tv Options Action CNBC June 24, 2018 6:00am-6:30am EDT
hi there we're live at the nasdaq this summer the guys are getting ready behind me. while they're doing that, here's what's coming up on the show >> this is -- excuse me -- a fine cup of coffee >> and former starbucks ceo howard schultz says if you like the coffee, you should love starbucks cheap stock. we'll tell you how to play it. plus >> money has to be the shoes >> shoes >> shoes >> it's not the shoes, mars, that has my co-host so excited it's an options trade that could make money if nike is up, down or nowhere at all into earnings. and here's your portfolio and here's the market.
and we've got one dow stock that could catch you up to the rally. it's time to risk less and make more the action begins right now. >> they start with that dow stock on a week the dow is down more than 2% the chart master says he has one name that could break out. let's get right to him carter, what are you looking at? >> i'm looking at johnson and johnson. a top 10 name in the s&p and major laggard as all we'll know down 12% year to date under performing the market in general. i think the under performance is coming to an end so, just for good optics, i have a five year chart. colors are clean you can see the difference this divergence, right, that we've seen just over the past sort of six months with basically the market continuing higher and johnson and johnson we have a performance spread i think has reached maybe a maximum. just a few charts and then we'll get to the absolute j & j chart. here, leer ka clearly, look at
that over the past year. you have the market here and j & j. what i want to point out is j & j is not trading with health care health care is way up here if you were to look at it watch the next chart j & j is trading lockstep with beat undown consumer staples i think that's what's going to happen to j & j. keep going to put this in context, we have a circumstance over the past six months, j & j down 12, a spread of 13 basis points that's happened 14 times in the history of the data going back to the 1980s what is see happen after, when you have a spread of 15% or more, johnson and johnson three months, six months, nine months was actually up. the odds are both median and mean, and that's part of the statistical play here that i think is important in addition to the optics. another way to look at it, johnson and johnson in relation to its trend, whether you use the 200 or 1250 50 as i do, howl
below is it from the 150 average? it shows we are essentially 10% below the 150 average. that's three years how about since the '09 low. ready, same chart. we are sitting here. look at this this is exactly at prior lows where it got so bad that it's good meaning we've got a lot of set-ups. statistically, optically, okay finally the j & j chart itself two ways to draw the lines you can draw this, early stage head and shoulders bottom, you can draw a trend line. we've just broken above it so my hunch is we are all in play. we can do this finally market down on the week, health care sector down on the week, j & j up on the week >> mike, how are you trading j & j? >> this is not stock not very expense i. it's not a growth story but trading less than 15 times earnings we have a fairly stable revenu
and earnings picture here. one thing that is a little bit more expensive than usual although they're not expensive on the "o" on an outright basis is options five month options in johnson and johnson is 15% that's low compared to any other stock. this is so stable. that is actually expensive we have earnings coming up in july on the 17th i think the way to play this is with a call spread specifically i was looking out to september the 125, 135 call spreads, you can spend $3.15 on the 125 calls so the 135 is against it for 55 cents. net, net, you're spending $2.60. just a little bit over that quarter of the distance between the strikes that i usually look to i'm trying to give myself a little bit of time for this to play out obviously and to capture that earnings event. one of the other things is in low volatility stocks, when you're using options give yourself time because what you're really trying it play for is a change in the trend and then giving yourself enough time for that trend to play out. i know that you usually look for
somewhere in the neighborhood of 60 to 90 days. that's what i'm looking for hoo r here this stock also paying almost 3% dividend yield that is should create some level of support and you're risking a little over 2% of stock price. >> obviously carter's technical work is compelling when you look at multiple different inputs mike identified a catalyst and given himself enough time. i put the whole thing together mike is risking the $10 call widespread to make the bet over the next couple months what's interesting about risking 2.60 with a stock at 122 half is to my eye and your eye is like 120 is a really important break down level so, basically he is setting a stop at 120 for this trade to work out over the next couple months and the thing is if it starts to move up in carter's direction mike could probably roll that call spread up there's a stock down, what, 17, 18% from those all-time highs made this past january >> how much over are we looking for? maybe 7 to 10%
in the neighborhood? >> that will throw you back towards your declining 150 moving average there is also this let's just say the marked is headed in real trunl j & j will probably offer you protection there is an element to that. and if the market is going to keep going, there is the prospect that catch-up money finds this stock as it's found energy as it found beaten up consumer names, as it's now finding reits outperforming, staples outperforming. >> what does xlv look like overall? >> dull. >> this is a stond out in comparison >> stand out because it's bad. >> bad is good as you like to say. >> not just digging, digging down remember is it started to outperform this week let it start and then go >> last word, mike >> this is one of those situations obviously the market did look woolly. i am comforted it is a beta stock, it held up relatively the valuations should in theory create some form of floor in terms of other declines. >> let's move on to another
stock in the dumps, starbucks hovering at multi year lows. share did catch a break after howard schultz sent an unusual e-mail to cnbc's jim cramer commenting on the company's stock. >> and then i thought this was robably the most telling paragraph. you write, the stock, which in almost 40 years, i have rarely commented on is cheap and under valued kevin with the leadership team will lead us to the promised land we have built a great and enduring company my mother was fond of saying, this too shall pass. >> the stock posted its worst week in two years after announcing store closures, taking down guidance, also warning on china now, before we get to the trade here, what do we make of former ceo's e-mail to jim cramer obviously he is talking his book so to speak. he probably owns a lot of shares what do you think? is it under valued >> i thought david faber and jim cramer really have their way with kevin johnson on the call i don't think it helped investor sentiment. schultz who just left as
chairman, left as ceo more than a year ago has his air a parents back this stock has been an under performer the last few years it's been range bound. they've been very clear about articulating where the future growth is going to come. that is obviously in china the news this week is that they are accelerating the closure of some under performing stores here the global same store comps were much below what expectations were just about 1% and that here's a company that's been missing their consensus estimates 3 out of the last 4 quarters they need to see some tech investments starting to payoff i think the ex-ceo and founder schultz this is all likely to happen in the foreseeable future so take it easy on our stock a little bit this may stake some time i want to have two quick charts here we have a one-year chart this is going to help inform the trade. the stock really broke down in the mid 50s here and i think that is a really important level to target as we think about this trade going forward. and then the five-year chart, there's obviously some good
support in the low 50s so, if you want to play for a bounce, you like what shumts had to say, you think the stock probably needs to digest a little bit over the course of the summer, they preannounce the same store sales, they're going to have earnings in late july. they're going to give some guidance hopefully not as bad as what we just saw here. you may want to use a call calendar what we're doing with the call calendar, you're selling out of the money short dated call to help finance the purchase of a longer dated out of the money call today when the stock was trading at 51.25, you could buy the august/october 55 call spread paying 60 cents for that you're going to sell one of the -- excuse me, the august 55 calls at 60 cents. buy one of the october 55 calls for $1.10. that costs you 50 cents. this is what you want to have happen over the next 5, 6 weekends into august -- expiration, you want the stock to move close to the # 5 strike the call that you sold in august hopefully expires worthless. you help finance the longer
dated october one. you are only risking the 50 sinlts in the trade. what you want to do is go back to the break down level and then you set up owning the october call, playing for catalyst that may materialize into the fall. >> i like this trade one of the things that the recent price action suggests to me is there is some real money that's selling the stock that's pretty clear. there is something that is also clear. it wasn't the growth stock it once was the top line is 7% trading at less than 20 times earnings that's going to create some bit of floor the moves they're talking about making is moves you hope any business would make is having under performing stores, what do you do, close them of course when i hear about what starbucks in china, it's overwhelmingly positive someone told me one of the stores in china has 400 employees and they're just scratching the surface of what's possible from my perspective, this actually is taking advantage of the fact there is weight on the stock at this time but i do think that it's a reasonable value here. >> think about what dan was saying, it will take some time
and mike just said there is some weight on the stock. that's the key point after having a set back like that, while it can be the low, it takes time to establish the low. so there's no rush from the point of view of just buying the equity, i have to get in there it's cheap usually stocks drop in gap for a reason you have to put it on a structure to make it work. it's not just out of the woods it just fell on its face >> the keyword is structure. at the end of the day i would not be buying the 55 calls out in october that are 3 1/2 dollars out of the money to me that just a scenario if you're playing for this thing to kind of digest, digest ultimately maybe break out in the fall this is -- that would be a horrible way to do it. this call calendar really helps mitigate what you have out of the money call between now and august expiration. >> all right ear everything options check our newsletter, more than 100,000 of you already have don't be the only one missing out. here's what's coming up next >> a slam dunk trade on nike
that can make money if shares go up, down or nowhere at all he'll break it down. plus, calling all "options action," reach into your pocket, grab your phone and tweet us your question at "options action." if it's nice, we'll answer it on air. when "options action" returns. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, 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?
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welcome back to "options action." you think hot trades you might think tech consumer discretionary is the best sector for 2018 the group could be set for a bigger move when the key company reports. check out nike near all time highs earnings on thursday a 5% move in either direction for the stock. how should you play? t? mike at the plaza with the call to action. mike >> i'm taking a look at nike and obviously it's had a great run here one of the things that has happened as a result of that is we're getting pretty close to relative high valuations when you take a look ste stock on a historical basis the other thing is of course because we have earnings coming up, we have elevated options premiums, implying a 5% move which is the average move but we're going to talk about one of the things, that is that actually more often than not the stock moves 4% or less and a few times it moves a lot the last few years we've had moves of more than 7%, 8% and one even more than 10% so if we're going to try to fade this stock or bet on something that is going to be a fairly
neutral play, one of the things we need to do is make sure we're not taking a huge risk in case it does have a big move. it's one of the better performers we've seen in recent weeks. i'm looking at selling the july 75, 76 call spread i could collect $1.65 for selling the 75 calls pay $1.25 to cover the up side notice we're collecting 40 cents on a dollar widespread obviously the stock is going to need to get above 75.40 for us to lose money on the expiration to the up side a modest move even if it trades sideways this trade should workout well it's only the sharp move we're concerned about. one of the probabilities these things are going to happen that it actually ends up below 60, about 60%. and the chances that it gets above that higher strike, it's going to be less than 40% actually only 33% that it gets to the higher strike. so this is a trade that has a
better than not chance of being profitable and we get to collect some premium, collect some of the elevated premium and maybe fade a stock that's had a pregood run that might come to the end over the next course of the week or so >> what do you think of mike's trade, dan >> if you think it's run ahead of earnings, whatever happens it's the way i would think is if they disappoint it's going to eadsly come back to 70 which was the break out level. but if it's just kind of like an okay beat in a mild raise you may have a stock flattish and well under perform the 5% move to the up side i like it and i like the fact he's defining his risk and selling into premium >> nike is on its own. if you look at sort of lower quality names croc, from the october low it's a little hot. does it rest or pop yet again on
its number my hunch from the charting point of view is it is a little hot and likely to basically consolidate back and fill which doesn't necessarily make it a buy or sell. sometimes stocks belong right here >> that's kind of my point why i'm playing it this way rather than putting on a premium outlay that would require something to happen this is a trade that makes money if nothing happens or if the stock trades lower of the three things that could happen, higher kind of stays right here or gds lower. 2 out of 3 of those are going to be good things for the trade if it does rally, you think about it, your risk is going to be 60 cents. most you can make is 40 cents, less you can lose is 60. you can cover it for something less than the 60 cent risk unless it moved sharply. >> do you think it's idiosyncratic? >> it's not too much bigger than starbucks. last year it was 50, we were looking at coffee in the quick
serve, whatever. they had steam of their own. nike started moving before other guys did, too. >> nike was under pressure because adidas played such a big comeback >> we have wimbledon coming up and federer is going to drop his nike contract and maybe move to uniglow. i don't think that's too great for the stock. not for tennis apparel >> coming up china just posted their worst week he will tell us what to do next. plus let's take a peek inside the "mad money" studio cramer is talking to sceo of red hat. it took the cloud stocks along with it. catch that interview at the top of the hour "mad money." we are in tomz squire. much more "options action" still ahead. well, it's earnings season once again. >>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. at crowne plaza, we know business travel isn't just business. there's this. a bit of this. why not? your hotel should make it easy to do all the things you do. which is what we do. crowne plaza. we're all business, mostly.
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-you know, i think you're my best friend. you don't have to say i'm your best friend. that's okay. you don't have to say i'm your best friend. (indistthat was awful.tering) why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." time to take a look back at some of our open trades last week dan said chinese stocks were on the verge of a break down >> you want to express a directional view fxi long premium trades, puts, put spreads that sort of thing is a pretty decent way to do it
you could buy the august 47, 43 puts paying $1.25 for that buy one of the august 47 puts for $1.60. august 43 puts for 35 cents. >> well, dan was right the fxi falling more than 6% since the time of the trade. so, dan, what are you doing with fxi now? >> it happened to quickly. one of the catalysts i identified, i think it's going on all summer long it broke the support level at 46 some point very soon closer to the short strike down near 43, we're almost there, yesterday i think you want to take the profits on this thing. it's going to be volatile. on a bounce back toward that break down level you want to put this thing back out and have the short exposure with defined risk throughout the summer. >> the lows were so well defined dan cited. when you break, when you break out, you don't contain it. it breaks out further or breaks down really just what dan implied should be more trouble throughout the summer. >> also last week carter and
mike said micron's big rally was running out of steam >> you can see the following off the line, off the line, off the line, off the line here's the thing we have the little bit of a prospect of having not made a new high my hunch is we've got a next trip down towards the line >> i was looking at the july 57 1/2 50 put spread you could spend 3.60 sell the 50s for 90 cents >> micron is now down more than 3% since the time of the trade so what now, mike? what do you say? >> i'm going to have to ask carter because i'm feeling like the stock -- the news was good but it didn't perform that well. i'm kind of inclined to continue to lean short here >> when you have bad news and you have bad price action, one can explain it when you have good news and bad price action that's particularly insidious. much more to come. >> more to come. >> in that case we stay in it. >> dan >> i want to reiterate last quarter when this company reported a beaten raise, the
stock sold 8% the next day and down 25% from the prior high it just made. i think you guys have almost the exact set up in a massive double top in the making. >> do semis look weak overall? >> that's it the cyclicality with growth, the cyclical is struggling mu is good and can't follow through. others are holding up like nvidia the problem is the net is it's not progressing. >> up next tweets and the final call see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, 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
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holiday inn express, (sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, with td ameritrade. ♪ welcome back to "options action." time to take your tweets but tonight we're doing something a little bit different. we're taking your video tweets who better to kick it off than a video from our number one fan alex >> hey, dan, mike and carter i'm alex from los angeles, california i'm a big fan of "options action" and cnbc the stock looks ready to break
out from the triangle pattern. how would i move through angle options? thanks >> what should he do from here, mike >> i'm not as committed to the stock. looks like a coin toss to me i would look at call spread risk reversals out to september we already had a catalyst. something around the 115 level and sell the 100 puts against it, try to get that premium down >> it's a minor triangle formation, so the implications are inmooer. my point of view, the stock is a pair of twos, a nonhend. >> don't play for a break out period >> i'd rather not do it. alex, maybe you're going to make a fortunate on t. >> by the way, if you want your video teached on the show tweet it to us at options action time for the final call. last word from the options pits. carter >> johnson and johnson the case is so bad it's good i want to get long >> call spreads on johnson and johnson. >> i think it's important to reiterate that point about micron
it's a market leader it is rolling here and i think smh is the one to stick with there so i agree with carter >> looks like our time is expired. i'm melissa lee. tweet us at "options action. see you next friday, 5:30 p.m. eastern time meantime "mad money" with jim cramer starts right now. the following is a paid advertisement for the traeger renegade elite. the traeger renegade elite is the most versatile grill you can own. you can grill, smoke, bake, roast, braise and barbecue all with this one grill. traeger is a superior wood fired grill that gives you that delicious wood grill flavor in every bite. taste the difference the traeger renegade elite. hi, i'm greg shockley and this is danielle. many of you know her as diva q. multiple grand champion barbecue winner, she lives, breathes and eats barbecue. and greg is also an accomplished chef and an expert of traeger wood fired