, look at -- >> the price of amazon stock now over 400 and counting. if you missed the rally, relax, we'll tell you how you can still profit from amazon's amazing run. plus, is tesla too hot? >> lord jesus, it's a fire. >> after a massive year tesla shares are feeling the heat on reports of another fire. is the stock about to go up in smoke? and talk about a crude shock -- >> no. i am your father. >> quietly oil has hit 100 bucks. we'll tell you how you can cash in on the move. the action starts now.
live from nasdaq market site in new york city's times square. these are the traders here on the desk. busy expiration friday we start tonight with america's favorite tech stock, that is apple. pinned to the 55 level. a week that saw record highs for the market apple was a laggard. with the holiday season here, could this be the ultimate gift for your portfolio? let's gets in the money and find out. get to our resident tech guru. >> really? >> dan. that's all relative. >> you say that so quizzically. i take it as -- >> sorry. >> that could mean we are lewdites. >> now, when you think about this stock up 3% on the year. it's up 40% from the lows, look at that chart. traders i'm talking to, they see that as like an epic double bottom. that happened in the spring and in the summer, then you had a massive rally. it's stalled out. almost unchanged. i believe we saw this move just
a couple weeks ago. the stock went parabolic, straight up. gained $50 billion in market cap in a matter of weeks. that had to do with china mobile. kpeem pekted when they rolled out their 4-g, that iphone would be sold there. it wasn't. the stock has consolidated here. to me, i actually think it could be setting up. i think these guys have opinions on that. >> what's the next catalyst? we would need to get the quarter results and to see holiday sales were good. >> yeah. in the absence of a story on china, obviously we have to be focused on holiday sales. typically when you see a lot of this. they still sell arguably the best products. there hasn't been anything new on the horizon. so i think we're sort of holding our breath right now. i think that's what -- we thinks that china could be a very bullish event. but that won't happen right now. >> domestically the only big thing that can happen is the new ipad celerily well for the holidays, interestingly, almost every stock you look at is near all time highs, apple not so
much. well below 705, it's even well below the 571, 52 week high. look at the chart. it looks like from that 571 level, it rolled over a bunch. interestingly, apple did try to pin that 550 strike. that just happens. on expiration day, the stocks, they get stuck to big round strike prices. it's not something to worry about. in fact, if you short those options, it's fantastic, what you have been waiting for. >> i want to get back to you, dan. you're bullish, we'll get to dan in a second. your trade doesn't play for the earnings. >> here's the thing. the stock is basically unchanged. it's one of the few stocks that's underperforming so massively in a market up 30% at all time highs, if you think about the s & p. so to me, this stock will participate. i think with the china mobile thing, where there is smoke there is fire. they will have a deal. to mike's point, there are no new products. there may be a surprise. i don't believe -- i think an iwatch or wearable computing actually poses risk for apple at some point next year. this is a company expected to
return to earnings growth, 10% a year. sales growth is only going to be midsingle digits. so it's not that cheap of a stock, despite the balance sheet and everything like that. so i don't think it's such a layup. i think it's a great company with great products, it's well positioned, near term is what i want to look at. >> let's get to the trade here. dan is selling a put spread. we used this strategy before. it's good to crack open the playbook and see how it works. it's a bullish strategy, sell one point then buy a lower strike put at expiration to protect yourself. you want the stock to trade above the short put strike on expiration, you keep the profits you took in. should the stock fall you'll see losses but those losses are capped at the strike of the put you bought. so dan, walk us through this. >> january 3rd expiration, we'll have 2.5 days of trading days not going to exist. they will be holidays here. that's good if you're short options, what i want to do lean on this 550 level that scott said, that the stock pinned to on this expiration. so i'm looking at january 3rd expiration when the stock was
550 today i sold the january 3rd, 550, 540 put spread for $4. my max risk is the $6, the difference between the credit i received, so between 546 and 540, i can lose up to $6, my max loss is $6 below 540, i can make up to four between 546 and 550. if the stock stays here or higher over the next couple weeks during holiday, i'll collect the $4, it's not amazingly bullish trade but it's an options trade setting up well. >> but what this options trade is, it is the bullish hold your breath trade is basically what it is. the trade that will pay you to lean in a bullish direction without a profound catalyst to get the stock to go up to its previous highs, it makes sense. one of the things that's interesting here, you are getting a pretty good percentage of the distance between strikes. but it's tight. 10 bucks in apple is not a big move. >> that's right. you need the stock to go up or sideways, that's the way it works when you're selling a put spread. interestingly, dana is selling essentially an at the money slightly in the money put.
normally, when we do that, it's because we would be willing to buy the stock at a discount. with a spread like this, only 10 bucks, that's not the case. you don't want to let this go and be a sign, end up owning the stock. that's not what dan is doing. so if that 550 strike is in the money at expiration, you want out of this trade. >> all right. stocks aren't the only thing getting a boost in today's gdp report. oil running higher. hitting a two month high as it nears 100 bucks a barrel. dom chu back at headquarters with more. >> melissa, as if they needed a boost, the great usg dp numbers are putting a bid back to the market for sectors, oil like you said, now the world's biggest economy expanded at a 4.1% annual rate. one of the places you see impact is in energy. both west texas intermediate and brent crude oil prices rose today. that helps the names in oil field services, among the best performers in the energy sector, halliburton, baker hughes, all up a percentage or more.
look at those oil services stocks on the heels of the gdp report. >> thanks, dom. will oil service stocks catch up to the broader markets? let's call to the charts with the one and only carter braxton worth of oppenheimer. hi, carter. >> the setup is crude was quite weak from the end of the summer at 112. but crude has recovered back to almost 100. some of these oil service stocks are still down. we think they are to be played here on the long side for bounces. just to give you the backdrop. this is the oih, the etf which captures halliburton, weatherford and so forth. this is the entire energy sector as measured by the xle. you see the correlation is virtually 100%. this is where the opportunity is. here are the same two instruments taking a little bit of a longer time frame. what's important is that energy, as you see here, the sector has made it back to all time highs, we know of course in the past week, exxon itself has been able to exceed its 2007 high. whereas drillers are nowhere
near their high. and so you're talking about as a group, halliburton and weatherford up 60% versus 180. so one-third. that's the opportunity. look at the charts of the oih. perfect response to a trend line over and over and over. and every time you respond, you bounce, you bounce, bounce. and we would play for a bounce here. where it closed at 47.55. we think we'll go to 55, which is right back to these tops of 2010. so this is what we would play for. nice move coming. >> those are interesting charts. what's your take? >> halliburton big component in the oih. trading at a discount to the broad market. however, they are trading at or above historical multiples. to do this, what you want to do, take advantage of what options will give you. allows you to take a relatively low risk bullish bet here.
i'm looking out to april and looking at the 48, 52 call spread. pay 175 for the 48s. this i think is basically a decent way to make a bullish bet. >> you like the trade? >> i do. i think this makes all the sense in the world for disciplined options traders, people talk about using options to get some sort of looking good billy ray feeling good lewis sort of trade. that's not the case here. all you try to do here, make an intelligent bet that will pay off and be profitable more often than not. mike is doing this. this makes sense for disciplined traders. carter points out that his target is 55 bucks. that's why mike is willing to sell an upside call. >> you know, i love the entry here. i wouldn't even sell that upside call. i think you have a cheap option in that call. and 10% off its highs, i would get long and look for ways to finance by selling shorter dated ones in a counter. >> that's a good point. we look for opportunities to spread. you do that all the time.
that's actually something you can certainly consider here. >> all right. let's bottom line this with stocks versus options, buying 100 shares of the oil services, sets you back almost $5,000, mike's call spread can more than double money and cost just $125. got a question out there send us a tweet at cnbc options, we'll answer it tonight scott is looking at small caps, you'll find great trader blogs and educational material. check it out. here's what's coming up next. >> under fire. no, not that guy. we're talking tesla's shares. which continue to get torched by reports of random fires. could the selloff be a buying opportunity? >> plus the world's greatest nonprofit. amazon. despite not making a dime, the company's worth over $180 million. but we'll tell you why that may not be good for the stock when options action returns. >> get more options action, with our newsletter, delivered
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in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade. time for the greatest segment of all time. time for i want more cash, we take a look whack on winning trades and show you how to make more. just last week dan made a bearish bet on tesla shares. the stock has fallen 5%, but dan made much more and here's how.
on options action sometimes risking less to make more just isn't enough. sometimes you want more cash, and that's the case with dan's bearish trade on tesla. dan thought it was time to hit the brakes on the auto maker. >> i just wanted to make a short term bearish bet. >> just shorting the stock, let's do some math here. tesla stock is worth around $150 a share, so in the unlikely event it goes to zero, the most money you can make is 150. but can you lose an infinite amount of money as stocks can go up forever. >> forever, forever ever. >> yes, forever. so to define risk, dan has the right to sell the stock at that strike price or $150 by december 27. but in order to make money, dan needs tesla shares to fall below that $150 level by more than the $5.50 he spent on the trade or below $144.50 by december 27. that's the most he can lose on
the trade. but it gets even better. >> a million times better. >> is that possible? >> yes. because if tesla shares fall, since the time of the trade tesla shares have fallen more than 5%, making this trade a winner. now options action traders everywhere want to know just one thing. how can dan make even more cash? before we answer that, let's see just how much money was made. had you shorted tesla stock at the time of the trade you would have made 5%. not bad. but dan's put cost -- can be sold for $7, a return of more than 35%. anyone following our twitter feeds would know that he closed out half of his winning position this week. but how can he make even more cash on the trade here? and remember, dan, name of the game here, i want more cash. >> yes. >> how do we do that? >> who doesn't? here's the thing, this was a
short term trade. i was really looking to make a play at that 140 level. it got there. that's why i took half off. i doubled my money. now i really don't have a whole heck of a lot of risk. if i want more cash, what you could do, sell a lower strike put, or i'm waiting, i'll keep this on a short leash. on monday, if this stock does not break the purple line is really what you would target for a big, big move. if you can break 140, you'll get more cash. if not, these options will start to erode quickly. you'll want to get out. >> what is that purple line? >> was a big support line. the orange one is the moving average it bounced off of just a few weeks ago. >> i don't know about your analysis of charts. i'll go to carter. what do you see on the charts of tesla? >> the operative thing here is that the selloff, the big selloff from 195 to 120, 40% down, is that what's important? or the move that preceded it? the selloff was normal. we think this rebound and then pullback is normal. but the primary thrust is higher. that's what it looks like. >> the primary thrust is higher. scott. >> one thing.
i don't like this idea, that you don't have any risk, just because you captured as much money as you spent. your risk is what those options are worth on the close today. so i think dan is right to say he's looking to spread out. it was short term. he wants to spread out. it's not like you don't have risk. you own options, and they are worth something. don't let them erode away. >> sometimes options that appear expensive deserve to be because tesla moves around. that was demonstrated short dated option 5 bucks worth every nickle. >> would you rather, though, mike long or short tesla at this point? >> you know, at this point, you know there's a really big short interest in the stock. i think that that actually creates the potential for support here. everybody already knows what i feel about it on a valuation basis, i would have a hard time making a bearish bet. >> coming up next thought the amazon drones were a joke? shorting the stock has been made mockery of portfolios, we'll tell you why it could be time to get out of the world's large evaporate online retailer when options action comes back. [ indistinct shouting ]
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welcome back to options action, in honor of the last few shopping days of the season before christmas next week, we want to look at amazon stock, the world's largest internet retailer, the shares of that company hit another record high in trading. they crossed the $400 mark for the first time ever. that makes amazon worth about $185 billion as a company. now for comparison sake, check out department store giant macy's worth around $19 billion. then target, which clocks in at a hefty $40 billion. but of course, nobody is as big as walmart with a market capital of $250 billion. amazon still has a ways to go before hitting that king of the retail hill. back to you, melissa. >> thanks, dom. and as you all know, amazon is in fact the hardest stock in the world to short, but mike and dan are in the bears lair with a reason now could be the time to do that. dan i'm interested. because everybody shorted amazon basically got their faces ripped
off. >> forever. >> yeah. >> listen, it's been an impossible short. in a market that some people think with the s & p up 30% it's acting rationally given the backdrop, investment drop back. it has acted irrationally when you think about the fundamental stuff that mike will talk about in a second here. you know, the stock is up 30%, in this quarter, alone. it's just gone parabolic. to me, take a quick look at the charts here. i'll put my carter hat here. this is a two year chart. when you look at this up trend, this is a pretty beautiful up trend here. you know, you think some pretty great things are going on here. then you look at this move right here. i mean, this thing has just gone parabolic. this is this move i'm talking about. making new all time highs, this is the sort of thing, where as a trader you start to get your antennas up. then let's look at this here. this is the one year chart. you know, it's been really systematic here. it's consolidated right. and then just busts up. consolidates and busts up. here we are all time highs
today's, closed on the dead all time highs. and what do you do? do you buy this? i think you have to be crazy to buy it. it's also been, you know, a widow maker on the short side. mike will talk about some fundamental reasons at some point something has to give. >> i think it's interesting here, because of course, what most people points to is how expensive is the stock on a price to earnings basis, for example. you know, you can't do that with amazon. they haven't had that much in terms of earnings, that's not what people have been betting on. another way to look at this, on a price to sales basis. thinking that some day the margins will show up. what you will see, if you take a look at longer term chart. guess where we are? right near that high in terms of multiples. almost 2.7 times sales. so when we think about it, if this is our metric for fundamental analysis, then maybe we look at the upper end of the range. this is actually sort of demonstrating, this is basically since inception, now this thing will make maybe $2.60 a share for $400 stock. that's not a whole lot. here's the good news. what sales have been doing, basically going at a 45 degree
angle. i expect that to continue, and if that's what people trade on, that's why you can't short this stock. what you have to do, if this is the time, what we want to do, put on a bearish bet, that actually pays us to wait. so what i will look at doing, buying in july, 375 put, spend $26 for that. then sell near dated put against it, the january 375, collect 365. doesn't seem like it's all that much. actually what's going on. this shorter dated put, this is decaying just as quickly as this longer dated one. so if the stock stays here you actually when that one expires, probably go out and sell another one. >> there are a lot of charts, a lot of lines drawn on charts. dan says he is putting on the carter hat. so carter, what do you say about the analysis? >> well, i think it's legit. here's one thing to be mindful of. when you are in an established trend then you starts to take out the top end, usually, a fairly mature thing before it actually ends. just to put this in context. amazon is up 60% on the year. you have things like yahoo up
100, things like micron up 200. that part, that is just above the trend, that dan has drawn there. it's fairly young still. so we actually i would say go a little more. >> go more. scott, what do you say? >> i think the only problem with this, if amazon keeps rallying, and it never is stepped back that july put will get killed. i mean crushed. and there is not a lot to come out of that january put. so i understand what mike is trying to do. he's trying to finance a bearish position. and maybe what you do, once that january put expires, you keep selling some shorter dated puts. i call that a super calendar. the problem with this, there is no reason to have a position, just because you think it's going to come back. it's okay to not have a position, it doesn't mean you don't have an opinion. >> i just want to add a point. we are in bizarre territory. some of us lived through the tech bubble bursting 13 years ago. when you think about in a week or month we saw drones and all this stuff amazon will deliver stuff. it's getting the sentiment seems
extreme. >> 26 bucks is a lot for that put not in the context of the $400 stock. >> the drones will deliver the bitcoins. >> and 3-d printers. >> yes. >> coming up next final call from options pits. ♪ [ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.
[ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade. ♪ want to know what we do on christmas? you're looking at it. that's right. a very special christmas from the options action gang. this is the last show before christmas. so we want to wish everyone a happy and healthy holiday season. disturbing. >> it is. that is disturbing. >> final call now. last word from the options pits. scott. >> that is wrong on many levels. web extra, what to do, when stocks are high and vols are low. >> dan. >> apple is going to have those days off for the holiday. i think you lean on that 550 level i like short put spreads
near term. >> mike. >> apple is actually one of the places where that sets up well. kind of to scott's point there are a couple places options look cheap. stocks are high. >> our time has expired i'm melissa lee for more options action check out our web site s friday. have a great weekend. "mad money" starts right now. 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. welcome to "mad money," welcome to cramerica. other people want to make friends, i'm just trying to make you some money. my job is not just to entertain you but to educate you. call me at 1-800-743-cnbc. after the best week in five months, with today capping the