tv Options Action CNBC May 31, 2019 5:30pm-6:01pm EDT
hi there we are live at the nasdaq in times square the guys are getting ready for a big b very big show. here's what's coming up. >> apple shares are rotting this month, but if you lost money on this stock, don't worry because dan nathan has a way to trade it on the cheap and he'll tell you how to do it plus -- ♪ ♪ >> doesn't that look refreshing? ko and carter think so and they'll tell you why coca-cola could be the ultimate summer sizzler, and later -- >> my name is bond james bond
>> actually, it's worth. carter worth because the chartmaster was spot on with his bold bond call earlier this year and you'll never believe where he says they are headed next he'll explain. it's time to risk less and make more the action begin ♪ ♪ and we start right there with the bond bombshell rocking the markets this week. the-year-old on the u.s. ten-year yield sinking to 2.7 in 2017 as the s&p closed out the longest weekly losing streak in five years and the rate shock coming as no surprise to carter worth who actually called for it earlier this year. >> ultimately, i think that after toying with these tops and ever so slightly breaking out and pivoting down that we are going to make our way higher i like tlt on the long side here and i think this is a good bet i'm in the camp that yields are
going as low as 2.1% on the ten-year >> prescient call, carter is at the plasma breaking it down. >> i think we have 2.12 today. so we are effectively there and there is a slight unfilled gap down 2.07, but tactically we've come a long way and i think you can play this the other way which is to say trim, take profits in tlt going back to the 60s. let's draw the line and it's a very precise line, interestingly, and yields fail and that's one of the reasons to make a bet against it and yields failed precisely and they failed and that was the entire point of making the bet that they would stop the 2% level is effectively the midpoint of all of this and at this point i have the prospects of again, a little bit of mean
reversion. so here's the ten-year yield chart and what we know is that it's had pretty big rebounds and 25 basis points and 27 basis points and the sequence, if you will, would call for something along those lines here could it start from 2.07 and we were oversold or overdone and i think you get that sort of bounce coming up here and the reciprocal is tlt and it was a great breakout from the tops and the issue is having broken out from those tops and having completed the head and shoulders bottom or, frankly, having to some extent done your cup and handle, at this point, i would think you get a pullback and so the betting here is that after some pretty good gains at tlt that you've got this kind of
potential. >> all right mike is out in san francisco today. mike, what do you think of carter's call? >> yeah, well, obviously he had a great call earlier this year we heard that from a couple of quarters we began the year with the general understanding that the longer rates were going to go higher and it seems that universally the view is that they'll go lower and everybody is looking for rates to descend and that might actually mean that they've descended as much as they're about to and we will remember that it was about three weeks ago that jeff was talking about the fact that options were very cheap on tlt and he was talking about being a straddle buyer and we talked about that the august 125 straddle and we've seen a very sharp move and that straddle which was $5, and it's now 7 1/2 and the price of options remains relatively cheap. >> number one, if you had the straddle on, and at the very least, roll it up and my role to go along with carter to make a
bearish bet on tlt after the comments where he was basically saying don't worry about keeping your powder dry, be very aggressive and if we do see that, and if we do see aggressiveness from the fed in monetary approximate monetary policy that could steepen the term structure of yield and so what i would do here is look out to august and the 130 puts were trading for two bucks and that's an inexpensive bet and when it starts to move in a single direction it sort of goes that way for a single advantage and that's the way we could make a play that could fall >> what do you think of the trade? >> that looks like an amazing breakout to me and you kind of put together the fact that options are cheap in it and i think you can have a continuation of that breakout and the tlt can get back to 140 where it got back to 216 and
that's here nor there. >> that's important and it's just how you get there ultimately, what we know is in the extra session we're going to 1% the fed can start buying stocks like the bank of japan, but the point is the day to day angle is a bit much, right? >> you go to 140 you don't go there like this and that's where you flag. >> i think the last time that the tlt was trading above 130 and we had crude collapsing and safe haven assets like u.s. treasurys, and we know that's bid right now. i say to myself this can be a messy summer if we don't have resolution and you will see crowding in the dollar. >> directionally longer term, you think that yields will go lower, but shorter term you might agree with these guys. >> i thought we were playing for a breakout, right? we would harvest that, right or we'd roll down or roll out.
>> here's the good news about mike's trade and it was break even 128 about three sessions ago and volumes are cheap enough that if you get the news, you would spread it or harvest and lock in the gains on a near-term basis. >> mike, last word >> what dan said is a good point, too on these types of trades whether it's a bullish one or bearish one, you have to look at rolling those situations when you do start getting those trades into the money and like the 125 calls you want to adjust that and if you're making a bearish bet there, you will see that down to the 125 level. >> from a rate sinking 120% in may during that time, apple now sitting firmly in a bear market down 20% from its 52-week high the company's worldwide developer's conference is monday so how do you play the stock dan? >> you do not play it for the
worldwide developer's conference there's nothing that can come out of there that can affect this stock they did that in march and when they used to do that in june, and i don't think that's a catalyst whatsoever. the stock is down basically 19% since april. since the highs in april and it's very important to think about where this stock has been and in q4 this stock had a 40% peak to trough decline when you think of 2019, january 2 rnd thnd, this company had tht negative preannouncement and that was down 40%. interestingly, though, the april 30th high right after the earnings announcement also came after an earnings announcement where tim cook said china is a problem and april 3rd he said china okay so here we are down 20% in what feels like a straight line i have a chart and i'll let carter speak to it to my eye, the things are absolute no-man's-land i see technical resistance in
the 220 level and i see technical support for 60 to 140. if there will be some rs losing to the trade situation and the other ren will be earnings in late july. we get this question all of the time, i know carter does, and everybody wants to buy apple and it's been a good trading vehicle and the question here is how do i get long exposure and apple is one of those names that should get an immediate pop on that and you can buy calls and the options is kind of high and i want to create a structure that gives me long exposure and gives me wiggle room on the entry point and it's in no-man's-land and i want to look out to august expiration that will capture earnings and it will capture a good bit of volatility associated with this trade discussion when the stock closed at 175 today you can buy what's called
a risk on you can sell the august 150 put about $2.75 and use the proceeds of that and buy one of the august 195 calls for $2.75. it doesn't cost you anything from a mark to mark basis, as the stock moves up the long strike price this should show profits on august expiration and it's profitable above 195. on the way down, closer to the 150 put strike and august expiration below 150 and below worst-case scenario. per one contract belowest, if you're prepared to buy the stock almost at 150 and if you're looking for leverage to the upside snap this is also good structure. >> do you like the charts? >> i think the thing you started
with is the key point. it is in no-man's-land and in that extent it's oversold and it's been a dud all along and it will never get back to the high of the s&p and what about selling and make it the 190 and 160 strangle and watching this thing like a pinball stuck in the range and play for decay >> listen, part of thing is the question is do you buy it down here at 175 down 20% >> i would say no. do i want to buy calls i would say no could you sell just the put to take in some of that premium yeah, but to me, what a risk reversal is selling a put and buying a call and that's a wide range here >> let's ask mike to pull this tie. would you rather dan's trade or carter's trade? >> i actually like what carter is talking about dan would be half right. if i agree with carter because dan is half right, why is that
because he's wiselling a put. there is some measure of the stock. he's chosen the 150 which is a good bit lower than where it is trading and i would take a look back at this earnings result which was a disappointment and say to yourself, now with the stock trading at 14, 15 times earnings will look at ten teams earning and that was always the story because, and it's traying at a higher mrult multiple and that doesn't make sense to me and i am trying to figure out how it will go materially higher i'm with dan to sell the 160 put that carter is suggesting and i would be an upside call seller as well. >> half right. that's the story of my life. thank for telling everybody in america. you would only do this trade if you believe two things one that the stock is oversold and the fact that the trade news is going to get better and then that will give the company in late july the ability to guide better in the second half. that's why you will do this
trade at 175 i think there is a tremendous amount of uncertain. check out our website marges option .cnbc this summer it is the perfect summer beach read here's what's coming up next ♪ ♪ we'd like to buy the world at coke, too because ko and carter think the dow stock could be a hot trade this summer they'll tell us why. plus, calling all options action fans, reach into your pockets, grab your phone and tweet us your question at options fans. if we'll have options action if we'll have options action when we return ♪♪
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welcome back to options ak t if you got swept up in the sell-off don't worry because carter is back at the plaza with the refreshing dow name investors can sleep on this summer carter >> coke. i mean, maybe not exciting or anything, but there's the disconnect between coca-cola and other staple stocks which have been on fire, and i think it's lagging nature is perhaps at an end. here is the past decade in the ten-year chart and the lines are clear and coca-cola bringing up the rear underperforming its own peers like procter & gamble, soap and cereal companies. and all of which underperforming the market, right? so coke up 50% of the market now what's happened of late?
here's coke on its own the past several years and here is its relative performance. obviously it's been a dud that even as coke's gone higher it will underperform the market and not only is it up of late and it's actually outperforming the market and you can see that here the simple shape of the line and if this line is rising and it reflects outperformance relative to a benchmark moving on. another way to draw the lines. this is with the moving average. the moving average has now turned and that's a very important circumstance a bearish to bullish reversal in the relative performance of this major consumer staple to all staples, the xlp and then there's this, put it in numerical form this say bad month ask very bad may and what has coke done it's done that versus the
staples versus the market and that kind of relative performance means something. here is the simple, last chart and we will make a slight, new high and/or hold up better than the market either way, this is a place i want to be long. >> come on back, carter. mike, what's the trade >> coke is an interesting situation amongst the staple stocks just from a fundamental standpoint and one of the reasons why we've seen it lag its sector obviously had to do with secular trends and specifically their business of selling soft drinks and that hasn't exactly been the most favorite place to be and obviously they've been facing a lot of competition, however, i do sort of suspect that that weakness may have leveled off here and the other thing i would say about coke is like many of the staple stocks they have bondlike volatility which means the volatility is exceptionally low and therefore, i think bee
can keep the trades relatively simple you know, in this case i was just looking out to august and the 49 calls were trading at a buck and a half and those were slightly in the money, and the other thing i would point out is the most recent highs that we saw would have been around the break even and it traded at 50 1/2 bucks, so i'm looking at that situation and dividend payers like coke tend to have relatively cheap calls and this is one of those situations where we look to keep it simple, but like those simple trades and you don't just want to set it and forget it, if we need a, and if you'll press your -- >> i see what carter sees and i see the potential for a breakout i see a stock that's had low volatility and if you look at those calls that mike just mentioned he's risking 3% of the stock price that it will break out in line of this thing.
i'll say this, we're seeing this year, we can look at kraft heinz and the gross margin miss in february you saw what johnson & johnson did just this week i say to myself with a stock that's growing earnings, low single digits at best for eternity trading at 23 times i love it, but you know, i guess you have to do some things out there and put some money to work 98% and it has the ability to hold little or no cash in a period where a lot of things are in question and a lot of other stable stocks have come to life and coke has lagged and yet day to day, look at this week. it crushed its peers so either that's a tell or not i think it is a tell. >> mike, final word on this trade. >> the other thing i think is that we'll see some correlation
between rates and equities and that's another thing we're making a bet on here. >> for thee, is this the situation that would have the stock? the calls are relatively cheap so if you size your trades right you can risk the bets without making a big deal. >> up next, home depot falling 6% we'll tell you how much worse it can get. plus have a burning options question for the traders of course, you do. send us a tweet to @options u'tion and maybe, just maybe if yore lucky you'll get an answer on air. much more options ak rigction r much more options ak rigction r after this i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? improve your skills.
[ cooing ] that was weird. oh sister it's going to get way weirder. 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. ♪ wach to options action time to take a look back to the trades home depot was on shaky ground >> relative performance to the market has been tepid at best. that's another warning sign, and
so my thought is here that one should be cautious if one's long going into earnings of home depot and/or be short. >> i was looking out to june the 190, 180 put spread was $3.09 to buy the higher 190 strike and the lower strike for $1.40. >> home depot is down around 2% since the time of the call mike, how do you manage this one? >> yeah, so this trade is up a little bit of money. it's up about 3.30 the way it closed today it was closer to five earlier this week and what i notice side home depot seemed to outperform the market since the monday low. today i think we ought to take the money and run on this and i would defer to carter. >> i think what we were hoping for is what happened to lowe's lowe's got murdered and in that sense the opportunity has come and gone. >> it goes back to retail in general and we saw more disappointments than we saw reli rli. efales >> all right up next, your tweets and the
final call 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 time to take your tweets daniel asks what are your thoughts on the square looking if are mid-june expiration they expire in three weeks and break even in 7% and there is a 33% probability that they're in the mono pep if you want to get along i don't think that's exactly the way to do it and yoi have to get a lot right to merely break even. >> time now for the final call from the options pit >> michael ko? >> rates are low so are options prices on tlt. i think the august 130 puts are the way to bet that they're not going to go much lower in a straight line carter >> take profits on tlt and put it into coke on the long side. >> dan nathan. >> soapple obviously has this
event and expectations are not high and the meat of that will be trade and to me the idea of buying it here i'm not so enthused by that and creating a band that is on the upside >> that does it for us and see you next frida my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to save you money. my job isn't just to entertain but to teach you put this in context. call me at 1-800-743-cnbc. when i was a teenager, i sold ice cream at the vet, the old philadelphia phillies stadium. you have to get people's