tv Fast Money CNBC December 27, 2013 5:00pm-6:01pm EST
say to them. they'll find that out to be true. >> next time a waiter brings your steak out cold, have him tell you life is unfair, simon. just eat it. deal with it. worse things will happen. >> all right. you guys thank you so much. a lot of fun this friday. >> perfect end to a perfect day, kelly. >> now dominic chu hosting fast money in for melissa lee. dom, contrarian take on the day. is it not? >> it is interesting, of course, this is the first downish type day we've had in seven for the dow. if you talk about where the money is made, kelly, we talk about the big bets, the guys who make those contrarian bets, think about those people who bought subprime mortgages or shorted subprime mortgages, they made the big money. maybe that's the way you actually make the calm. you make the big money making the big bets. right? >> in that case, i want to stay tuned and find out what they have to say. over to you. >> thanks. fast money starts right now. live from the nasdaq market site in new york's times square i'm dominic chu in for melissa lee.
here's tonight's lineup. the target data breach gets bigger. new developments about safety of pin numbers. we have details and potential impact on target's stock. twitter falling back to earth. sort of. even with the day's selloff the stock is up more than 50% this month alone. we'll break down the key levels, that you need to watch. and while everyone has been watching twitter, another ipo was quietly taking the top spot as the single best performing ipo of the year. we'll talk to the ceo about his company's efforts to answer, that's coming up. our traders tonight carter braxton worth, josh brown, jim, and steve grasso, the crew here for this friday. let's get to our top story. searching for signs of a selloff. more than 80 companies in the s & p 500 hit all time highs in today's trade, the s & p is up 30% for the year. at what point do we start seeing a real selloff? let's talk about this. mr. grasso, steve grasso, you got to say, when the s & p goes
up 20% or more in a year, it doesn't happen that often. and it's a great sign for the market. >> it is. but there are hedge funds that underperformed this year. so going into year end, people are still perplexed as to what to do. when is that selloff, that we've all been saying is long time overdue. >> i've been saying it for ages. >> will it happen in january, february, is it overdue six months? when should it happen? guys are making bets still, that it's probably not going to happen until maybe february or march. because earnings might get in the way of it. >> so that's interesting. carter, this is the interesting point. we talk about the charts, you're the historian, you go back and check the patterns for what's happened in the past. >> very kind. speaking of history. bull markets have maturity dates. that's one of the issues. only seven times in history where you have seven consecutive -- seven times or five consecutive years up. this is now a fifth. that's a rare thing. if you look at the last four times it happened, the next year was quite poor. we had that circumstance in '07.
'08 was not good. we had it in '89, '90 was not good. bull markets have maturity dates. we are far along in this process. >> josh, what's the retail investor have to believe about this? should they start selling off their stocks and going into a bunker? that's not really the way you approach this. right? >> no. that's the last thing they should ever do. so bull markets have maturity dates. but i would take issue with the fact we're up five straight years, because 2011, essentially on the s & p was a push. it was flat. and in fact, so many people are using that 2009 generational bottom as their reference point for the current rally. but the truth is this bull market actually reset in october of 2011, we had a 21% peak to trough. if you want to be super technical, this market -- this current rally is maybe a little over two years old. and, if you want to talk about maturity dates, typically, these types of bull cycles end at 17 or 18 pes, we're still scratching a touch under 16. so i think it's a bit premature, just to go by history and say
that's we're over with. >> jim, how are you advising clients? this is a big deal. you must field certain questions about whether or not to lighten your load just a little bit now? >> right. you know, here's the thing. we can all say that a correction is due. i think one is due. but having said that, i can't tell you when. i can make a case it should be january 2nd. i can make a case, steve, you and i were talking about this earlier. that it should be after the earnings season. i don't know when it will be. but i think we'll have one in the first quarter. what do you do? you sell the high flying stocks. you buy the cheaper stocks. don't get out entirely, that's crazy. don't short the market. that's totally insane. just get into the cheaper names. that's where you get protection. the cyclicals, the basic materials, the energy stocks, that will benefit from a growing economy. >> it's not a wholesale asset allocation you're just shifting styles in equities from growth to value. >> that's t. the economy is doing great. don't get out of the stock market. but pace yourself, this is a long term -- long term rise here. >> speaking of high flying stocks, let's talk about this.
the hashtag rally has been taking a bit of a breatheser in a big way. twitter dropping 13% after a downgrade to underperform from neutral. so do the technical show more downside ahead? let's go off to the charts with carter braxton worth over at the smart board. carter, this is a company that doesn't have history but still the chart has to tell you something. >> that's just it. we'll look at the charts. it's not because of a downgrade. stocks don't drop like this when someone was neutral and goes to sell. meaning they were never bullish in the first place. this is a stock that is crowded, and people ran, because it's crowded. and here is the problem technically. well formed head and shoulders top as you can have. symmetrical. beautiful. this is all very much in line. we have a neck mine. and we have a plunge today. absolute disaster. where does it end? here's that same, i have predrawn the lines, we're now here. we fill this gap, which is very important. ultimately, we think we're
coming down into the mid50s, take a look at this trend line. that would get you there here. this is not good. and it just shows how thin the support really is. people don't run like this. this aggressively, when they feel very, very good. >> you know -- >> let's talk about this. >> i'm going to jump in, because i do think it had a lot to do with the downgrade. because the last time we saw chatter negatively about twitter, you saw the same type of events. and to carter's point, it traded down to the middle 50s, that's why there is support there. but this is a downgrade, up 40% from initiated coverage on this. like he said, it was neutral to underperform. hardly a downgrade. >> i'm with carter on this. because there have been three other downgrades that didn't move the stock. this one did. and i think the reason why this one finally did is frankly has to do with the way this stock has been essentially manipulated higher over the last week. it has all of the hallmarks of guys looking to make up perform ance, and using a big liquid
stock, that can easily be jostled about. i genuinely think we've seen a mini pump and dump over the last week. there has been no news to justify a 50% return in 30 days. i can only assume somebody got heavy into it, pushed the stock up, some shorts capitulated. today was the execute. so i think the downgrade, it's a little issue, maybe the trigger, but it was going to happen. i'm with carter. >> enormous volume, you still have earnings, nobody knows what to look at for earnings coming january 30th. so the short interest, that i saw, increased by 7%. recently. so you still have guys, the best catalyst is more guys got short off this steep incline, that we've seen in the recent stock action. so that could be the catalyst, when you get a couple days from today, where you saw that huge volume day, where guys have to cover going to the face of january. >> this has been a stellar performing ipo. twitter isn't the best ipo of 2013. so which one is?
it's a company called insys. it's up 400% since it went public in may. now, joining us from phoenix is michael, the ceo and president of insys therapeutics, i have to say, first of all, this is a rip roaring stock for you guys. the ipo has been fantastic. tell us what it is about insys that has investors so excited. >> hi, dominic. thanks for allowing me to speak about the company today. one of the main things about insys and our excitement level we have for it this year and going forward, is a platform technology, that we have. it's a sublingual spray. our first branded product is a sublingual spray of fentanyl for cancer pain. these are patients that experience tall spikes in their pain throughout the dave. the device, that i brought with me today allows the patient to simp leap, with no priming, spray the drug underneath their tongue, and a plume geometry.
we believe this platform is important for the future of drug delivery. a lot of products out there, that people are familiar with, are the capsules and pills people take orally. when you deliver medications underneath the tongue, you're getting more rapid absorption, more of the drug into the blood system, which allows for a better profile. >> i was going to say, because this is a big deal, i know when we talk about these types of cancer drugs, these companies, cancer treatments, they are the way forward. we've seen a lot of smaller companies in the space get gobbled up by the big ones who want that cancer type pipeline. what's the concern, at least from your side of things? do you want to keep this going? or are you looking to sell to somebody else? >> sure. nope. we're in it for the long term. we believe there is about 30 to 40 molecules, that lend itself well to this spray delivery system. and we want to -- what we're doing now is tripling our r&d staff. the success we've had with this product has allowed us to
accelerate things. when you look at our shareholder base we are fortunate, we had one sole investor in the company prior to the ipo, a doctor in the industry for years. and he has large ownership in the company and has done well over the years. and both he and i have a long term commitment to the spray delivery platform. so look for us to be around for a very long time. >> got you. michael, thanks so much for joining us on fast money to talk about what's happening with your company. again, we have some breaking news on apple, let's go back to the studio headquarters with tyler mathison. he has more. >> thank you very much. for those of you who follow these things, we have the compensation for 2013 for the ceo of apple, tim cook. he received $4.25 million in 2013. that's his total compensation. that doesn't sound like a lot in these days of really huge payouts. don't forget he got huge stock bonuses some years ago. he's doing just fine.
that 4.25 million was a raise, he got 4.17 million back in 2012. once again, apple ceo tim cook receives 4.25 million in 2013 total comp. back to you. >> tyler mathison, thanks so much for that update on apple. josh brown, let's talk about this. do you care that tim cook made 4.25 million -- >> give him the money. this is like the largest publicly traded company in the world. he's under more scrutiny than any of the ceos in my view, give him the money. he's absolutely worth it. who else do you want in that slot? >> i think i have to say, i think this is incredibly smart of tim cook and the board. i mean, there's a lot of people who would say, well, stock is down, so we shouldn't pay him much of anything, 4.25 for one of the largest companies in the world if not the largest company in the world is a pittance, what he's done is taking the compensation issue off the table completely. >> if this was a wall street firm they would give him 104 million. so i think you pay him. and god bless, he's doing great. >> there you go. thanks for that. now, let's move on here, if you
want to make a lot of money, sometimes you have to take a lot of risk. our traders are entering the danger zone and giving us their number one contrarian pick for 2014. that's coming up. and cigarettes haven't been allowed in tv commercials for more than four decades, but electronic ecigarettes are a different story. are these new ads safe from the fda's cross hairs, more fast money coming up. keep it here. it's as simple as this.
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♪ welcome back to ♪ welcome back to fast money. time to hit today's top trades. first up, new developments in the target data breach, the company confirming today, that debit card pin numbers were stolen through target -- target does say the data is safe and secure, because it was still encrypted when taken. jim, does this make you feel better? >> it doesn't necessarily make me feel better as a consumer, dom. but i have to tell you as an investor, i like this stock. this is a retail stock, really well known, well regarded outside of this incident, that trades in the midteens on a price to earnings multiple with 2.8% dividend yield. it's been clobbered and has a cheap valuation because of this. you know what, what retailer these days hasn't had a security
breach? customers are going to come back to target the way they do to all other retail stores that have these sort of issues. and you know what, the only thing target could do wrong is not compensate their customers, who have had this data breach. but they already have compensated with $20 discounts and the like. they are showing the right amount of contrition, you're supposed to buy this stock. >> longer term targets, a decent deal perhaps in jim's mind. how about general motors, in reverse, gm stock down after the auto maker said it will recall nearly 1.5 million cars in china. now ford and tesla also in the red today. steve grasso, autos, what's the take here? >> you know, finally it was talked about recalls in other car companies. now they got what they wished for. gm and ford were up 30% until recently. now gm is up 42%. ford up 18%. i think it's time for that to reverse i'd be a buyer. >> buyer of ford says steven grasso. how about ecigarettes? clogging the air waves.
cigarette companies that make electronic cigarettes are rolling out new television ads ahead of expected legislation in 2014 from the fda that could bar on-air commercials teach ring those, what about these ecigs should we advertise them. >> on the stocks themselves, i'm bullish on the trend. i think a lot more people will be using them. but i can't find a great way to invest in the equity market yet, which is the main point i want to make. lorillard has been the go-to play, they own blue which lass 49% of the market. they are the far in the way winner right now. but it's cannibalizing the existing business. they have only made $9 million on their ecigarette business. i don't really love that. there's a publicly traded e-cig, it's pink sheets or otc. not interested. now phillip more sis about to enter the market. they will make it even more
competitive, reduce margins, so i don't know if i'm crazy about the equity side of this trade. but i am bullish on the trend. i think it will get big. >> e-cigarettes bullish on the trend says josh. how about this? 2013 is coming to a close, so we're asking the trader group here to go out on a limb for next year, with their top contrarian plays, that's coming up next. plus we have your first trade for monday. so keep it right here on fast money. more coming up after the break. >> fast money means trading. everybody has to bring their best information each night. the entire trading day is the preparation for the show that night. >> it's idea generation, it's all about giving you a framework for how to look at the market. as the world has changed, our show has evolved. i am guy adami. i am fast money. >> i am pete najarian, i am fast money. >> are you fast money? go to the nbc universal store, and order your fast money t.
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tonight's executive edge. >> we have not been talking about trade a lot in this country for a long time. in 2014, we're going to talk about trade a lot. and these are going to be maybe contentious deals. >> right now the companies are holding out from hiring permanent individuals. and consequently, the temporary industry is growing at a fast pace. >> we've seen this job creation just continue with over 200,000, it's coincided with gasoline demand, actually seeing unseasonal spike. so i think if that continues, we could see this gasoline demand really pick up and see record levels come summer. >> people are driving 11 plus-year-old cars, the average carrot road almost twice what it should be or what it normally is which is normally six or seven. so we're to the point where their are people ready for a new car, they want to treat themselves, just need a little more confidence. >> i need some confidence and a new car. so jim, what do you think?
>> listen, we're going to talk about this in a minute. i think gasoline prices are going lower. i think that's going to help the consumer's pocketbook. you'll see new cars, more new cars on the road, there's a lot of clunkers out there. >> consumer spending the best performing sector in the s & p this year, maybe more fuel for the rally. time now for pops and drops. the big movers of the day. a pop here for sprint, up 8%. grasso. >> the stock is basically up 30% since that headline broke they were thinking about taking out t mobile. t mobile also up 30%. so you have t mobile, you have sprint garnering attention. you have dish trying to break up their own breakup here. so i own t mobile and sprint. i'm staying long ball. >> all about the air waves. a drop for delta, the stock fall 3g %. carter braxton worth. >> like all airlines up a lot this year, we would fade the rally, strength deteriorating, now bearish, take your money and run. >> so they are not soaring so high. how about a pop for barracuda networks up a whopping 20%.
jim. >> listen i know this is the year of the ipo. but let's talk the fundamentals. this is eight times 2015 sales. and 880 times 2015 earnings you're supposed to take this and run to the exit. >> take some of those profits, fair enough. how about a pop here for chinese internet up 4%. josh brown. >> i think this probably runs until we see -- we see the big ipo in china next year. all these stocks doing the same thing. these are not for value investors, these are high beta, very volatile high growth names. if you own one baidu is a higher quality play in this space. >> everyone waiting for the ali baba if it happens. how about this, 2013 a great year for just about everyone in the market. but next year might be more of a challenge. is the best way to make money to go against the grain? we're asking our traders to go out on a limb, give us their top contrarian plays for 2014. so let's go to carter first. what's the best idea you have for going against the grain?
>> you have to go against the very crowded trade in japan. basically, this is a door at this point. now they are all on one side from what we can see. we would say this is time to lighten up. >> fade the nikkei. >> great way. >> how about you, josh brown? >> i'm on the other side of that. i think that global growth, while people are dancing around it and thinking about it, the big contrarian play is that that's going to help the commodity producers, so i like vaw. this is about 65% chemical stocks. 35% mining and metals, nobody is actually buying the stocks. even though they pretend to. that will change next year as commodity surplus starts to be worn down quicker than most people expect. we see a general up tick in places like china, where people are basically saying growth is slowing. that could turn the other these stocks could ignite. >> basic materials upside trade. >> they have lacked for five
years, they traded low price to earnings ratios, i think that this is an underowned and underappreciated part of the s & p. so i like the american producers. >> there you go. how about you, jim? contrarian. >> we teased this earlier, dom. i think crude oil is poised for a meaningful fall down 30% to $70 a barrel. and i'm basing that on the payment of oil being produced here in the u.s. look, oil has detached from every commodity price known to man over the last year. ostensibly, that's because of iran, egypt, libya, you name it. i think the nail in this coffin comes when the u.s. allows crude oil exports that will flood the world market. >> grass oh? >> this isn't my sweet spot. but if i had to go against the grain it would be anner combee seems so telegraphed. i would be willing to take a shot. if it trades lower than 30, bail. >> there you go. it's time for the final trade, around the horn, and we'll go back to the start of the line. carter worth.
>> starbucks, we would say this is particularly interesting here. steady eddy, get long, be long. >> josh? >> i will reiterate. i like bank of america. i think in the first quarter next year, the stock is closer to 20 than 15. >> bank of america. jim. >> listen, it's been a dog, but i like exxon energy 4.5% dividend yield look for it to rise in 2014 with natural gas. >> steve. >> qualcomm, all you need to know is this headline qualcomm to build neuroinspired chips from a couple months ago, that's where you want to be. >> there you go. that does it for us catch more on fast money on monday. options action begins after this break. have a nice weekend. ionsxpress, our clients really seem
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♪ this is ♪ this is options action. tonight, bullion bounce back. >> little cube you put in hot water make soup. >> not the cubes in your soup. we're talking about gold could be the best trade in 2014. we'll explain why. plus, a contest with no winner. >> i believe education such as in south africa and in iraq,
everywhere such as. >> which one of these stocks has had the most ridiculous run in 2013? we'll explain why the answer could make you money. and sick of the rally? >> i think i'm going to throw up. >> well, if you have to be a bear, we'll tell you the surprising sector you want to get short in 2014. the action starts right now. ♪ live from the nasdaq market site in new york's times square i'm dominic chu in for melissa lee options action here coming from all over the country. texas, florida, chicago. if you think it was a quiet day for stocks, then think again. check out what's going on with twitter down 13% on the day. a victim of a slew of downgrades and perhaps a collective bout of investor sanity. but some company take a reversal in 3-d systems selling off violently after new record highs. and tesla lower on the day as well. now despite today's action,
those names are still higher on the week. begging the question, have they topped out? and could they simply be the most ridiculous stocks of 2013? so let's get in the money and find out. mike, are investors waking up to reality? and which of these is the silliest stock you've seen? >> i don't know. i think maybe you have to sort of pick your own version of crazy, when you look at any one of these three stocks. every single one of them has an interesting and exciting story. so tesla, building the best electric cars, 3-d printing a very exciting new technology. and twitter as the new comer, after facebook, seems like the social media stock of the day. but every single one of these has an incredible valuation problem, looking at twitter first is the most expensive stock at a $40 billion valuation, a stock -- it's bigger than kraft. that doesn't mean anything by itself, look at the kind of revenues these companies are doing. and it's incredible.
look at tesla, $20 billion valuation, it's priced as if it's the size of porsche, a company that does 150,000 unit sales per year globally. but tesla does less than one-tenths of that number. 3-d at about a $10 billion valuation, here again, this is a stock that's revenues are about half a billion dollars. so all of them, the valuation to me just seems incredible. twitter, obviously, demonstrating the kind of craziness that can happen. woe saw a huge volume day, now we're seeing big selloff, i think that some of these other stocks, you could see very similar things happening very soon. and for me, i think the one i'm looking at is 3-d printing. >> how about this, does this scare you, brian. that the types of action, that we've been seeing from these kinds of stocks, the mo-mo ones. >> it's scary to be an investor. if you're pushing money all in on one of these names you're ludacris. talk about twitter, which had a lot of fear built in the options market before today's fall. people basically using
protection, getting out there to protect stock positions into the end of the year. we saw that selloff come. certainly, there's a lot of nervousness, but what is interesting about all three names, you could actually tie all three together and have an industrial revolution on our hands. i think that's why you're seeing the valuations you're seeing, think about it, twitter, you go ahead, you view what would be a tesla. you pick out, you pick out your parts, you pick out the car you like. you send that to the 3-d printing specialist in your area. and it prints out your tesla car, literally. you put all three guys together, i think there's a reason the valuations are higher. there is high expectations on what these guys can actually accomplish. i think all three are in their very little infancy of what they can do going forward in the future. >> way too optimistic, i have to say. >> two of these are like each other. and then one is very different. i don't think that anybody doubts that in ten years, most people will have a 3-d printer in their home. most people will probably have some sort of electric car in their home. that means that 3-d printing and
tesla might do very well. twitter on the other hand is an entirely different thing. nobody needs it. it's a neat little service, but they don't know how they will make money. so i think that the craziest one, at least right now is twitter. now, interestingly, all of these, all three of these names saw more calls than puts today. that includes twitter. even though twitter option volume in total was four times average. and even though the stock -- the technical term is it got crushed. >> mike, let's go to you here. what's the thought, what's the word here on twitter? what has you the most either excited or skeptical about this trade? >> well, as far as twitter is concerned, i think the thing that would get me nervous about any of these stocks is very high short interest. and actually, that last gasp of enthusiasm, that scott was just referencing, with all of the call buying. the 3-d printing is the one we really don't know who the winner in this space is going to be. i don't think anybody is going to be printing their cars any time soon. actually it's the 3-d printing
that is probably the place to express your bearish bets, take advantage of the fact that people are out there buying all these calls, bidding them up. what you want to do, look for opportunity to sell them. i'm interested in selling a call spread on 3-d. the thing is, getting naked short one of these is obviously taking your life in your hands, selling naked calls, same thing. i'll sell a call spread specifically i'm looking at the february 90, 95 call spread. sell the february 90s for $7.40, and cover my upside risk buying 95s at 5.40. the difference is the credit i receive, $2, that's the most i can make. i'm capping that risk at the total value of the spread $5. 40% of the distance between the strikes is what we look to collect when we try to sell upside call spreads. i think that's probably the play in 3-d. >> got you. mike, that's the play there. selling call spreads overall. so that's the way you do it. that's probably one of the most ridiculous trades in terms of the overall picture for these companies, you talk about the trades involved here, shorting them is one way to of course
play those particular stocks. so that's it. let's go here to the best performers of 2013, to the worst performers of 2013. and one of those trades is gold. traders are seeing signs of potential hope here. back at headquarters with more on that. >> thanks, dom. to say it's been a bad year for bouillon would be a massive understatement. gold isn't just suffering it's first losing year since 2000 with a 28% decline. 2013 is looking to be the single worst year for gold since 1981. here's where it gets complicated. over the past month, things have surged which should be bad news for gold, but the yellow medal holds the key, is this a sign the worst is over? that's the question investors everywhere will be asking as they allocate assets for the new year. dom. >> thanks so much for that. so let's talk about this. could there be a bottom in there for gold somewhere? let's call to the charts with
carter braxton worth. this has been a tricky one, the gold trade overall, carter. but you have to say the downside has been there and the trend has been intact pretty much. >> that's right. but a key technical level. let's look at it. you have here a two year chart of the gld. what's important of course is that in this current downdraft we have come down six months ago and held it to the penny. and that's an important development at an important level. now, if you step back and look at this again. here is this again, what i would call a double bottom. the action that is happening. and the presumption is we throw back, just as we did here. and we will move nicely, ie we bounce, we would take a contrarian view and be getting long the single worst thing of the past 12 months. >> carter, i like that. i haven't found a lot of people who wanted to be bullish in any way, shape or form on gold. so let's go out to the traders here, brian, you have been
bearish long term on this gold trade. what's your view, and what's the trade here? >> well, if you look at long term, if you're the active trader kind of person out there right now, you look at where unemployment is going right now. it's getting better. we see a drop below 7%. that could be bad for gold. and look, the volatility in the market right now is low. when you talk about a vix around 12 or 13. there's not much fear out there. what do people want to do? they want to own stocks. they want to have actual equity in something. not own a piece of metal that doesn't have industrial use out there. that's why you see selling in gold. long term there is negativity. carter makes great points on the technical levels, sima talked about the $1200 level in gold. right now you could see that bounce higher. i still hold gld in my position. what i want to do is sort of replaces that stock with the call spread. that way it reduces my overall exposure to gold. listen, i'm an investment advisor, i want to allocate something to inflation risks. this is a way to do it. especially in the time, when you're in this bearish type market with gld.
>> got you. so what's the -- so the trade is with the call spread. do you do it on the gld? is that the trade? >> yes. correct. dom, basically what i'm looking at, the march 122 call, looking to purchase that, while at the same time selling the march 128 calm. i did this today. i basically sold out all my stock. this is how i'll get exposure to the upside. i paid 1.25 for this call spread. what this does, if gld trades above 123.25, that's my break even all the way up to 128, where i would be called away. if gld moves right away tomorrow or the next day, whatever, that call spread will increase in value. so i'll get benefit. but 123.25 is the break even on this trade. i'm extending this out to march to give myself some time for this trade to possibly pay off if gold moves higher. >> mike khouw, what do you think, do you play the upside, cap it with call spread, buy it, so your risk is defined? >> this is absolutely the way you'll make a bullish play, if you're going to make one in gold. if you want to know what a long
term secular bear market looks like, take a look at what's been happening in gold. even in a bear marveth, you can frequently see short or intermediate term pops. and gold is particularly well suited to the call spread, that brian is recommending, because very often, those way out of the money calls ask in equities could be inexpensive, in commodities, sometimes they have more premium, that makes the math work a whole lot better, when you purchase call spread verticals to make bullish bets in commodities, if you make a bullish play in gld, this is giving you a good amount of time for it to play out. you're taking advantage of the dynamics of options prices in commodities here. >> got you. how about this, it seems like everybody is more bullish, what do you think? >> well, i hate gold in general. but brian makes the point he's doing this as stock replacement. and that's better than owning gld out right or gold out right. i would actually be short the market. but if you have to be long a little bit, being long, brian's call spread much better than being long gld. >> got you. guys, thanks so much. let's wrap it up with a little
stocks versus options. if you want to get long, 100 shares of the gld, it will cost you about 12 grand. so mike's call is call spread offers a 4 to 1 payout and defines risk to just 1.25. so that's the play there. so, if you have a question, send us a tweet at cnbc options, we'll answer it in our next 101 web extra tonight. scott has a bearish trade on gold. in addition to scott you'll find great trader blogs, educational materials, so do check it out. and here's what's coming up next. ♪ >> talk about hell on wheels. sports swashing while gm makes new highs. we'll tell you why divergent
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timee're back, we're back, time for the upside call, where we show you how to manage winning trades, a couple weeks back, mike khouw and carter made a bullish bet on gm shares that have rallied 10%, but they made 12 times that and here's how. on options action, it's how we drive profits. risk less, so we can make more. and that's just what mike and carter did with their bullish bet. carter thought gm shares were about to hit the gas. >> honestly, we're out of gas. >> it's ride or die, mike. but just buying the stock, 100 shares could set you back around $4,000. so spend less, mike instead bought the january 39 strike call for $1.25.
now, to make money, mike needs gm to rise above that strike price by more than $1.25 he spent or above $40.25 by january expiration. but 1.25 -- >> prices that are insane. >> so to cut his costs, mike sold the january 42 strike call for 40 cents, and created his call spread. but he did something even better. he made making money easier, and here's how. between the 1.25 he spent buying that lower strike call, and the 40 cents he collected selling that higher strike call, mike cut the total cost of his trade down to $.85. and now instead of mike needing shares of gm to rise above the $40.25 level to make money he needs to get above $39.85 by january expiration.
>> okay. let's run. >> but remember, there is a tradeoff here. by selling that higher strike call, mike has capped profits to the difference between the strike of the call he bought, and the strike of the call he sold. and since the time of the trade, shares of gm are up more than 7%, making this trade a winner. and now, options action's biggest fans just want to know one thing. what will mike and carter do now? before we get to that. let's see how much money was made here. had you bought gm at the time of this trade, you would have earned about 10%. the stock. but mike's call spread cost $85, and at one point today could be sold for 185. that's a return of 120%. so mike, what are you doing with this trade here? >> well, you know, one of the things -- one of the reasons we got into this, gm was cheap relative to ford. that still remains true. this trade, the risk reward isn't as good as originally. what i would be inclined to do,
get a pop back up to where the stock was, actually, when you referenced that $1.85 i'd take my profits and roll up and out. give myself more time for this to play out. targeting about $42. >> carter, you spotted this trade. would you stick with gm? >> we like it a lot. not only is the absolute result the happy thing, but the stock compared to ford, compared to honda, compared to toyota, this acts very, very well. we would stay long in general motors. >> brian, i have a question for you, because we have been talking about these rumblings, these rumors, that gm or ford might be interested in taking on a tesla, perhaps with an acquisition. what do you think? is there even any kind of shot in heck, that that would happen? >> pretty tough scenario to happen for two reasons, we showed the short interest, basically in tesla, and 40% out there is shorting the stock, it's hard for a company to come in and say, well, i really like the valuation here. if 40% of the shares are outstanding and other people out there think it's overvalued. number two, tesla sells out,
they diminish their name. it's cool the tesla name has innovation itself. you think of the electric car, the name of tesla. you sell that to gm. now you sort of diminish the value. then put on top of that, you have a ceo, that's a billionaire, basically, going to sell out his ego to a big player like gm. i doubt that happens. i probably think that they want to see this through. >> there's the take on gm versus anybody buying out tesla. thanks for that. up next, this chart is history in the making, because the consumer discretionary sector has beaten the market for the past six years in a row. which no sector has ever done before. we'll tell you why you shouldn't bet on seven for seven, that's when options action returns.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ welcome back welcome back to options action, i'm seema, it's been a strong market, but not all sectors are created equal.
the s & p is up 29% in 2013. the top performing consumer discretionary sector has rallied an incredible 40% compare that to the weakest of the ten sectors, telecom services, those stocks up less than 10%. and here's what makes a discretionary run all more impressive. the sector is up, get this, over 220% over the past five years. double the broader market's rally. the question now, will consumer discretionary stocks continue to lead in 2014? dom. >> well, that is the question, seema, thanks for that update. let's find out, over to carter braxton worth, this sector has had a record run. why are you betting against it now, carter? >> a couple things, we'll look at the charts. conceptually there's the problem the sector is just completed a record sixth year of outperformance compared to the market. no sector has done that going back to the '80s, look at the year to date performance, not only is it the single best of
the ten, it's again has done better than the market. a sixth year in a row. not likely to persist. now, take a look at some visuals. i'll roll through these quickly. this is a two year chart. and you're talking about very, very serious outperformance. how about if we step back to five. you're talking a double. so one of the parts that comprises the whole is outperforming the whole by two to one. now, take a look at this long term chart. this is where the correlation, which has been quite good, and it all has started to break down. is this price for perfection? we would say yes. big names in the group are actually starting to not act well. things like target and so forth. anyway, here's the xly, the etf that is the way to track this sector. and what's important here is that you have a well defined trend, what we have done is blown out the top. that's the problem. and we think that this comes back to life, we're looking for a 10% selloff here. now, just a tip of the hat to
the funny mentals, this is price to sales. we are above the 1999 high. this is price to cash flow. we are right at its all time high. this is price to book. we are at or just below all time high. expensive valuation. year to date the best performer. buy, sell or hold. we semi. >> carter, way to rain on the consumer parade here. how about this, scott, what's the trade for consumer discretionary stocks? >> the interesting thing here is xly options are very cheap, cheaper than in two years. so we don't have to be too cute here. carter is bearish, options are cheap. we want to buy a put. in xly earlier today against stock at 66.25, we could buy the february 66 strike put for 1.20, that's our max risk. it means our downside break even is 64.80 we see xly below that
level at february expiration, this is a very inexpensive way to make an intelligent bearish bet, while defining risk. >> so brian, how about this? is buying clean insurance for the downside the way to go? >> yeah. i think if you're tactical, it definitely is. you look at the level of volatility in the market, option prices are cheap, that's what scott talked about, that's why he's buying a put. in terms of the consumer discretionary, the reason for the bull market is historically low interest rates. i believe actually until the ten year interest rates get above 3.5 closer to 4, that's where you see cracking in xly and consumer discretionary. so maybe you want to wait before buying this put. but certainly, being able to get a cheap option while volatility is cheap is definitely the way to find protection and tactically insure your portfolio. >> there's the trade. thank you, giefs. up next, the final call from the
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the last words from the options pits. scott over to you. >> define risk in 3-d systems. >> brian. >> lots of bullish activity in gm stay long call spreads. >> carter braxton worth? >> be contrarian pick up gold. >> looks like our time is expired my mission is simple, to make you money. i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you find it. "mad money" starts now. welcome to "mad money." my job is to teach and coach you so call me at 1-800-743-cnbc. we live in a busy moment for the stock market. al