tv Options Action CNBC September 24, 2016 6:00am-6:31am EDT
zbriefrmts we' the guys getting ready behind me. while we're doing that, this is what's coming up on the show. >> let's make a deal! >> the world's biggest oil producers meet next week on whether or not to cut oil production, and the news could send energy stocks tumbling. we'll explain. plus, how would you like to get long facebook for free? >> are you out of your mind? >> maybe just a little, but it is possible. we'll tell you how to do it. and -- >> money has got to be the shoes. >> shoes. >> shoes. >> you sure it's not the shoes? >> all right. maybe it is the shoes. nike shares have been terrible this year. we'll tell you why some traders
think it's about to get a lot worse next week. the action begins now. ♪ very superstitious >> let's get right to it. while everyone was focused on apple and twitter, another tech giant took it on the chin. is this your best chance at getting facebook? let's get in the money and find out. what do you say? >> i thought the stock's reaction was pretty, you know, okay. >> robust. >> it was very muted, right? >> it was. you know, to use the term maybe inflated, maybe, you know, inflating the situation there a little bit too, but, you know, to have a metric off like that that is so important to this big shift in advertising for as long as they did, it's troubling. it may make you thing what is this growth built on? the revenue growth has been 50%, 60%, 70%. they're expected to do $27 billion in sales.
it took google eight years to get to $27 billion in sales. they're doing it in the last three years. there's something going on there. probably some legs. >> that's exactly the point, right? the elephant in the room when it comes to mobile advertising is facebook. pure and simple. the funny thing is, they're going to sit here and report the metrics where, they're basically measuring themselves, and they're going to report them back, but basically tend of the day they can say it is what it is, folks, and that's exactly what they are doing, and that's why the stock didn't react. the market is down. >> they have a monopoly, and they can charge what they want. >> who is going to take their place? it's 1.7 billion people watching. >> all right. we'll go to google instead because we are more confident of google's metrics. >> good luck with that. it's not an easy sububstitute. it's not one for the other. maybe you also buy meat and potatoes, but you are the only one who has potatoes, you are going to dictate what the price is. >> i don't know about that.
>> mobile advertising, by the way. >> they're good together. i've got some charts here. i think the key thing is, if there's wisdom in price, and there is, the price action today bisd on those headlines could have been a lot worse, and it wasn't that bad. let's look at it -- >> before you can say -- here's the thing. i mean, we just can't -- here's a company that people keep quoting its growth, and it's been spectacular are. >> isn't there a question about that, though? >> this is a company that took -- the only thing i want to say is people say they're growing earnings at 50% a year, and it's only trading at 32 times. that's on an adjusted basis. on a gap basis that $4 in earnings expected is $3. when you talk about inflated metrics, there you go. use they're going to jam one too many video ads -- >> only ebida has mattered, and on that metric, i mean, that's -- free cash flow, and it's trading while it's still
growing. >> back in 2012 apple computer, very different company. they booked $170 billion in sales. a hardware company, okay? that grew 50% that year. that stock went down 45% over the next -- that can happen. >> well, let's go look at them. i've been thinking you have to say i wouldn't fight this. you know, they say we can draw a straight line, you'll probably be okay in this business, and then you can draw some pretty straight lines. how would you characterize that? i would say that's bottom left, top right. it's not exactly doing something crazy like that. it hasn't gone bonkers. take a look. now, i didn't make those fit. that's the best part. right? those lines are parallel, and they are simply connecting the top and the bottom of the range. what we do know is that obviously overbought and oversold conditions typically yield a mean reversion, but you are walking along the lean here, and, again, today's price
action, that's all it did. a little bit of a dip, a drop back to something, a support. pen is not working. that's okay. doesn't often work. now it does. i think ewe goigoing to be fine. i like facebook long. >> how are you trading? >> i think this one is pretty easy. the trade will sound complicated, but i'm looking at the december 135 -- what you are going to be doing for about even money is buying the december 135 .45 call spread and selling the puts to finance it. earlier today that was trading for about even. think about this. you are going to start making money the minute minute that facebook goes above 35, but it has to break below 115 for you to lose. that's 13% discount to the current stock price. those are the kinds of risk-reward relationships we like. to me if you are going to make a bullish bet on facebook between now and the end of the year, that's the way to do it. >> if you are going to be long, the idea of a call spread makes a lot of the sense.
i don't love the idea of selling a december put. we know it's going to be in mid-december, and that's the catalyst for the broad market. i know the company has traded independent of the market for a couple of years now, but it is the shineiest thing out there, okay? it is in a space where, you know, it's -- the analysts all love it. the investors all love it. think about the news this year. you know, thoef had issues with the irs and issues with sensorship. they've got a ton, and the stock can all -- >> by the way,ing when people start panicking about the fed, what do they start running to? >> they run to the shiny things. >> also, there's this. the economic data supports stocks like this. when the business cycle rolls, when data weakens, you don't want to be in beta, and money flow knows that. you want to be -- >> let me ask you about the put then. what was your intention? dan makes a good point, which is the fed in december. >> the whole exercise here is -- i think this is an important point. when you are short more options than you're long, those are going to tend to die kay more
rapidly than the one option we're long. if the stock stays right here to thanksgiving, this trade is probably going to be up money. those two wing options will educate more. this is actually -- you may not lose if it drops within 10%. if it stays here, you also win. there are three things that can happen. two are good. those are the kinds of odds i like. >> it's not -- you're defining your risk to a certain point by selling that put, but it's not just being long the straight out premium, but have a ball. 2017 will be a facebook issue. it's going to be -- i think -- >> it's going to be trouble. facebook is in trouble. >> i think it's going to be in trouble. every single one of these names that's done this. think about amazon before. it doubled. it had years where it had massive shifts, 30% down. >> let's move on. shares of finish line falling more than 5% despite reporting a better than expected earnings report. stock taking a turn after the company's cfo said september sales were weak. this could have an affect on
nike. the two have moved in tandem. should investors be worried? >> well, look, should investors be worried? last week i admitted i was worried last week. you know, coming into the possibility that there might be a bet increase, and now there's no reason to be word. how do you worry about a market that was not willing to sell off in the face of -- >> nike. >> i'm just talking about everything. yeah, look, it's hard for me want to get short things when the market doesn't want to seem to want to drop. >> if i have learned anything from carter braxtonworth is that relative performance is important. here's a stock that's acted atrocious. the s&p is within a couple of percent. reports tuesday after the close. the implied move is 4.25%. the day after earnings, it's moved about 4.7%. it's a massive move for this
stock. now, trades at a premium to the market, and many of its peers. not under armor. to me you can take into context the finish line news, the relative underperformance, we a chart of nike over the last five years. it's sitting on -- i hate to step on your toes, but it's sitting on -- >> joining my -- >> it's sitting on near term support, and if you have to take a five year. if they were to come in line and guide down for the full fiscal year, the stock is going to 50, and that's how you can play this in the near term. i just want to look out to a put spread in october expiration. i want to keep it really simple. the stock is trading 55.5. paying $1.25. it breaks even at $53.75. you make up to -- down. that's your potential losses for the $1.75. if you want to take the
technical input, options are not particularly -- >> they're shaking off their golf business and trading at a discount to the group now, and you do have an earnings report that could come out and maybe they're going to -- >> look at that. 20% in the last month. under armor can't get out of its own way. >> there are two things that are sort of specific as opposed to idiocynchratic growth. >> footlocker had a good and unexpected quarter. adidas, somehow which is left for dead is coming back. it looks like it's going to break the lines. the relative strength to the market is terrible. it's hovering, hanging. the presumption is it breaks. >> two thumbs up for you, dan. >> send us a tweet and do it before someone buys them. for everything opgs action, only one place to go. options firstname.lastname@example.org. do check out our super cool newslett newsletter.
see what's coming up next. >> reports that opec won't reach a deal on oil production next week sent crude plunging 4% today. and the charts show even more pain to come. we'll explain. plus, yutility stocks are surging. if you missed the rally, fear not because we've got a way for you to get in. we'll give you the trade when options action returns. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.
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steve, other than making i'm here atme move stuff,rade trader offices. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade.
welcome back to "options action." there will be no announced production cuts when opec meets next week. jackie has the story. >> thanks, melissa. well, crude oil taking a dive in today's session. down roughly 4%. after the reports that you mentioned that the saudis said that they'll be no deal resulting from next week's informal meeting in algeria. analyst traders energy funds that i spoke to are not that surprised by the news. this isn't really an official meeting. crude prices have seen support from the what if factor surrounding next week's conversation. more signs in the last few weeks that the cartel is fragmented. they usually have the most influence, and they want to freeze or they don't want to freeze. it really is likely that opec will go with them. more commentary about prices dipping back into the 30s if there is no action as well as supply. we'll continue to outstrip
demand. the rebalance of the street has called for the back half of the year. it will be much slower than anticipated. the meetings can usually create market volatility. this one is three days long with a decision, if any, expected on wednesday. that's what's to watch for. melissa. >> jackie deangeles, thank you. also, chart master, there could be more pain ahead. >> more oil. people try to play this for a long time. i think it's a value trap. it's trapped a lot of people. if you caught it in february, but let's look at the charts. sort of a hot mess all over the place. how would you draw the lines? i would say this is a good way to draw them. a series of lower highs, higher lows. you're working into an apex, a decision point. i think this would be opec cuts, and this would probably be opec doesn't cut. if there is wisdom in price, energy shares typically lead the commodity. here is the s&p 500 energy sector, and it is already
starting to break down out of that formation. crude in the formation. you could say it's 50-50. if there's any wisdom in the price of -- there we go. so the presumption is that this is the message for crude and ultimately i think energy stocks go lower. fewer charts, important. relative performance. it's one of the biggest and most important factors in all quant models. the sectors that manage to basically ascend its relative performance to the s&p has been poor. that's a tell. okay. another tell. the leading edge. this is the whole sector. the leading edge of energy is drillers. halliburton, slumberge. they react poor compared to the sector overall. this is when people make two-year decisions. drilling wells. it's another tell. here's the xle. this is the thing you could trade. i think it is starting to go and break the line.
i'm going to make the bet that we are going lower, lower, lower. i want to sell energy, and i want to do xle. all right. chart master says three lowers, and the volatility really, you saw it today. there was that one headline that jack was talking about. we saw that intraday turn if wti. we as you the intraday turn. it's almost like getting headlines from fed members about raising rates. >> the energy stock has more -- about headwinds. take a look at exxon, which is the biggest constituent stock of xle, and you no you have state's attorney generals going after them and whether or not they were hiding issue-related -- then you have them going after the reserves. then you have the s.e.c. jumping in, and then you have massive negative cash flow trying to support a dividend. if is it does, people in the stocks for the dividend, are likely to dump them as well. there's a lot of things that create a lot of headwinds and
the saudis are not going to cut off production. they need the money. >> you agree with chart master. how are you trading it? >> december 57.59. you can spend $2 to buy 67 puts and very similar to the trade that dan was talking about. nike trying to take advantage of the out of the money puts and in a lot of places actually the premiums are quite high in a lot of these spaces. we keep looking at the vix. out of the money puts in a lot of places are not too cheap. we like to sell those. this is a very good way -- the dollar has been range bound. we know there's a fed meeting and the probability is 50-50 they're going to hike. it's probably higher than that. that could weigh on oil. oil stocks a little bit. the only thing that's interesting is that up trend that it's sitting on that could break is interesting. when i look at the xle, also i look at since may it's been range-bound. it's gone sideways and gets a lot of good support, and it's
200 day moving average is $60 or so. i might consider buying that same put, and not sell that way out of the money one and maybe look to maybe own it outright, wait for the break, and then look to sell something after the fact or do a calendar or something. i think the likelihood of the xle being down near the short strike is very low. can we agree on that? >> that's a good point. if there are head winds, and you are looking for an opportunity to spread, if there is little chance that something will go higher and a decent chance it could go lower, your opportunity to sell that put will probably present itself at some point between now and expour i guess so -- expiration. >> the dollar is pretty range-bound too. i'm bias to the long side of the dollar,ing which it could just be the dollar is in a range, and if the crude and the energy potential move is idiocynchratic. >> the xle doesn't have to do.
you don't require lower oil prices. we're talking about lower prices for energy stocks, and specifically for the biggest constituents of this particular group, which are the -- >> you mentioned exxon dividend cut. never happened before ever. i mean, that would -- >> that would -- end of times. yeah. >> people are going to say, okay, this is what happens to us. i think that there are people who depend on that. this is one of the places that people have -- those people are going to be pretty shaken up if that dpro that drops. >> traders betting on even more heartache for the beaten down stock, home depot. how bad could it get when option action returns. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders?
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steve, other than making i'm here atme move stuff,rade trader offices. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade. welcome back. time for a total recall where we take a look back on some of our open trades. just last week dan thought utilities were about to shine bright. take a listen. >> today when the eixlu was trading at $49, you could look out to december expiration, and buy the 49.54 call spread. buy one of the december 49 calls for $1.65, selling one of the
december 54 calls at 15 cents. $1.50 is your max risk. >> utilities was the best sector on the week. what are you doing with the street? >> i did not think the fed was going to raise rates. i don't think they'll raise in november. it gives you the all clear for those yield hunters. if you get this back towards the high prior highs, you take it off. it will be more than a double here, and the risk-reward is really not great once the spread is worth most of it. >> what was i thinking? >> not a home depot. two weeks ago colin carter thought the stock was in trouble. take a listen. >> you could say that it's broken. today it hit here. not a good sign. either way i want to -- >> the november 130 puts, you could spend $1.40 for that. >> shares are down around 5% since then. carter, what do you see now? >> just the break of that trend is just that. a break. presumptivetively it goes lower. stick with it. >> you are on effort was actually for a move more sharply
lower than the one that we've already seen. we definitely want to stick with it, and we have time to expiration. >> up next, your tweets and the final thought from the options desk. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.
information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade. >> coming up on "mad money", get your notebooks out. cramer is sharing his game plan for the big week to come. the stock's huge run. stay tuned. "mad money" top of the hour. time to take some of your tweets. let's start with this one. do the traders like the fall or the spring? carter, i go with you. >> i think -- let's see. i like them both. truth -- if you are talking seasons, not options, you got to say those are the two best. >> okay. >> agreed whole heartedly. this is going right into the christmas season, which i absolutely love, and spring leads to summer, which i also love. obviously a lot to look forward to. it's like friday.
>> that's so -- do you like one better? i like fall. done. >> i'm a spring forward, not a fall back. >> i like fall. all right. next up, this is a serious one. this one is from chris. how do you all like to play weekly options? mike. >> weekly options are very good for two things. one thing, short options dekcay very rapidly. if it there is a catalyst and you don't want to lay out a great deal of premium and you want to make a defined risk bet, that's the way you can do it. >> i like to tuesday by selling them against longer data. i like to use them in calendars for the same reason that michael just mentioned. >> all right. time now for the final call. >> i'll be short energy. via xle. >> mike. >> december put spreads. a way to get short. >> dan. >> that was boring. nike earnings next week. i think we have defined risk bearish plays. >> i like fall because it usually the start of the school year, and i always enjoy school. looks like our time has expired.
i'm melissa lee. thanks for watching. for more, go to our website options action.cnbc.com. don't go anywhere. "mad money" with jim cramer starts right now. >> announcer: the following is a paid presentation for the nutribullet, brought to you by nutribullet llc. ♪ >> hi. i'm david wolfe. and for 25 years, i've been teaching people, to get the most out of your life, you need to get the most out of your food. all this food is loaded with nutrition, and you don't just need some of it. you need all of it. and the nutribullet is the machine that can get all of it. for a limited time, nutribullet has an incredible offer. when you order today, we will upgrade you to the 900-watt