tv Options Action CNBC December 29, 2017 5:30pm-6:00pm EST
hey there, we're live at the nasdaq market site for the very last show of 2017. it's absolutely freezing outside but the guys are warming up behind me. while they're doing that, here's what's coming up on the show crude oil just hit its highest level in two years the char master says it could create a boom for big energy stocks he'll break it down. plus, that's what volatility was like this year it's created a phenomenon in the options market we'll explain. and later -- mike's figured
out a way to make money in apple if the stock goes up, down, or nowhere at all >> i don't believe it. it's not possible. >> it is possible. he'll show you how to do it. it's time to risk less and make more the action begins right now. let's get right to it. after lagging the market all year, suddenly energy stocks are showing signs of life. the xle energy etf surging 5% in just the last month as oil hit 50 bucks for the first time since june 2015, names like halliburton, chevron, all bouncing should you stick with energy heading into the new year? mike >> when you take a look at the entire space, it's say you take a look at the broad sector etf lxe, it's the integrated names at the top of the list they represent the largest constituents ofthat index. of course as oil prices rise, that's going to bring them up, because they are essentially just a big bucket of oil themselves the oil service names, though, i like that space a lot.
i have even when prices were lower, because they have good fundamental business right now we've seen that a lot of basically the fracking businesses have been able to make money at progressively lower prices innovation at that space helps the oil service companies more than anybody >> i think you have two things going on in the oil business right now. we've seen crude get above 50, $55 a barrel, that's been key for these oil names for some of the frackers out there and whatnot. that's been a big boost. once we cross the 50 mark, that's when the xle and individual names take off to the upside the other thing we have there with the brent and wti spread that we continue to see at $6, $7 a part, that's very good for u.s.-based companies to export that oil overseas and make some profit there and obviously in the xle, a bunch of those top ten holdings are those names you would like to see get that profitability when they export it's been a huge boost they did not move earlier in the year, now they're playing catch-up with oil above 55,
sitting here at 60 i love names like occidental >> carter says there's going in the charts signaling more gains next year. carter, head over to the plasma to explain >> we'll see what we can figure out here energy, worst performer in '15, best performer in '16, bottom of the barrel again in '17. it's volatile stuff. if you get it right, you win, if you get it wrong, it hurts let's try to make the case for energy here. so you have two lines. they speak for themselves. i want to just look at the spread between the winner and the loser. over the past five years, this is tech and this is energy you're talking about, well, almost a ten-bagger spread let's zero in a little tighter here is the past five years. this is telling. down a little bit versus tech. 40% spread on the year here comes the year to date chart. then we'll look at a few others.
this is the chart we just had. it's the same spread let's go on to the next and see what we pull up here okay so now we've got the year to date and this is incredible the question is, what i think you're seeing here is a little bit of a hook down and a hook up i think that's the beginning of something that's going to be more enduring. now, here is another way to look at that chart we just looked at. this is the tech sector on top this is relative performance to the biggest sector, to tech. energy on top. here we go now, this is the key to the whole thing. s&p 500 energy, which again has all the look of a bottoming out. but important, not only is it going up it's starting to outperform the very thing that dominated the market it's a nascent bottoming out action let's go to the chart itself
here is a five-careyear chart you can draw the lines this way. we've clearly broken above trend. that's an important development. that's energy. and now take a look at this. this is the whole story, right brian was just talking about it. you've got cloudy i'rude oil an got energy the presumption is energy stocks will go the way of crude you want to be overweight this in 2018. >> you could look at the march 72 1/2 call, spend $2 for that the options are quite cheap, 15% implied volatility off an all-time low of 13%. the options are quite inexpensive here the other reason you don't reach out and buy the stocks is despite the fact that spot crude, the near end of the curve is more than 20% higher than it was six months ago, if you go out five years, five-year crude is actually a little lower we have this inverted curve.
a lot of times people will say this is bullish. when you get that, when you start to trade rather than in a more normal containment. that's one of the reasons the integrated space isn't my favorite right now >> we have a global growth play that's going on in the oil markets, going on in some of the commodity spaces over that 50, $55 barrel oil spot, these xle names will do great. mike makes a great point about buying a call outright, it makes a lot of sense because it's a cheap premium to take a shot on that i think it's a real play, there's a lot behind it. saudi aramco deal is still coming down the pipeline the saudis need the price of oil to be higher opec continues to stick with their cuts on oil. that's all been a boost. oil is here to stay above $55. >> if you want to be more aggressive, you don't play the
xle because 40% weight is in exxon and chevron. you go after halliburton or schlumberger or you fade valero which is the most defensive of all energy stocks. >> mike? last word. >> you're spending 3% of the underlying price of xle here if the long end goes up a little bit higher and we see more volatility, and you can always spread, that's the other thing if we get a rally, you can spread or look to turn it into a risk reversal. >> let's move on here. do you hear that sound that is the sound of volatility this year. the vix hitting all time lows in what has been a quiet year for the market bob pisani is breaking it down from the nyse, hi, bob >> reporter: thanks, melissa in an extraordinary year for the stock market, one of the most extraordinary developments was the continuing run of low volatility the s&p 500 has had a total of eight days this year in which it moved up or down 1% or more. only eight that's way below normal. in 20 '01, the s&p 500 had 48 such days.
71 in 2015 39 in 2014 with such low volatility, it's no wonder that the traders' main gauge, the vix, stayed low all year the vix averaged 11. the average in prior five years was almost 16. the vix traded under ten, a total of 92 sessions in 2017 why exactly is volatility so low? you can partly cite the fed and global bankers which have kept rates low. you can also cite low earnings these trends may reverse next year, we don't know. there are longer term forces that may be at work. it's possible, likely even, i think, that the growth of passive investing is playing a part in tamping down volatility. overall trading volume has been lower than average for several years. back to you, melissa, and happy new year to the whole gang >> same to you, bob, our thanks to you brian is the volatility expert on the desk. what does this mean for the markets and how are you trading
it, bri? >> bob makes the case on the retail side and the flow into the etf market that's limited some of the volatility i think it's been the pension and the institutional side when you look at something called the sku index, that measures the price, what people pay for puts, the demand for puts on the downside of the s&p relative to calls. that is at record highs. people are going out and buying insurance on the downside despite having no volatility when that's doing is any time we get a selloff in the market, the protection is in play, and all these institutions are coming back and buying the market and bidding it back up and we get stuck in this range here that's why we have such low volatility for me that's why the market can continue to creep higher >> when we talk about passive investing, one of the things that can cause index volatility to decrease is dispersion, meaning one stock goes up and another goes down as people rotate out of one stock and into another. passive investing doesn't work like that. additional money flows into the market and people buy everything, and the rising tide
lifts all the boats. when i see that high sku index, what it tells me is when money starts to flow out of the market, it will do it basically in a mass liquidation and you will see an increasing correlation. that accounts for the fact that the puts are trading at a bigger premium than they usually do >> just to put it in numeric form, the actually facts about the drawdowns, there have been 216 5% plus drawdowns in the s&p. this one, we've got 286 sessions without one. that's the third or fourth longest on record going back to the '20s does it happen january 1 the '73-'74 bear market started that way there's nothing wrong with pullback they're the only thing that allow a market to go higher. but you definitely want one at some point >> there seems to be an assumption that because volatility was so low all this year, brian, that it's got
nowhere to go but up next year can it remain this low >> that's the thinking for quite some time. >> and it hasn't happened. >> it hasn't happened. i think we need one or two quick small little shakeouts before we can get a more significant shot to the downside. that or we need to see people starting to reach for the calls to the upside. have a shot at getting some leverage to the upside we just haven't seen the leverage plays to the upside that would sort of get people overleveraged in this market and shake us out >> one of the reasons people always think volatility is going to rise is because they describe it as a mean reverting process it's always about 15%, if we're below that, it should go back to where it usually is. however we're talking about fundamental changes in the way the market operates that suggest the mean itself could be going down so it wouldn't surprise me if in the coming quarter or two, we continue to see what historically we would categorize as unusual volatility because the mean has been lower than it has been check out our website,
firstname.lastname@example.org here's what's coming up next ♪ worried that could happen to apple shares next year we've got a way to buy protection for less than three bucks. plus calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air, when "options action" returns. returns. >> logicalfeels toocomplicated,? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your oes step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade
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well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." tech has been one of the hottest trades of the year there are signs popping up that there could be trouble in
paradise josh lipton breaks it down from san francisco, hi, josh. >> reporter: melissa, tech was the best performing sector in the s&p 500 this year by a long shot a gain of 37%. to put that in perspective, the silver goes to materials with a gain of 21%. facebook, amazon, netflix, all up more than 50% apple up 46% alphabet tacking on more than 30%. now attention turns to 2018 and some are betting on a fall take a look at the short sellers. they've painted a bullseye on big tech data shows which stocks professional managers and investors are short selling the most on an absolute dollar basis, s3 says apple, amazon, intel, netflix, microsoft, alphabet and facebook have the highest levels of no-short interest in the market investors are well advised to watch stocks with high levels of short interest
the one stock that's seen its short interest rise the most into the year is apple in the past three days its short interest has increased over $1 billion, bringing a total of $8.8 billion on a absolute dollar basis it's not just hedge funds either strategists at jpmorgan are underweight. they're concerned about valuation and credit positioning, among other worries. >> just to be clear, josh, these are absolute dollar terms, so it's not a percentage of shares outstanding. so the bigger the company is, like an apple, the more likely it will have a greater dollar amount of short interest, correct? >> reporter: that's correct. >> okay. josh, great reporting, thanks a lot, happy new year. josh lipton in san francisco if you own any of these stocks and are worried they could take a hit, what should you do professor khouw has his last call of the year >> this is a way you can make a modestly bearish bet on a stock. they have a higher probability
of profit than simply selling the stock outright or buying puts would secondly, they can have very attractive risk/reward relationships. finally, this is something you can do whether you hold the stock or not so the stock, here's a little teaser on that that i'm going to talking about, is apple. we can see obviously here that the stock hasn't performed that well this iphone x is one of the reasons why. this is a stock people have thought of as exceptionally cheap. it isn't as much anything. if this thing doesn't sell 50 million units, maybe we should be betting against it. february, you can sell the 170 calls, when i was looking at this earlier todayfor $5.80, buy the 175s against it for 360, net/net you'll collect $2.20 this spread is $5 wide, a very nice risk/reward relationship. you'll collect the 220 if it drops or even if it rallies up to 170, and even you still have some profits if it goes slightly higher than that it is only above 172.20 that you
would see losses >> brian, what do you think of the trade? >> it makes a lot of sense to start to look at some of these names of them and maybe some that are going sideways like apple. a key support level for apple to pay attention to, if we break there starting the new year, maybe you want to put this call spread on and be short the call spread because there could be more downside to this thing. these things have had such great runs having said that, you guys, carter and mike, talked on "fast money," the u.s. technology sector is a place to still be. i don't think you get completely out of it. i think that's why mike is doing a short call spread rather than bet out on these names >> the thing about short interest rate, it's not so much the dollar value it's the ratio of the shares outstanding. if you look at apple, amazon, facebook, google, their short rates are one two to one seven
they're just market shares the question is, and we talked about this last night, apple is the market and if the market is in trouble, apple's in trouble and vice-versa i think in a way, apple is a defensive play based on valuation, some of the things tim talked about, and based on the chart. >> amazon, ail lphabealphabet, companies that have other tail winds behind them that apple as a consumer device company doesn't possess. ahead, someone on our desk has a warning sign for you stick around to find out what he is seeing. plus if you have a question, send a tweet to @optionsaction end the year right with e onof our traders answering your question live on national tv much more "options action" after much more "options action" after thisocomplicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you
through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade your insurance on time. tap one little bumper, and up go your rates. what good is having insurance if you get punished for using it? news flash: nobody's perfect. for drivers with accident forgiveness, liberty mutual won't raise your rates
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "fast" --
excuse me, "options action." we have news on riot blockchain. >> reporter: the ceo is selling $30,000 of shares. riot blockchain, a biocompany, recently renamed itself to reflect a venture into blockchain >> he now owns 12,500 shares after selling 30,000 shares. that's the majority of his stake. >> what's remarkable is what little skin he had in the game there are people with much bigger bets on this stock. >> the optics is that this company used to be known as buy open -- bioptics, we named itself riot blockchain we wanted him to come on the
show, nobody could find the ceo, now he sells the majority of his shares the night before new year's day weekend >> if it looks like a duck and walks like a duck. i mean, don't touch this thing >> the optics on this are just terrible >> terrible. >> john o'rourke, if you're linlin listening, come on >> they've made no progress. financials have not paid you you've generated negative outflow. the taxes and the politics are good for financials. but they have this burden of a very benign interest rate environment. >>iv >> i was looking at the march put spread, you could spend 35 cents for that >> the xlf is up about a percent. mike, how are you managing this trade? >> this is one of the reasons,
why would you sell that put for 20 cents it's only 10 cents today that put spread we spent 35 cents for is worth 30 now. it could be worth as much as two until march, i think you stay with this. >> the problem is banks, it gets down to this, the rate environment is not on their side you can talk about the short and the long but basically they've underperformed all year until a spurt just at the end. if you look at what they've done in december, banks have underperformed i think it's dead money. >> dead money? shouldn't the environment overall change next year, the regulatory environment, m&a environment? >> if that's the case, let's say it hits the market thinking that, it should be priced in >> the issue you'll have, when you talk about the fundamentals, and yes, some of the regulatory environment will be a little bit more favorable for the banks here when you take a look at it, really, the yield curve, the two-year/ten ye two-year/ten-year is starting to narrow we look at the inflation, or i
should call it reflation, by this tax code that got passed, you have oil prices and gold prices moving higher we get a couple of good jobs numbers over the next couple of months, that will be bad for banks. up next, your tweets, and the final call from the options the final call from the options desk well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade
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>>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to take your tweets mike asks, i bought the out of the money mrk february calls today. there's an earnings report coming up. do you like merck? >> i don't like merck that much. but bullish calls are the way to go >> producer kris10 is dying to know, what does mike khouw drink on new year's eve? >> water and champagne,
hopefully you should do both of those. >> i'm long calls in s.p.y. and short out of the money puts. >> xle energy, get long. >> sell call spreads in apple. >> happy 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 but educate and teach. call me at 1-800-743-cnbc. or tweet me @jimcramer when is a loss a good loss when is it a bad loss? what makes for a