tv Options Action CNBC November 10, 2018 6:00am-6:30am EST
we're live on the market this friday afternoon getting ready for the big show in the meantime, here's what's coming up. >> announcer: ge shares are getting slaughtered. but if you think the glad bath could be nearing an end, dan nay on this has a way to play for a bounce plus, attention walmart shoppers the chart of the dow stock has been breaking out. and carter worth says there's more gains in store for the retailer when it reports earnings next week he'll break it down. and, chip stocks have been
getting crushed and there's a big event next week that would signal more pain mikeco's got the trade it's time to risk less and make more the action begins now. we start with retail gearing up for a big week of earnings. home depot reports tuesday, macy's on wednesday, walmart and nordstrom on thursday. these stocks have been bright spots over the next month. how should you play these over the next week. carter, what are you looking at? >> walmart a big one, but really it many ways it's a consumer staples play it's a big grocery store and we know how well consumer staples are acting this is a defensive and offensive bet here the most recent data point is this huge gap on its earnings. there it is, you can see it, basically a massive move after a surprising result. and, of course, on epic volume, which is what you want when you have a gap to the upside
so i'm going to make the bet that we get a big move here in the next quarterly report. let's put this in context. so here is the gap, right? just to put that, again, to focus on that issue. but what we really have, you know, this thing sort of draws itself i mean, by all accounts, we have a cup and handle and the move would suggest to the former high that former high is 109.98, we close around 105 today just a 4% move to get us back there is the bet that i'm making let's pull it back even further. just one more chart. this is going back to 2015 and, again, just to my eye this is such a well-defined setup with the cup and handle. you can also make the case that this is ultimately a massive head and shoulders bottom. i think walmart is a place to be both offensively and defensively
make it long into earnings. >> we all know that mike is an international man of mystery and today he's in austin texas what's the trade >> home again here in austin, texas. it's interesting that he mentions walmart as a staples play because we have seen valuations on a lot of the retail names at very low levels. walmart's isn't particularly, it's trading about two times earnings but if we look at the charts he was looking at, one of the things you'll notice is that this stock has made a fairly sharp move to the upside since october 15th, up about 12 bucks. and given the fact that options prices are actually relatively low here, i think the move is to go and buy the january 105 calls. when i was looking at those earlier, those are about $3.80 when you consider the types of moves we've been seeing and the amount of time it's taken for them to make those moves, i think this is relatively inexpensive way to make a bullish bet here you'll get time to spread this or roll it if we see a move to the upside and if the stock should pull back by anything close to the move that we've recently seen,
you're going to be risking far less than that $3.80 versus 12 bucks or so that we've seen in 19 trading days and you'll have this all the way till january expiration. >> what do you think of walmart? >> two things. i think it's hard to argue with carter's technical start-up. it seems definite continues to -- des continued to go back to that high of 1 ten if you're convinced that the stock's going to get there and then break out, don't forget they had a massive gap on their last earning report to the tune of 8% or 9%. if they're able to beat and raise again, mike's trade is going to be wait do it i think it makes sense to define your risk after you've had a big run like this. >> the things that we're focused on is not that big a move to get to the high, about 4%. two, a stock that was up in october when you've just had the worst october in a decade, a stock that was up today people pounding equities going into the market, into the close, that's the kind of behavior of money
that would argue that there's both people hiding, for good reason. >> right. >> or there are plenty of people that have to be long that's the bulk of capitalists, fully invested at the mutual fund level and many endoumts awments and so they're making a bet this is the whole thing that even if it were to turn down, meaning market and walmart. >> it's a tactical trade but we've seen the outperformance of staples and the hideout trades like a walmart in the month of october. are you concerned on an evaluation basis that too many people are flakiocking to names like walmart to hide out >> no. i think at 22 times ford isn't cheap for a name that's growing in the top 4%. that's the point if you look at other safety trades, those are the ones that have those higher valuations and to the extent that the valuation does present a risk,
we're layering safety on safety because we're buying that upside call so the. >> so if it proves to be unsafe, it's not going to be as unsafe for us >> is a safety trade unsafe overall? >> at end. day they get around everybody. so if you think about that, nothing is immune when the real selling gets going. from a bright spot in the market to a black hole general electric, the stock getting shellacked today falling 6% after jp morgan lowered it $6 a share. it's now down 10 it has shed half a trillion dollars since it's all-time high back in 2000 if you think the worst could be over for now, dan's got a way to play ge for a bounce. >> at one point it was down almost 12% when you see that interday reversal, it was up just a bit, you're starting to get a sense that things are getting a little
panically here he said the stock is down 50% on the year this jp morgan analyst pus a price target on the stock, i think it closed at $9.10 and the big part of this call, wall street consensus is too high look at that stock had been banging around between 12 and 14 for the most part of this year, and then it just fell out of bed. that's a pretty interesting setup. i'll let you talk to this chart, carter, it's a 20-year chart not a log chart but it's the lines that a lot of people might see when they go back to the financial crisis the last time this stock was a hot size, it did ka pitch chew late down near that $6 level and it came back quickly if you look at that down trend you see there's some resistance at 13. i don't like this stock here you're buying a falling knife. who knows what's going to happen to the dividend and all that stuff. consensus needs to come lower. the company needs to come clean on this. >> with that said, though. >> with that said, i'm looking
at calls and call spreads out towards march. we know we'll have a couple catalysts between now and then and they look dollar cheap so if you're willing to risk a certain amount of money that could go away if you just don't get it right, then this is the trade for you. if you want to be contrarian here today, the stock closed just below 865. you could look out to march expiration and buy the march $10.13 call spread if the for 50 cents we're selling one of those at 10 cents, that breaks even up at $10.40. that's up 20 some percent from here but you can make up to 260 between $10.40 and $2.15 so the risk/reward of this trade, you need a massive move but when you get these down drafts, sometimes uget those massive moves. >> it was 66, wasn't it? >> $5.72 would be the closing. the issue is we're getting very close to that reference point.
surely, at least hopefully it's not as bad for g erk as it was then when there was many people questioning ge capital was going to pull the whole thing under. if we could go to that first chart that dan had where it was trying to base and then ka pitch chew late and plunge out the bottom, you could go back and look at the tape i have sat here on this desk saying this bot ton looks like it's going to hold and turn. and after holding and holding, this thing collapsed so it always is a testament to investment is dangerous that's why they have traps. you can buy it and get trapped so the question now is is there an end in sight? at some point the only reference point is that financial crisis twi 2009 low >> if you don't like down play play for a bounce. >> it's dangerous. >> we've got it on march 4, 2009, a month later it was up a hundred% this trade is waiting for a wash
out and then a reversal. >> mike, what do you think which side are you on? >> i'm actually on both of their sides. i think ge has some serious problems this is a heavily indebted business you get a new ceo, the sharp pop had off of that news and the reason is when you have industrial companies like again electric and they have fundamental problems, that doesn't get fixed with replacing the guy in the corner office so those problems are going to living with this company for a little bit of time that said, consider the fact that you're risking 40 cents i was thinking about this call spread because in these kinds of situations you might ask why don't i go out and buy that call selling for 10 cents let's remember what the price of the stock is it's more than 20% of the value of the spread. this spread, if it did reach its maximum value pays six to one. it's a risky thing to make a bullish bet on this company because i don't think it's problems are over.
but to the degree you might be tempted to did this because you could see volatility, using options is the way do it and i like dan's trade do so. >> just a fine point, the snow is called "options action. i'm not pounding the table here. i like that payout if you have a 60% rally in a stock that the sentiment guessing washed out. we have three and a half months for this thing to play out i like the risk reward, risking 40 to maybe make $2.60 check out our website, and while you're there sign up for our newsletter it's so good that dan cannot put it down. what are you waiting for yours is coming up next. >> announcer: plus, calling all "options action" fans, reach in your pocket, grab your phone, and tweet us your question at "options action. if it's nice, we'll tans answern
air when options action returns. . i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪
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(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." sammy's getting smacked again today adding to the chip wreck over the last few mondays. josh has more on what's driving the selloff. >> semis selling off here, check out the smh finishing the day lower by about 2% and underforming the broader tech sector all week. one member of that, sky works
dragging down the space day. that stock getting shelled after investors were disappointed by the company's first quarter guidance which missed analysts estimates. part of the pressure there coming from weakness and high-end smartphones, apple and samsung are customers there. this underscoring a key theme in that space. i checked in with b. riley's craig ellis. he emphasizes three broad challenges for semi investors to keep front and center. he prefers companies that already reported, got the bad news out of the way and delivered dividends, he says, microchip and kla fit the bill chip investors turn their attention to next thursday when nvidia reports results that stock down more than 20% in just of the last month this is an option show, so the implied move for nvidia is about 10% in either direction. so we could see another huge move next week. >> thanks for that, josh
well, as the semis get smoked, carter sees even more downside for one of the names. carter. >> so this is the god of semis you're talking about a stock, best performing stock in the s&p, one year, two year, three year, four year, five year, going into october and then we plunge that's epic stock was $2.92, it prints $1.76. that's a 39% decline and then ricochets back to $2.20 and now it's starting to falter again. let's put in some lines and see if we can figure it out. so we have this sort of, well, call it the trend of the past year, year and a half. it's clear a a break let's put it in context of the longer term in the is picking up the lows, basically of its great assent and we come down and we hit that line. so one could say why don't you think it bounced the problem is it did bounce, 176 two 220, it's starting to hook down again.
my bet is we're going to fail here and unwind even further not good action from such a great leader so we're on that line, again, the bet is that we're going to undercut the line. the group in general we know peaked before tech at -- tech peaked in many ways relative to the market in june as a sector it's not a good setup. and so i would just stare at these numbers. the peak in the market, the trough of october 29th about this ricochet occurred s&p 11.2, the russell a little bit more small cap a little bit more, nasdaq 100 a little bit more, the semis more, and then the king if you can drop 40%, ricochet back 25 and then start to -- you can certainly go lower there's no valuation to discuss when you can surge, plunge, surge, plunge, it's in the hands of the outgoes and the hands of the chartist it has nothing to dowith valuation at all, but i would be careful. >> thanks, carter.
so, mike, what do you do >> i think the way to play this is with a put spread carter just said it, this stock is extremely volatile. we've seen some wild swings buying it or shorting it you're taking essentially unlimited risk either way. so you definitely want to use an options trade here the thing is, of course, as josh pointed out, it's implying a move of about 10%. that's more than it normally implies. another way to ink about that is options are expensive. is this a way that we could press a bear issish bet here but risk less? i think there is i was looking out to january, you could buy the 200 spending 1500 bucks for those two puts, selling the other ones net/net you're seg abolling abo5 of the lows here i would quickly point out, look at the valuation and say 24 times earnings for a company that's been growing as fasts that one has been doesn't look particularly expensive
look what the happened to amd. it's down more than this one is recent peek to trough. off of their earnings it moved about 15% to the down side clearly i think what investors are waiting for is this prolonged growth story the tail end wind of gpus and high going to hold snup i don't think it will. >> you're trading a move all wait to the down sooitd of one 60 and you're not saying that's where it's going to go, but that stock was just trait trading at $1.80. and when you think bay 40% peak to trough decline for a stock that had a $550 market cap just a month ago, it's pretty crazy i will say, carter, the charts are horrible if the stock were to go down, go back towards those levels and then 2019 estimates don't come down meaningful, it's a cheap stock when you think about where they're exposed. >> that's the 176 level. just to think of that kind of selloff, it puts the whole notion of whatting some's worth in question.
it was worth 192, it was worth 220 just sessions ago, now it's back at 205. it is virtually a gambling chip here so in many ways the only way one can cope with it, and it will be fraught with air too, is looking at charts. it's not going to be because it's cheap, it's expensive, that is out the window at that point. >> michael, last word. >> it would be cheap, though think about it since 2015 they've multiplied revenues three times they multiplied free flash cash flow 6 1/2 times in the say fast-growing company and they represent the technology of the future that said when you are holding stocks that move this sharply this quickly, i think that you ought to definitely start taking a look at options positions. and even if you hold this stock, this might also serve as a way to hedge going into earnings. >> all right still ahead, bad apple, the tech giant is the worst performing stock in the dow this month. do the charts point to more pain ahead? we'll plain. plus a question for one of the traders.
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welcome back to "options action." it's time to look back at some of our open trades last week dan said chinese stocks are bracing for more pain. >> i have a two-year chart here and it has about a 10% rally to this morning's open and it failed right at that down tlaends been in place since the january highs. it bounced off of what i think is an interesting support level. the trade i'm looking at is in november expiration two fridays from now you look out, you can buy the 41-39 put spread, paying 60 sents cen cents for that. >> the group tanks this week it's now down. how do you trade fxi >> that was some call. here's the deal. that trade is worth about a buck it costs 60 cents. i think you'll have follow-through back towards that lower short strike at 39 bucks and that's where you dak it off because time is against you at this point with five days expiration. >> last month mike and carter said apple was set to shine on its earnings.
>> this is rowdy performance of the s&p. it peaked as far back as 2014 and just now is apple actually starting to outperform the market of which it is the biggest component. we think that's a positive and we're going to make the bet that apple's going to be okay post earnings. >> i'm settling $1.95 puts at 250, buying the calls paying $10.50 and selling the $2.40 calls against it at 2 bucks. >> now down nearly 6% since the time of the trade. mike, what are you doing with apple here >> i think we called this one wrong. the stock's down 18 bucks since we put that trade on this trade's down about five bucks. i think my inclination is just to take my punishment and move on. >> carter what do you see? >> it was a little bit of punishment, this was murder. all right. the stock doing exactly the opposite of what we were playing for and sometimes your first loss is your best loss, just walk azbla what does tway.
>> what does it look like now? >> it bounced a little bit, the opportunity was for balance and earnings, that's come and gone, now it's sort of dull. >> no man's land. >> i think it fills in that earnings gap from august 1st and that's back towards 190. >> all right up next tweets and 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
and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪ welcome backing to "options action." time to take your tweets this one is from a twitter man who asks do you recommend selling nabked puts rather that buying a stock for a lower price? >> it depends on what you're trying to achieve. if you like the idea of taking in premium, that's great if you like buying initial position that's not a full position and selling out the money put to take in yield, that makes sense too. but it depends on what you're trying to achieve but like the way you're thinking about it. >> time for the final call
mike. >> risk less, walmart. >> carter. >> walmart on the long side and nvidia on the short side. >> dan. >> ge out of the money call spreads look dollar cheap. >> that does it for us here on "options action. have a great weekend - [voiceover] the following is a paid presentation introducing the new dermawand pro, brought to you by ictv brands. introducing the new dermawand pro, 50% more powerful than regular dermawand for even more exciting results. also, dermawand pro is thinner, lighter and with soft grips, easier to hold and use. and anytime during this show you can call to upgrade to the new dermawand pro. now here's lisa. - hi i'm lisa varga, i'm 40 years old. i've never had cosmetic surgery and i'm not afraid of high definition cameras. bring them in closer guys.