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tv   Options Action  CNBC  March 8, 2019 5:30pm-6:01pm EST

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hey there, i'm scott wapner. live from the nasdaq in new york city, big "options action" for you on deck. here is what is coming up. >> as stocks see the worst week of the year, utilities just hit an all-time high and there's something in the charts that suggest there's more room for the group to shine carter worth will break it down and mike khouw will give the trade. plus, talk about socially awkward. >> you can't sleep with us. >> because there's one social
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stock shutting out its peers this year and one of the traders says the rally isn't over yet. he'll break it down. and -- >> energy. >> yikes but if you thought that was scary, you better wait until you hear what dan nathan has to say about the energytrade. it's time to risk less and make more the action begins now. >> that's where we start oent with energy getting slammed today making it the worst performing sector, the energy etf 40% for its worst week since the depth of the december sell-off some of the names getting hit the hardest, devon, halliburton. will there be more pain ahead? >> let's start with crude oil. when you were trying to assess what the damage was in risk assets crude oil was down 3% right out of the gate here there was a lot of things moving around but that was one that caught my eye. obviously there's growth
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concerns, global growth concerns with the data in china norway's sovereign wealth funding, one of the largest sovereign wealth funds out there, is going to diversify away from e & p energy stocks in their fund and that was weighing on the sector a little bit and the other one, the push out of a trade deal. so crude was down a lot. it rebounded i do have a chart. i think you've got to look at this crude chart look where it got rejected at $58. it broke the uptrend that had been in place since the december lows that got me thinking if we were going to have a pushout of this trade deal, crude is going lower. i thought about the xle. four names make up 55% of that i'm looking at the xle, where did that get rejected? at 65. so i think there's an opportunity to get short the xle with defined risk. listen, we may get a trade deal, we may get some stimulus stuff, oil may pop. but i think there's technical damage done and i'm not sure the global economy will turn on a
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dime the dollar almost traded at a new 52-week high the strong dollar and crude oil not so good together i think you look out to june expiration, look at the xle, you can buy the xle june 63-56 put spread paying $2 for that buying one of the june puts at $2.90 selling one at 90 cents. it costs you $2 and you can make $5 between 61 and 56 ultimately you're risking $2 here so this is a bit of a macro trade. the technicals don't line up so well and i don't think the fundamentals do either. >> mike is out in san francisco. mike, what do you think of the trade? >> well, i like the trade for a couple of reasons. first of all, let's just think about oil prices we have been seeing rising amounts of crude oil in storage in cushing it's a pretty simple supply and demand story we have rising production in north america. it's already the launchergest
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producer in the world. they expect in four years producing 8 million barrels that day. that makes the permean as the fourth largest after the united states, saudi arabia and russia. so obviously there's going to be plenty of supply out there the demand picture isn't that great. it's a transition story as we move to alternative forms of energy you look at exxon, they are not reinvesting to basically replace their reserves so i take a look at that, combined with the fact options premiums are relatively low and the fact we've seen a sharp rebound in a lot of these stocks off that recent bottom that we saw. i think the trade that he's setting up makes a lot of sense. >> i'm guessing you think oil is going lower based on your technical view of where you think the market itself is going. >> so let's talk about that. what we know is that crude has continued higher until just of late, whereas the energy stocks did not participate over the
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last five, eight, ten sessions and not only did you see that in the xle and dan points that out, the beta part, if you look at xop, which is the e & p names specifically, they have really been smoked. and the message of all that is, is that the move in crude is likely to end and the people playing the leading edge, which is energy stocks, which in turn is leading edge, which is xop. >> so he likes my lines. that's how we shake it out. energy and the broader market may have just had the worst week of the year but there is one group sitting at all-time highs, utilities closing at a fresh record high today. the group up 16% over the past year while the s&p is completely flat so will utilities continue to be a bright spot in the markets why don't you go over to the plasma, carter. >> sounds like i'm repeating myself but utilities are one of
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the places you want to be. swiss yields went negative three months ago, german 10-year yields, japanese paper is flirting with negative and here we are stuck. s&p utilities making new highs 400 utilities making new highs here to talk about how mechanical it is, this is the entire past decade it looks like an uptrend it is an uptrend moving from the bottom left to top right look how much of an uptrend is it it is literally come and touch this line over and over and over as though it's on some sort of auto pilot that is what technical analysis when it's working is all about do it this way, check out these arrows this is literally it has stopped, it has pivoted and then most importantly if we were to zoom in here, what you'll see is we are now, just now making new highs. so if i go to the next chart and zero in on that, here's the here
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and now chart. it is the only sector both at the 500 level and the 400 level making all-time highs. that says a lot. you can draw the lines this way. i want to be long utilities. >> mike, you're trading utilities? >> yeah. i mean this is an interesting situation that we have here because obviously one of the things we worry about when we're long equities, one of them is valuation. on the valuation front it doesn't seem quite as compelling as a group we're looking at a space probably trading a little over 20 times earnings but then you also have to put that into context. what we see right now, for example, the spread between high-yield bonds, which is another source of yield and corporates is actually very, very narrow. what that tells us is that there's really a significant chase on for yield in this environment. as a basket of equities, this yields well over 3% in terms of their dividends. when you think about it in that context, you can see why people
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might look into it obviously if we're going to have weakness in equities generally, this is a safe haven so that makes utilities set up well compared to the rest of the market when we look at it from an options perspective, the nice thing about utilities, especially if we're just putting on a directional trade, the options premiums are exceptionally low. you can spending $1.25 on the may 15 calls xlu closed today at 57 spoken 15 so you're risking about 2% of the underlying to make an upside bet. so if this proves to be wrong, you're not risking a great deal. obviously you'll get very good gearing if this should continue higher and we're trying to give ourselves an adequate amount of time for that trade to play out. >> think about it acting this well when major constituents have been in trouble we know pc & g has been smoked because of the forest fires, edison international, if you put those back in we would be making substantial new highs. >> so this is an interesting
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trade. i see exactly what you guys are talking about, just kind of this correlation or negative correlation and why it acts so well on december 7th on this show when the xlu was trading 56.50, i made a bearish bet playing for a move back to the low 50s let me tell you something, when the equity markets went berserk and started going down, you know what went back with it the xlu did go down with it. i thought it was a heads you win, tails you win sort of thing. but the performance with this new high is pretty impressive and maybe it's time for it to start outperforming equities in that capacity. if you play this trade, i think it makes sense mike is risking 2% for very near the money participation here i think it's like he's risking $1.25. the best case scenario is he maybe makes a couple bucks on that trade i think it's an okay risk/reward. i think there's a better chance you'll probably lose a little money. >> one thing we know, it's very low beta it would take a real dip in
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yields or plunge in yields to get this thing smoking so to speak. but the way it acts, and that's an important thing, has to be respected. >> mike, give you the last word. >> yeah, when we're looking at it on "options action" we're looking for situations to make more or risk less. utilities isan area where you're risking less. call options is a place you're risking even less. so this is a way if you're looking for someplace to play long in this current environment, this is probably one of the better ways you could do it. you're going to be risking a relatively small amounting although it doesn't take a lot to increase the value of that option, if we see this go up to 58, 59, you'll see a clean double and that's actually not a really bad return. >> we've got much more "options action" still ahead. here's what else is coming up on the show i see dead people. >> that may be true, because one left for dead social stock is surging this year.
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and dan nathan says the rally has more life to live. he'll tell you how to play it. plus, calling all options action fans. grab your phone and tweet us your qstn.ueio if it's nice, we'll 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. we are back on "options action." snap down more than 3% snapping a six-week winning streak. it's been ghosting the other names in the space gaining more than 70% while facebook is only
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up 28% and twitter up a mere 5%. so is there still time to bet on that stock our dan nathan at the plasma with his call to action. >> i think there is time to bet on it. like you said, the stock is up 70% off its december lows, was up 100% so it doubled there. there was a lot of enthusiasm about that q4 they just reported they had some improvement on some metrics albeit they're still unprofitable but investors like what they heard and like the new direction out of evan spiegel. he seems to be very, very much in charge and very focused there's three reaches why i think there could be more upside in the stock maybe not today or tomorrow or next week, but i'll tell you how to play it looking out towards july here's a couple of things that caught my eye. this stock had improving metrics when they reported on a lot of different levels we can talk about those at a later date but the stock rallied 22% and then it kept on going which was really interesting
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the other point i want to talk about is that huge pivot that facebook is making towards direct messaging going right after snapchat if mark zuckerberg came out and made that announcement, i would have thought this stock would have been down a lot more. we know they have targeted some of snapchat's best features in the past and really hurt their user engagement and user growth but the stock was only down 3% on the week. that relative strength, very important. the last point i want to make is if facebook starts making serious inroads into direct messaging and thinking about how to monetize direct messaging, i think that makes snapchat's property a very scarce asset for much larger platforms. i think that becomes a takeover target, even with evan spiegel's super voting rights, i think there's probably a way that he and jack dorsey have a meeting of the minds and say you know what, we should be doing this together there's no shortage of other large platform companies that would like to have evan spiegel
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locked up with them. those are the reasons why i think this stock could work as we get further into the year i think you want to play it with a call calendar. i don't want to buy outright premium here i want to basically think about how i would sell some short dated calls to help finance some longer dated calls and play for the stock to move around a little bit above where it's trading right now. really importantly, here's the chart here obviously it hit a little resistance last week, almost to the dime at like 20.5 here it's trading down about $9.50. and i think you want to play a call calendar. let me tell you what the trade is real quickly. look at april expiration and sell one of the april 11 calls at 15 cents. you look out to july expiration, and you buy one of the july 11 calls paying 69 cents. that costs you 54 cents. that is your maximum risk. what you want to have happen here with this trade, you want it to move up towards that $11
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strike between now and april expiration, a little more than a month. and then what you meant to do is either cover that short april 11 call or have it expire worthless and then you own this much longer dated july 11 call for only 54 cents, about 5% of the current stock price. this trade is basically setting up to be bullish on the name near term but really giving me some leverage in the back -- in the middle of the summer here with that long july 11 call here, so i'm not outright buying calls, i'm not buying the stock right here on a big spike. i'm trying to finance longer dated calls. >> mike, what do you think of it >> you know, i don't have a really strong opinion fundamentally about snap, although we obviously do see growing top line if they can translate that into income, that obviously would be a positive carter is the expert on the technicals, but i will speak to the options trade which i love, i have to tell you there's a couple of reasons why. one of those reasons is we often talk about implied volatility, the price of options
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what we don't talk about quite as often is how volatility itself is seasonal it's seasonal with earnings. so we often see names like snap get very volatile around earnings and then we see them trade in a much narrower range in between earnings cycles guess what, dan is selling that april call which expires before earnings which means from a seasonal perspective, this is when we expect the stock to basically be more range bound it's still a volatile stock but more range bound than it typically is he owns a july call option so he owns the volatility when you need and want it so if you're thinking about putting on a trade in this stock, and i'll let them speak to the fundamentals and the technicals, but from an options trading perspective, i like this setup. >> it's key that it's done with options. as an investment experience, this has been special. it came out exactly two years ago, march 2nd, i think, 2017 priced at 17 the first were 24, up 20%. hit about 29 and it never looked
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back so if your third day in life is your best day and you go down for two years after that and hit a low of 5, something is wrong can we get a trade here? sure this is one of the worst performing ipos on record. >> yeah, so this is a defined risk trade we're expecting a lot of other very-profile tech ipos in the coming months. this company has an $11 billion enterprise value they are not making money, that is a big issue right now but i think relative to some of the tech ipos we'll see over six months, people may start to look at this name and say it hasn't performed pretty well but it's got a stud of a ceo and founder and maybe they finally get some things right and this stock looks cheap relative to the stuff coming to the market. citigroup sinking this week. one of the traders says there's more pain coming. plus, do you have a question for one of the traders stick around, because we are taking your tweets later on in the show live from the nasdaq. that's where we are noetonight n
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times square more "options action" right after this 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. 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. ♪
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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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♪ welcome back to "options action." time to take a look at a couple of our open trades back in february dan said citi was about to break down. >> i want to look out to april expiration i want to catch their next earnings event i want to catch the fact that this stock rallied 30% in the last month it's pretty simple, you buy a put spread when the stock was trading at 62 today you could buy the april 60-50 put spread paying $1.60 for that that breaks even down at 58.40 you can make up to 8.40 between 58.40 and 50 bucks. >> citi is down about 4% this week and everybody wants to know what will dan do now >> yeah, that's old school so the stock was 62 when i did the trade. now the stock is 62 still. so that put spread that cost
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$1.60 is worth $1.30 it's lost 30 cents here. it was down to 61 in its lows today. i still like this trade. i know that we have earnings that are going to be caught in mid-april, so what i would do right now is i would cover the 50 put that you're short for 13 cents right now and i'd sell the 55 put and make it the 60-55 put spread you can do that roll for about 30 cents and that further reduced the cost of this trade at that point you have the 60-55 put spread on it. >> one of the most important tells, last week when rates did move up almost to 2.75, the banks didn't get fooled. and now of course rates have come down, they have all been smoked and it looks like there's more downside to come with citi and the others. back in january, mike khouw and carter said bonds could boom >> we have a well-defined break in trend, ever so slight, and now after breaking, we've thrown back to the underbelly of the trend line, which is often the
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point at which you then of course hit your head again my bias is rates to the downside, which of course means that one would want to buy something like a tlt. >> i was looking specifically at the april 121 calls. those were about $1.85 when i was looking earlier today. >> tlt up 2% or so this week what do you think of the technicals >> well, thinking that there's plenty more to go. the rate environment is poor and likely to get worse, therefore tlt is a good place to be. >> mike, what do you do with the trade now? >> yeah. i think we can stay with it. we've got until april expiration if one was so inclined, you could roll it out a little bit, but i think we're in a good position here. >> real quickly, the tlt got rejected on numerous occasions the price of options, it's about the cheapest vol you will find on the board if you think the 10-year treasury and this is the 20-year treasury etf the tlt is going up and i really
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like this trade. i would be looking out further dated, maybe may or june, to call spreads that are targeting 130 to the upside. up next we'll do your tweets and make the final call. ions. 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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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.
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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're back, time to take your tweets now. edward asks after breaking a 10-week winning streak for the market, what are your thoughts about buying a put spread on spy, danny >> you're speaking my language here, edward here's the thing i think carter in the last show just told you 2600 looks like a good target. i'd look at the may 275-270 put spread i like the risk/reward of that trade. >> edward, thank you very much mike, final call, what have you got? >> calls on xlu are a low risk way to make a bullish bet there. >> carter. >> xlu, tlt, any one you want to do >> danny. >> take your pick. you buy bonds, you buy xlu, you
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sell xle and also buy put spreads. we've got you covered here. >> bear suits all around. >> all right good stuff, guys, thank you very much that does it for us here on "options action. catch us back next friday 5:30 p.m. meantime 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 hey i'm cramer, welcome to "mad money" and if you want to make friends, i'm trying to make you money. to entertain you and educate and teach you. call me or tweet me @jim cramer. you want to know what resilience looks like we gel a labor report this
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