tv Options Action CNBC March 1, 2019 5:30pm-6:00pm EST
hey there, we're live at the nasdaq in times square the guys are getting ready for the show behind me while they're doing that, here's what's coming up next. it's looking just downright bad for tesla shareholders the stock falling into a bear market if you think this trade is going to get even uglier, mike khouw will tell you how to profit from the wild ride. plus, there's one semi conductor stock that's surging this year, and dan nathan says if history is any indication, this stock is about to go pa parabolic. he'll tell you how to get in on the run for less. and, it's party time for
tech stocks. has the nasdaq just locked in an historic winning streak? but if you missed all the fun, don't worry. the chart master will tell you how to catch the rally it's time to risk less and make more the action begins now. and we start off with a party in tech after the nasdaq's epic winning streak. but check out the faang trade in the past month amazon, netflix, google, all rallying while facebook has been standing in the corner during all the fun, down 2% the chart master says the beaten down social stock is about to play catchup let's get over to carter >> yes, facebook i think there's an opportunity as a catch-up trade. we know that it has lagged and it also was one of the most punished from its peak the first slide here shows some of that. obviously from the peak in september, october of '18 to the lows, the christmas eve lows and then back.
what we've got is microsoft, google, amazon you see the numbers. apple, facebook and netflix of course really the ones that were destroyed. so facebook, i want to zero in on that because it has lagged and i think there's an opportunity at this point. so a very simple chart it's only about eight months i would just point out that this low right here is the christmas low. so if you zero in on that, what we know is that the stock makes a new low. it undercuts its october low, but that is not the case on a relative basis, which is to say that as it was selling off, it was actually outperforming the s&p. and that sets up what has been since not only an absolute winner but a relative winner i think that's part of the opportunity. the chart itself, many ways to draw the line. we're going to focus on this gap. one way i think you can draw the lines is as follows. you've got something of a head and shoulders bottom
you have this well defined top and of course you get that massive breakout and then this flag another way to draw the lines, just that. what i'm thinking is that you have this initial heavy volume thrust and you're going to get a second one, all coming from the point at which it broke out and we do it again one more, where might we go. so i put those seam lines in let's just do it we hut in our head and shoulders bottom, we put in our flag here it comes again. if premise is right, ike we're going to thrust like that and thrust like that the reciprocal is what we did on the way down after gapping down, we had this very well defined triangle what happened? we did it again. we got the reciprocal going on here i want to play for a meaningful bump higher and also a catch-up trade. >> mike, what's your take on
facebook >> the preceding news we had on facebook since that time has gotten cheaper and cheaper the company is still growing it has a huge moat around its business it's trading 18 times next year's earnings and they essentially own their entire space. if you were saying, okay, back in the day television was first coming out and you could own the entire industry, what would be the appropriate multiple for that be? this is something that's going to generate something like $25 billion in free cash flow in 2020 so when i look at something like that, i think targeting the level that you were just looking at but also trying to minimize my premium outlay. i was looking out to may you could put on the 150-165-175 call risk spread reversal when i was looking at this today. you would be selling the 150 puts at $3.80. buying the 165 puts and selling the 175 calls. so net-net you're not putting out any premium to put that
trade on that's going to start kicking in, $2 up from where the stock is trading to the ownside. you could be forced to buy the stock at $150 which is a pretty good discount where the stock is trading in case that premise turns out to be the wrong direction on the trade but here's the other thing you're going to be owning it at an even cheaper level or valuation than we're currently seeing. >> what i think is interesting about the setup here, expectations were very low into this last print and therefore they outperformed and the stock had this big gap once again, because the stock consolidated well above the highs, i think expectations are low. we know why earnings are not going to grow in 2019. but sales are expected to grow 23% to almost $70 billion. when mike talks about a moat so here's the thing as we head into april, and say in the next six weeks or so, this stock may start moving up into that. you may have the trade before that the way mike set up this trade, it's not costing any premium
as the stock moves closer to that put strike, he's going to have losses. as it moves into the money into that call spread, he's going to have gains but he's got a good trade structure at may expiration. if nothing at all happened, he's got no crime, no foul. i really like this setup because i think expectations will be low again if the stock continues to consolidate to earnings. >> to your point if you go through earnings and nothing happens, this trade will make some money why is that? options premiums are elevated when you have that catalyst. once the news come in, the premium comes out. it's on the 175 call that you're shot and those will decay more than the 165 call that you own. >> so just to summarize the principle here that i think is most in effect is after a major reset in either direction, think about the plunge in august almost a year ago, you consolidate and get a follow-through move to the downside the reciprocal is in play here you have that initial re-rating
higher we've consolidated and the presumption is that you're going to get a second re-rating higher get long. let's stick with tech. check out the surge in semi stocks this year they are up nearly 20% despite trade tensions and global growth fears. dan thinks there's a stock about to rip higher. >> let's talk about western digital here a lot of old hef timers know this as a disk drive company these guys are also exposed to cloud, mobile, there's a lot of things going on here this stock was an absolute disaster in 2018 with a peak-to-trough decline of about 70%. but the stock is up 40% this year it's kind of caught a little bit of a bid i was looking at it earlier in the week because the president of the company was speaking at the tnt conference i thought it would be interesting to see how the stock reacted to what he had to say. the talk was yesterday look at that, that's the six-day
chart. the stock got creamed into the talk but caught afterwards he was talking about large inventories, loss of pricing power and really the global economy and waiting for when that pickup will be and when they're working down those inventories, when the balance sheet will look a little bit all that stuff it's all second half of this year but the stock like i said has rallied a bit off those lows it's up 40% on the low the technical setup is interesting. i've got two charts. look at this one-year chart and this well defined downtrend that it had been in it bottomed out on christmas it broke up above that downtrend line here's the really important part it was able to actually get back above 50 today, and that was the breakdown level from the fall. so i think that's a really interesting setup. it was able to hang out here for a little bit then the five-year chart i think is really interesting too. look at this massive double bottom that it might have put in a 40% bounce off that tells you there's a little bit of a bottom
here what do we need now? we need a catalyst to propel this higher. analysts hate it, high short interest they're not going to report earnings until late april, the last week of april i think this thing sets up pretty decently for a call spread if the news gets incremental ebert here and on that earnings announcement in late april, this thing is going to act like a coiled spring in my opinion. so to me you look out to may expiration where the stock was trading at 51.50 and you could buy the may, 50-60 call spread paying $4 for that buying one of the may 50 calls and it breaks even at 54 you can make up to 11 between 54 and 65 and then you lose up to 4 between 54 and 50 and a full 4 below 50 here's the key thing this trade is already $1.50 in the money here, so i'm kind of playing from a position of strength i'm really defining my risk at that $50 level that it just got above. this is not an earnings trade
it's a bit of a momentum trade i would consider taking this off if it was up near 60 prior to earnings in late april. >> i was going to say, it's interesting when you look at a situation like that because you're probably thinking to yourself spending $4 in premium, stock is currently trading, it seems like a lot of money. 8% of the current stock price. consider how far this stock has moved over a relatively short period of time up 40% essentially from the lows in a period of time shorter than what you've got from now to the expiration of this trade also take a look at how much this stock moves around earnings the answer is quite a lot. we've seen multiple double-digit moves just in a single day following the earnings release that's the kind of situation where you can be justified in spending a little more premium >> dan has touched on a few key things it's the current circumstance, which is an established downtrend that is start to stop going down and turn back up. where is that happening?
the former circumstance, a proer low. so the long-term chart, the double bottom, exactly right but it's why the current stock is bottoming, the current action is very developmental. couldn't be better >> as carter would say, a bearish to bullish reversal. here's the most important of that thing i was looking at the longer term charts it was the price action this week i listened to that conversation of the president it didn't sound good, it got hit initially but it came all the way back and got back to that key support level. i think this sets up for a bounce in a good market with incremental ly better news. check out more options action at cnbc.com sign up for our newsletter here's what's coming up next. tesla shares are taking a turn for the worse and mike khouw thinks this could just be the beginning of a total u-turn he will explain. plus, calling all options
actions pals reach into your pocket, grab your phone and tweet us your question @optionsaction. if it's ce, 'lniwel answer it on air when "options action" returns. i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. 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 shares of tesla hitting the skids falling back into a bear market elon musk warned they will not be profitable in the first quarter. wall street reacting in a series of notes barclay is calling it tesla's un-iphone moment is it an act of genius or desperation and morgan stanley says it gives the bears more material to work with than the
bulls. so how should you play the stock now? mike khouw is over at the plasma >> tesla obviously a very interesting situation. elon definitely has the cool factor i'm not just talking about him and his company. the model s proved to be one of the best cars that's ever been made, which was quite an achievement when you consider that there weren't any electric cars on the market before that came out the bad news, though, is that competition is finally on its way. audi, jaguar, bmw, mercedes-benz and porsche are coming out with electric cars. those are looked at very favorably by the automobile press. finally, this is an issue for tesla because they only build electric cars, electric batteries are exceptionally expensive. let's take a quick look at what he said he can do which is sell a car for $35,000 that as a 60 kilowatt hour battery. these batteries are probably in the neighborhood of $7,200 the general motors volt also has a battery that size.
they don't make any money on the car. that's okay because it helps them offset the fuel economy issues on their trucks where they do make money look at the vg egolf this is a car they make millions of anyhow. they make them at $35,000 and a battery about half the size. so when i was taking a look at this thing, you can obviously see the volatility that we've seen one of the things that helps the stock bounce like this is the fact that it has an enormous lehigh short interest. at some point he's probably going to have to raise capital if he does that, that could increase the float that's certainly one of the things that could put a lid on the stock as well. the way i think week looked at trading this thing, options premiums are exceptionally high. i'm looking out to the april-june 250 calendar put spread sell the april puts at $7, buy the june puts at $18.25. net-net you're spending $11.25
now, if you hold this until after those april puts expire, obviously you need the stock to be below 250 but actually until that time, this will be most profitable if the stock declines down to that 250 level. that may seem like a big move. it really isn't when you consider that there is some leverage here. this is a very volatile story. there are a number of headwinds. this em they may need to raise capital i think people are starting to have doubts about whether elon can talk the stock up. >> down to 250 would test its most recent 52-week low. carter, what do you see in the charts here? >> that's just it. frankly anyone that has a chart they're looking at at home, it looks like an ekg chart when you go to the doctor it just goes up and down, up and down the past three years. it has no character. we're looking for well defined opportunities like wdc, a bearish to bullish reversal where does something is about to break out or top out this is just meandering around with no direction.
it's lost. >> given that, what do you think of the trade >> the trade is really interesting. we know that 250 level is a big bottom level from 2018 it looks like it was prior resistance before that so it's established a new range. i think mike's trade gives you a lot of optionality here. it would be a nice trade if the stock works back down to 250, but it could also be the sort of thing where you ending up financing that longer dated 250 put with the short dated short one. so to me i really like this trade. like carter just said, it's been moving around a lot. there's probably a better chance that it goes back towards 250 than it's back up well closer to 350, which has been a level where it's found some resistance lately i like mike's trade here. >> last word, mike. >> i think the real issue we ought to be thinking about is what's going to get the stock to go significantly higher from here we've seen some weakness we have a lot of storm clouds brewing. it's going to have to be something pretty miraculous. we still have that s.e.c. thing to worry about
i'm not yet in this structure but i will be adjusting to this one or something close to it depending on where the stock opens on monday. coming up, general electric's nightmare has turned into a dream for shareholders this year and that's good news for one of our traders who will explain. plus got a burning question for one of the traders you are in luck because we're taking your tweets at the end of the show much more "options action" straight ahead what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. n't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪
i've done all sorts of research, read earnings reports, looked at chart patterns. 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. ♪ welcome back to "options action." ge's nightmare has turned into a dream for investors as the stock soared off its 6.66 bottom here's how dan cashed in on the move. >> options action is how we electrify -- risk less so we can make more and that's exactly what dan did with his bullish bet on ge. dan thought that ge nightmare
could be coming to an end. >> the last time this stock was a hat size, it did capitulate down near that $6 level and came back really quickly. >> but buying the stock could be risky. so to play for a bounce, dan bought the march 10 strike call for 50 cents now to make money, dan just needs general electric shares to rise above $10 by more than the cost of the trade. or above $10.50 by march expiration but spending 50 cents just to bet on ge? chill out, lady. so to cut costs, dan then sold the march 13 call for 10 cents and created his call spread. here's how it works. between the 50 cents he spent on buying the lower strike call and the 10 cents he collected by selling the higher strike call, he reduced the total cost of his trade down to just 40 cents. and now to make money, dan just
needs ge shares to rise above the strike of the call that he bought by more than the reduced cost of the trade. or in this case, $10.40 by march expiration >> it's alive, it's alive, it's alive! >> maybe so, doctor. but remember, there is a trade-up and since dan sold that higher strike call, his profits are capped at $13. since the time of the trade, ge shares fell to the devilish $6.66 level and then soared more than 50%, meaning this trade looks pretty good. now options action fans all over the world want to know one thing. what will dan do now >> okay. so this trade expires in two weeks. dan, what do you do now? >> listen, you had that news about divestitures, the
stopgaped up and was trading close to 12 but gave back a lot of those gains very, very quickly. for whatever is going on, a lot of investors are pretty happy with the gains off the lows last year but weren't too excited after digging into the news. i think this is one that you probably see some support at $10 and you probably want to roll this trade out the company will report their q1 earnings in mid-april, and maybe you roll whatever gains you have in a trade like this maybe up until the april 11 calls and play for that earnings event. >> mike. >> one thing i would say about this is that the trade moved its worth when the stock fell actually, not the subsequent gain that's the reason you sometimes put on these options trades rather than going out and boiuyn the stock because that would have been a bitter pill to swallow. >> it's all about the gap that occurred on monday now it's this quiet low volume reaction to the heavy volume up in gap the presumption is lows are in, higher prices ahead. >> i think 10 looks like a good
support level. there's probably some good resistance at 12 or 13 that's why i chose that 13 strike to sell versus the call spread maybe it looks like an 11-13 call spread that you roll in until april. up next, your 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 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
what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything?
hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ we have got time for one tweet. our viewer asks what are your thoughts on gld, the gold etf at $123 healthy retreat or break in technicals here? i'm in the april $126 calls. what dwou would you do >> it was a bad day for gold but it's still within the bounds of a normal give-back after the very impressive 15% move off the low. so i would tolerate a little bit more stay in the trade or roll out. >> i would actually just roll your strike down i like being long gold but just use a lower strike call. time for the final call. carter, kick it off here.
>> facebook. get long >> mike. >> you know, i like what elon is doing but i think tesla has some problems so i'd use calendar put sprets. >> dan. >> western digital, bearish to bullish reversal >> that does it for us here on "au money starts right now. 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. i promise to help you find it. mad money starts now welcome to mad money welcome. my job is to entertain and to educate and put it in con tegs call me at 1-800 or tweet me at jim cramer march got off to another great