tv Options Action CNBC November 5, 2016 6:00am-6:31am EDT
hey there we're live at the nasdaq on this friday afternoon. the gang here getting ready behind me. while doing that, here's what's coming up. shop 'til you drop! ♪ and that's exactly what the consumer might have done, and it could spell trouble for a number of stocks that report earnings next week. we'll tell you how to profit. plus -- >> here's what's been happening to crude. but there is something in the charts that suggest the pain might be over. we'll tell you what that is. and are you worried that these two people will ruin your portfolio next week? well, we have a way to protect your portfolio, no matter who wins. the action begins right now. let's get right to it. forget the election. you want to know what's really weighing on stocks?
check out this chart. of oil. posting its worst week since january. this is a commodity has fallen 15% from its high last month. so, how much worse can it get? and is this a guying opportunity? let's get in the money right now and turn it over to you. >> it's interesting, because all of the things that basically propelled crude higher sort of turned table over the course of the last couple weeks. the first question, can opec actually get it together? come to some form of an agreement. now, the agreement they came to which is essentially it's only going to cut production nominally 700,000 to 1 million barrels a day, actually wasn't that big. but then it turns out it looks like they're trying to produce as much as they can. then saudi arabia comes out and says, gee, maybe we're going to go in the other direction. and at the same time, we saw the rig count tick up, which i think is also interesting. and people being reminded, a lot of capital has flown into west texas, for example. you're recapitalizing firms that couldn't make money, basically,
drilling for oil at 60. and now they can make money around 45 bucks. so that's going to bring more supply online. those things are all bearish, basically what we have been seeing. >> the truth is after any epic move, up or down, you get a big debate. so a high flyer that moves on a multibase, and then a tight range. the same thing in reverse. this epic plunge, and then basically, it's been range-bound, whether you call the lows of 29 or 30, 50. and we're sucked there. but it's sort of -- it hurts you if you get it wrong. meaning you're trading it wrong or if one can impute dexterity, you've got to right. very hard to do. >> i'm going to impute some dexterity. here's the thing. i think it's important to mention that move from august in crude from 40 to 50, really wasn't on increased demand or anything like that. right? it really was about supply cuts. and then more importantly, what did the dollar do during that period? and if we think back to when the dollar started to rise in 2014, that's when crude imploded. right? i think those things were very much connected and a lot of optimism about an opec cut that may or may not happen. to my eye, just to step on your
toes a little bit, it looks like 40 is kind of a level. you know what i mean? >> about to break? >> no, being i think it probably holds. >> i agree with that. >> yeah, yeah. >> no stepping on toes here. you actually said the crude nightmare is going to be over. >> i think you can trade this. let's talk about that. i mean -- crude is -- a couple things. we know it's down 16% in a very steep fashion. and also i've got a staff view at the end that might put some of this in context. so, in a way, this has just been a wild ride, yeah? you could just say it's all noise. there's neither winner nor loser, bear nor bull. if you wanted to draw some lines, what we know is -- let's take them away and put them back. what we know, more often than not, when you break a trend like this, there's usually more to the downside. so, i stand here a lot and i make the case that's that's something you should sell. i'm going to be a little contrarian and i'll get to why.
so we know you failed three times and broken the uptrend. but i want to -- i want to look at something here, and what i've got is a little bit of a color code. so this is literally exact number of days up and the exact sum number of days down. in fact, it's all quite symmetrical. which you can see. but here's the key. these are -- the yellow days are down. the white is up. one, two, three, four, five. six days in a row down. you look back over that chart, or i can show a lot of charts, that's fairly rare circumstance. what does crude do after a six consecutive down day? here are the numbers. i've gone back and looked at every instance since data is available. and this is the performance after a sixth consecutive decline. the average in the median. so one week later, crude is up. two weeks, three weeks, one month, two months. three months. i didn't make up the numbers. the numbers are what they are. so the odds of it being up down here are roughly 60 to 65%. i'm going to break a rule, which
is that usually means a break to the downtrend. i'm going to play for a throwback one more time. i want to be be long crude and mike has a trade on the uso. >> huh. >> uso, you can buy the 10, 11 call spread, spend 30 cents for that. here's the thing, if this doesn't work and it does pull back, you'll have an opportunity potentially to finance that 30 cents, by looking to sell the nine put against it at a lower level. this is -- just a very simple low-risk way to make a bet. a dollar doesn't seem like much, but uso is ten bucks. so that's 10% of the uso price. i think that's the way you play it. >> the way this etf trades, we were talking about this before, you've got to catch a move and we have had this 15% decline in crude. if you were to catch that snap back, this trade risking 30 cents to possibly make 70 on not a whole heck of a lot move higher makes a lot of sense and you have defined your risk. >> it's a trade.
ask there is no judgment being made about the rig count, no judgment about the economy. what this is, simply the stats suggest after a fairly steep decline, 16%, and the consecutive days down, the odds of some form of rebound are high. and we're going to make that bet. >> this is a volatile asset, probably one of the best assets to use options for, frankly, because when you have volatile assets, they can move around a lot. this one can. and you know, on a coin toss, it easily could be higher by 10%. >> low crude prices should be helping the consumer, but the rail stocks hit hard. big earnings reports thursday and friday. what can we expect from names like macy's, jcpenney, kohl's and nordstrom. breaking it down, cnbc's best-dressed man himself, dom chu. >> you guys are too good to me, and especially on your birthday, melissa. happy birthday, by the way. >> thank you, dom. >> you're very welcome. i only dress this way to keep up with all of you guys. so let's just talk about some of the places people shop to get a look at where they want to go here. next week will be that earnings heavy week on the retail front like it is for the tail end of all of these earnings seasons. the names you want to keep on in
terms of the heels of the big reports coming out next week, macy's, you mentioned first of all. the department store giant could see a swing up or down 8% on the heels of earning based on current options prices. shares up 6% year-to-date. down 27% over the last 12 months. mid scale or retail, kohl's, could swing by 9% up or down. the stock already lost a tenth of its value year-to-date, down 7% over the last 12 months. high-end department store nordstrom, also in the mix here. options implying a plus or minus 10% move for a stock that's flat year-to-date and down 24% in the last 12 months. and finally, one of the more volatile reports out there, it could be -- because it has been in the past, jcpenney stock could swing up or down 11% after earnings. shares up about 23% year-to-date, a good performer in the small to mid cap sign. it's down 7% over the last 12 months. so melissa, if you're on the hunt for that potential hot spot for some trading action in the retailers next week, those are a few places to keep on the radar.
back over to you. >> all right. thank you very much, dom chu. have a great weekend. >> how are you trading retail, dan? >> it's a disaster. let's look at the xrt and s&p retail, etf. and i know carter is a big relative performance guy. this made its all-time high last year in 2014 back in march. it never confirmed the high in the s&p 500, down about 11% just in the last couple months. down 20% from the all-time highs. really, you know, technically, just for one, i'll step on the toes again here big guy. this is one of the worst-looking charts i've ever seen. look at the neckline, head and shoulders formation there. 40 is the number that i want to target for the breakdown level. but when i think about retail and i think about amazon's results last week, i know the margins in north american retail were a little disappointing and the guidance that they gave for revenues for q4 were not a good thing for the rest of the second quarter.
these guys are a wrecking ball right now. for the rest of the industry. and when you think about amazon in that last quarter, they grew sales 28%. i know everyone wants to talk about aws. aws is 10% of the overall sales. every time, every year that amazon is growing, 10, 15, $20 billion in sales with a b, that's really come out of retail's butt. i do not like the xrt here. >> negative trade? >> yeah, i do. i want to look at the january expiration. i think dom just mentioned all of the department stores are going to report next week. the week after that, walmart, target, home, home depot and lowe's. i want to look and target the 40 strike to the down side and look out to january expiration when the stock was trading about 41, 45 today. you could buy the january 41.5, 35 put spread, paying $1.45 for that, buying one of the january, 41.5 puts for 1.07. for 25 cents. that costs you $1.45. that is your maximum risk. that is that neckline. that's what i want to target here. i want to give myself time. here's the thing about this trade. i also think you may want to
wait until monday afternoon, tuesday, get a little bounce, retail is a little bit oversold. let's see how the election thing is shaking out. how the market is trading. but this trade, break-even 405, i can make it up to 5. i like the wishful work. >> a lot of names where you have secular decline stories like we have had in retail have not done that well out of earnings, even when the results have been okay. and names that have actually performed, you know, well, operationally, haven't performed well from a price action standpoint. this is definitely a place -- >> the beauty of this, this thing is going to trade true. you're not being manipulated by anything. right? a dollar's not involved. in many ways crude's not involved. this is a broad aggregate, about 100 names and amazon has the same weight as big lots. and the beauty is, it's a massive top. and you can draw the lines however you want. we know that's what it is and making eight-year relative lows. there is something clearly wrong. >> and you need to use a put spread in this case, and the reason for that is, three-month option prices are almost double what they were at their lows earlier this year. options are expensive here.
we have a lot of uncertainty. >> so this is a really widespread -- almost three months here. so one of the things i would do, if it were to break 40, you know, on the news that we get over the next couple weeks, i would probably look to roll up the 35-cent put and lock in the profit. that's how i would trade this. if you think about it, that 35 is a level you could see over the next few months if things continue to get worse. >> all right. got a question out there, send us a tweet to @"options action." check out our website. "options action".cnbc.com. while there, check out our super cool newsletter. over 100,000 of you have. don't be the last one. here's what's coming up next. human sacrifice -- dogs and cats living together. mass hysteria. >> that's exactly what could happen to the stock market next tuesday, no matter who wins. we'll tell you how to protect your portfolio. plus -- something is wrong with tech. ♪ and we'll tell you how to profit if things get worse, when "options action" returns.
i'm here at the td ameritrade trader offices. steve, other than making me move stuff, 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.
what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. welcome back to "options action." four days away from the presidential election. new poll numbers suggest that donald trump is closing in on hillary clinton's lead. eamon javers has more. eamom. >> hi, melissa. it's 3%. that's the margin that separates these two candidates now, according to one of the latest polls out today. take a look at this "washington post" abc national poll.
clinton 47, trump 44. that's heading into the final weekend of campaigning. still, though, the nbc battleground map looks favorable to hillary clinton. she has a number of different possibilities to get to the magic number of electoral college votes, which is 270, as of now. the way it lines up, it looks like clinton 274, 180 with a bunch of tossup states. still in there. look at ohio and florida still ranked as tossups. and look up and to the right, you see new hampshire still a toss-up here. and that's fascinating. here's a new new hampshire poll from u-mass we got recently. clinton 44, trump 44 in new hampshire. clinton had been leading earlier. trump is closing the gap. that could be worrisome for the clinton campaign. going down into the stretch here. but, guys, it's all going to come down to the final decisions. if there are any undecided voters left out there in the world, they're going to make up their minds this weekend and
that may tip the balance here. but anything could happen between now and -- >> certainly can. eamon, thank you eamon javers in d.c. with the election on the way and volatility so high, how should investors protect their portfolio? no matter who wins? mike has the call to action. mike. >> so first things first. we don't have insurance on all the time on our investment portfolio. so you want to do something like this tactically. have we found an identifiable risk? i think we have. the election next tuesday, a lot of people talking about that as something they could be market moving. secondly, you can't sell your underlying stock revisions. there may be tax revisions on this. maybe you're not going to call your broker monday and say sell it all. and finally, when options prices are high, and they are high right now, we're going to have to find a trade to use and that's why we're going to use a put spread. so let's take a look here. this actually indicates how high options prices are. we can see that they're up 60%, actually, just since earlier in october. so taking a look here, what we're going to be looking to do is try to get some protection, specifically our trade is we're going to be trading the december 2.15, slightly in the money.
195 put spread. now, take a look at how this works. now, basically, what's going to happen. you're going to pay about $6.65 for this trade, what's going to end up happening, you're not going to have any gains up here. you're going to be long the put and also long this. this is going to give you protection all the way down to 195. so basically, you're going to sacrifice just this region right here for that much protection down there. so basically, i think this is basically the trade you want to be using if you're looking to put some protection on. ahead of the election. >> dan, do you like this trade? >> well, listen. i think it's important to mention, mike just talked about the vix being up 60, 70% in the last week and a half or so. that seems to be panicky, right? look at the s&p 500, it's closed down nine days in a row, 5%. that seems orderly. to me, i see panic in the protection market. i don't see panic in the stock market. so, you know, my view here is that, you know, if you're in it for the long haul and you think that america is going to vote fairly rationally, we're probably going to rally out of
this. we may continue to sell off into it. you know, if trump wins, then all bets are off and you better hope that -- >> i would say quite a stew. there is protection being taken in the market. the bigger market is the market, right? the -- i mean, most funds are not doing that. they're just long all the way, big endocuments and inna going synagogues and churches. the big money still complacent. >> the puts we're selling are the insurance everyone is buying. those 195 puts. so you're going to have protection on your portfolio down 15 points and spy, but only sacrificing five points to the up side. 210 to 215. from my perspective, this is one of those trades. if we sit right here, both these options are going to decay. >> i think charter made a really good point. the risks have been to the downside. you heard that on the show probably 1,000 times over the last year-and-a-half or so.
and so those still exist. and i just think that you do have to be tactically the way you put on portfolio insurance. i don't think we're going to have, you know, a flush down 5% on wednesday morning one way or another. i think the ball -- >> you don't think if trump wins we're not going to flush? >> i think for sure we're going to flush. >> right. but i just don't think he's going to win. >> sounds like a bet. >> things like the xrt. the xrt is 100 stocks. they're not acting that way for this long because of the election. they've been in trouble for a while. that speaks to the heart of the bigger problem. there is something wrong -- >> it would be a great excuse to sell if he wins. they have been waiting for it. look at every move we have had of 10% or more. they have always been straight to the down side. >> we have a flush -- >> listen -- >> that would just be the last excuse to sell. basically, you're saying the market is -- >> i have no idea. if you haven't sold already, i'm just saying -- and then you're like worried all of a sudden that donald trump is going to win and you start to sell. well, you know, maybe you're just a johnnie come lately. if you're in it for the long haul, and, you know -- i guess what i'm saying, mike said the
key word, tactical. if this is an events to hedge for, have a ball. still ahead, tech was the worst performing sector this week. that's good news for some of our traders. we'll tell you why, after this break. i'm here at the td ameritrade trader offices. steve, other than making me move stuff, 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. so we know how to cover almost almoanything.hing, even a rodent ride-along. [dad] alright, buddy, don't forget anything! [kid] i won't, dad... [captain rod] happy tuesday morning! captain rod here. it's pretty hairy out on the interstate.traffic is literally crawling, but there is some movement
what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. welcome back to "options action."
time for when we look back at some of our winning trades. two weeks ago, ceo and carter thought tech was about to roll over. >> if there is any trouble in paradise, meaning -- yes, we heard from microsoft. if google were to be bad or facebook or amazon, you can only expect what would happen. >> so all you would really need to see, next week's earnings is a split decision. the way you can do this is by selling the december 118, 122 call spread. when i was looking at it earlier today, you could sell the december 118 call for $2.70, buy the 122s against that for 85 cents. >> the q's down more than 3% since then. carter? >> well, look. if the whole thing is coming apart, they're going to go with it. the question is, do you maybe harvest some or roll down. i leave that to you. but the timing seems okay on this. and presumptively there is more. >> all right. stick with it? >> actually, what i would do is actually replace it with a trade like the one we just articulated which is to buy a slightly in the money put spread where you
are not going to pay a lot of decay and basically can play the big move. i think we might get next week. >> in life, you win some and you lose some. and that's exactly what is happening with dan's bullish bet on facebook. >> i think the risk is really to the downside in facebook. if you're considering at a new long and think the stock to break out to a new all-time high, i think you do want to define your risk. with a stock trading today, buy the november 130, 140, 150 call butterfly, paying $3 for that. >> it was a tough week for facebook. >> yeah, it was. i mean, listen, the stock deserved to be down, given what happened in the market, given what happened to its peers, given the guidance they gave about spending. that being said, one of the ways that we outline this trade idea is, i've said it pretty clearly, the risk is to the down side. and so if you're going to play this for new highs, you want to do so with defined risk. that call butterfly cost $3. the stock down $10. i think that's how you try to use options into events. the other point, option prices were very high. that's why we chose mike's
favorite strategy, the butterfly, to offset some vol crush after the event. this one, if you were inclined to play into the event, this trade worked out much better than playing along. >> and think about it. even though we don't clue, we're covered, right? qs go down, looks good, facebook goes up. we had all the signs. >> butterfly, what do you say? >> yeah. you definitely want to use spreads like this, try to sell as many options as you can in the circumstance. facebook basically talks down numbers a lot of time. i actually wouldn't be surprised if it does have some upside after everything sort of settles out a little. >> up next, your tweets and the final call from the options pits. i'm here at the td ameritrade trader offices. steve, other than making me move stuff, 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
what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. welcome back to "options action." time for some tweets. agn, oversold to sell december 175/145 put spread. i did that today. what do you think? mike, why don't you take that one. >> i like selling vertical spreads when premiums are
elevated and you're trying to pick a spot where you might want to get long. there is some risk in this name. so you should be prepared for that. you might want to think about selling some up side call spreads instead, i think. >> all right. next up, how should i play invidia to the down side next week. thanks. carter? >> well, this is the number one performing stock in the s&p one year, two, three-year. parabolic. i would play to the down side if i were long, just call it a great trade and get out. >> dan? >> i would almost take a play out of mike's play book. sell call spreads. vol is really, really high. expectations are high for this thing. they have been left out of this m & a activity in semiconductors. but it's a name i think that's bought to the downside at some point because we just all saw that m & a activity that we're talking about. >> all right. final call time. carter. >> long crude based on the 16% decline, sixth consecutive down days in a row. >> mike. sp wild if you're looking for a wedge. >> dan nathan. >> xrt, i like put spreads in january. >> looks like our time has expired. i'm melissa lee.
thanks so much for watching. see you next week for "options action." in the meantime, 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