tv Options Action CNBC June 1, 2019 6:00am-6:31am EDT
hey, there live at the nasdaq on times square the guys are getting ready for a big show here's what's coming up. apple shares are rotting this month if you lost money in the stock, don't worry. because dan nathan has a way to trade it on the cheap. and he will tell you how to do it >> plus, doesn't that look refreshing cohen carter thinks so 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 master was spot on with his bond-call earlier this year and you will never believe where he is headed next. he'll explain. it is time to risk less and make more the options begins now and we start right there with the bond bombshell rocking the markets this week. and the yield sinking to 2.14% and september 2017 as the s&p 500 closed out the rate shock coming as no surprise to carter worth who 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 i think this is a good bet
yields are going as low as 2.1% on the 10-year >> so what comes next? carter is at the plaza breaking it down. carter >> all right so we got to where we have to go, 2.12 there today there is a slight unfilled gap, down 2.07. but tactically we have come a long way and i think you could play this the other way, which is to say trim pockets 10-year yield, going back to the 60s. let's draw the line. very precise line interestingly. and yields failed. one of the reasons to make a bet against it they failed precisely. precisely. they got here precisely and they failed that was the entire point of making the bet, that they would stop now the 2% level is effectively the mid point of all of this and at this point i think you've got the prospects of, again, a
little bit of mean reversion so here's the 10-year yield chart. and what we know is that it's had some pretty big rebounds 25 basis points, 27 basis points and the sequence, if you will, would call for something along those lines here and does it have to start here could it start from 2.07 or a little bit lower we are oversold, overdone, if you will and i think you get that bounce coming up here so the course is tlt we know it was a great breakout from the tops. but the issue is having broken out from those tops. or 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 so the betting here is that after some pretty good gains at tlt that you have this kind of
potential. >> all right mike is in san francisco today what do you think of carter's call >> obviously he had a greatcall earlier this year. we heard that for a couple of quarters we began with a general understanding that the longer rates would go higher. it seems universally they will go lower everybody is looking for rates to descend and that may mean they have descended as far as they are going to. options were cheap on tlt. he was talking about being a straddle buyer we talked about that three weeks ago, august 125 straddle the straddle was about five bucks is now 7.5 but still the price of options remains relatively cheap so two things i would say. number one, if you had that straddle on, definitely take the call right offer or at the very least roll it up to go along with carter here, make a bearish bet, which is
bullish especially after john wayne's comments where he was saying don't keep about keeping your powder dry. lower for less if we do see aggressiveness in monetary policy that could steepen the term structure basically of yield what i would do is just look out to august. they were trading 2 bucks. that is an inexpensive bet when it starts to move in a single direction, it sort of goes that way for a little while. we are trying to take advantage of thafpl i think that's the way you want to make a play that tlt could fall >> what do you think of the trade? >> that looks like an amazing breakout you think of the momentum and put together the fact that options are cheap in it. i would say you can have a continuation of the breakout and tlt can get back to 140 where it got to back in 2016. that's neither here nor there.
>> it is important in how you get there. next we are going to 1%. they are buying stocks like the bank of japan. the day-to-day angle is a bit much you go to 140, you don't go like this you pull back. >> it's interesting. i think back to the time it was trading above 130. we had crude collapsing. we had safe haven assets the dollar index was big i would say this could be a messy summer if we don't have any resolution to all of these trade things going on. you will continue to see crowding in u.s. treasuries or the dollar. >> the difference would be in the timing directionally longer term. >> that was a stock. >> you might agree with these guys >> listen. >> we were planning for a breakout we would harvest that or roll that out >> here's good news about mike's
trade. his break even was 128 three sessions ago options are cheap enough if you get that move you will have an opportunity to do something, spread those, that sort of thing and harvest, like you said, or lock in some of the gains moving forward. >> last word. >> on these types of trades, on a bullish bet or bearish one, you have to look at the situations when you start to see the trades get into the money. like the 125 calls, you want to adjust that. and with this bear, you want to adjust it if we see tlt fall back to the 125 level the tech giant getting swept up shedding $120 million dollars in market cap apple sitting firmly in a bear market, down 20% from its 52-week high the worldwide developers' conference is monday
>> there is absolutely nothing that could come out that could move this. they did this in march they focused on a lot of their services when they used to do it in june at the developers conference the stock is down basically 19% since april, since the highs in april. it is really important to think about where this stock has been. q4 this stock had 40% peak to trough decline the company had their first negative announcement in more than a decade. it traded at 141, down almost 40%. interestingly, though, that april 30th high, right after the earns announcement came after an earnings announcement where tim cook china is a problem and april 3rd, china is okay it feels like a straight line. i have a chart i will let carter speak to it. absolute no man's land up to 200 to 220 level i see pretty good support at 160
to 140 so i say to myself, the next two events, one, we cannot model we don't know when it will happen 23 there is a resolution to the trade situation. and the next one, which has been a huge catalyst the last six months, is earnings. that will come late-july carter gets questioned about apple. everybody usually wants to buy apple. it has been a good trading vehicle. how do i get long exposure if i think there will be a trade relation apple will almost immediately get a pop on that. the cost of options is high. i want to create a structure that gives me wiggle room. as i said, it's in no man's land i want to be a risk reversal it will capture earnings and probably a good built of volatility associated with this trade discussion the stock closed at 175 today. you could sell august 150 put
about $2.75. use the proceeds and buy one of the august 195 calls for $2.75 like i said, it doesn't cost you anything on a mark to market basis, the stock moves toward the long call strike of 195, this trade should show profits on august expiration it is profitable above 195 on the way down, closer to the short 150 put strike, losses on a mark to market basis below 150, worst-case scenario, put the stock 100 shares per one contract short, and you will serve losses below it. the highest probability is that you don't have a big loss or a big gain if you're prepared to buy the stock at 150, down 15%, this is not a bad structure. and upside snap on any good news, this is also a good structure. >> i think the thing you start with is the key point.
it is in no man's land it sold off quite a bit the last three weeks. it is oversold it has been a dud. it could never get back to its high what about selling the 190, 616 struggle it is like a stuck pinball >> do you buy here at 175, down 20% at six weeks i would say no do i want to buy calls i say no could you sell just the put to take in some of that premium, yeah but to me risk reversal is selling a put and buying a call. >> i have to break this tie. would you rather dan's trade or carter's trade >> you know, i actually like what carter is talking about here there's one part -- look, dan would be half right. if i agree with carter, dan is half right he is selling a downside put at some level there is some
measure for the strong he chose the 250 stock i would take a look back at this most recent earnings result, which was a disappointment and say, okay, now with the stock trading between 14, 15 times earnings, a stock that traditionally traded closer to 10 time earnings because nobody thought they could get up the growth nobody thought it would continue to grow iphone sales now it is trading at a higher multiple i am trying to figure out how it will go materially higher. the 160 put that carter is suggesting i would be an up side call seller as well >> that's the story of my life thanks for telling everybody in america. i would say this you only do this trade if you believe two things, one that the stock is oversold and trade news will get better. that will give the company to guide better for the second half that's why you would do this trade. i am not bullish at 175.
there is a tremendous amount of uncertainty. i think there is risk for a turn to the downside. >> all right, for everything "options action," check out optionsaction.cnbc.com and while you're there, check out our supercool newsletter what are you waiting for here's what's coming up on "options action" -- ♪ >> we would like to buy the worb world a coce, too. reach in your pockets, grab your phone and tweet us your question@optionsaction if it's nice, we'll answer it on air when "options action" returns. ♪ ♪♪
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there is the orange line then all of which are outperforming the market so coke up 50% of the market now, what's happened of late here is coke on its own in the past several years and here is its performance. so obviously it's been a dud, which is to say that even as coke has gone higher, it's underperformed the market. but what started to happen is that not only is it up of late, it is outperforming the market and you can see that here. the simple shape of the line if this line is rising, 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 that is a very important circumstance a bearish to bullish reversal of this major consumer staple to all staples, the xlp
and then there's this. put it in numerical form this is a bad month. we just heard it very bad may what has coke done it has done that versus the staples versus the market that kind of performance means something. here is the simple last chart. what i think we will do, make a slight new high. and/or hold up better than the market either way, this is a place i want to be >> come on back, carter. mike, what's the trade >> yeah. so coke is interesting among staple stocks from a fundamental standpoint one of the reasons we have seen it lag its sector has to do with secular trends, their business of selling soft drinks that hasn't exactly been the most favorite place to be. they have been facing a lot of competition. however, i do sort of suspect that that weakness may actually
have leveled off here. and the other thing i would say is, like many other staple stocks, they have bond-like volatility, which is to say the volatility is exceptionally low. the price of options is exceptionally low. and therefore we can keep the trades relatively simple in this case i was just looking out to august. they were trading a buck and a half when i was looking earlier today. they are slightly in the money already. the other thing i would point out, the most recent highs we saw would have been right around the break even at 50.5 bucks so i'm kind of looking at that situation. also dividend players like coke tend to have relatively cheap calls. so this is one of those situations where we look to keep it simple. kind of like the other simple trades, that doesn't mean you can set this and forget it you don't want to ignore it. if we do start to get a move, you will want to adjust up and out. >> what do you think of the coca-cola? >> listen, i see what carter
sees i see the potential for a breakout, a stock that has had low volatility i'll just say this all of a sudden, though, we are seeing real volatility in consumer names we can look at kraft-haoeupz coke had a big margin miss back in february. you saw what johnson & johnson did just this week i say with a stock that's growing or this company growing earnings, low single digits at best eternity trading at 23 times i don't love it. i guess you have to put some money to work. >> 98% capital a lot of things are in question. a lot of stocks have come to life 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. >> yeah. i mean the other thing is we are going to see some correlation between rates and equities for those paying difficult deposition, maybe that's another thing we are making a bet on here for me, i think that this is a situation where would i go out and buy the stock at these evaluations? probably not but the calls are relatively cheap. if you size your trades right, you can make these bullish bets without risk a great deal up next, home depot falling 6% how much worse it could get. plus, how the burning options questions for the traders. traders. of course you do (indistinguishable muttering) traders. of course you do that was awful.. why are you so good at this? had a coach in high school. really helped me up my game.
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should be cautious going into earnings on home depot and/or be short. >> i was looking out to june 190, 180 put spread abo$180 put 2.au2 $2.50. one lower strike for about $1.40. >> home depot is down around 2% since the time of the call how do you manage this one >> yeah. so this trade is up a little bit of money about 3.30 the way it closed today closer to five earlier this week home depot seemed to outperform since monos. to me i think we ought to take the money and run. >> 100%. what we were hoping for is what happened to lowe's they got murdered on its number. home depot held up better. in that sense, the opportunity is coming on. >> yeah. it goes back to retail in general. generally a lot more disappointments than relief rallies. you keep selling on rallies.
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>> welcome back to "options action". time to take your tweets daniel asks what are your thoughts on square >> they cost 1.35. expire in three weeks. up even about 7% market is 33% probability that they're in the money i don't care that's exactly the way to do it you have to get a lot of things right to merely just break even there. to me, i would not be part of those if i'm looking for exposure. >> time for the final call michael? >> rates are low, so options prices on tlt august, they're not going to go much lower >> carter? >> take profits in tlt, the thinking is and coke. >> dan
>> apple's expectations are not high the main event is trade. buying here, i'm not so enthused by that. by creating a band >> we'll see you back next friday at 5:00 p.m. eastern. meantime, don't go anywhere. "mad money" starts right now - [announcer] the following is a paid program for automatic home standby generators brought to you by generac power systems. - [man] there's no place like home, and today you rely on power more than ever for all the comforts you love. but when your power goes out, you feel helpless, out of control. you're in the dark without air conditioning, or heat, food begins to spoil. many people lose clean running water. the whole network and internet are down. your home security system is useless.