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tv   Options Action  CNBC  September 8, 2019 6:00am-6:31am EDT

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hey there, we are live at the nasdaq at time's square. the guys are getting ready for a big show here's what's coming up. industrials, are they have a gains? carter wirth gets into the nuts and bolts of it. then -- >> pick up the phone and start dialing. >> yep, it's icell phone e phone season if you think apple has another hint in his pockets and worries in theyear rear view, nathan has a strategy dialed in. and lululemon's stock was off and earning.
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>> be prepared son we have a more balanced way to repositioning. it's time to risk less and make more "options action" starts now. >> let's get right to it check out the industrials cranking higher after a slump. now up 7% from the august lows and less than 4% away from all time highs this aside trade fears more than half of the sectors in trading territory or worse, chart master says the sector may be gearing up for a breakdown, carter >> all right this has been one of the areas that has been hope trade as they say within are you hoping, it's hopeless, it's not a thesis, it's nothing in fact, these lines, these dharts will prove that -- owe charts will would have that, this line here is the presidential election, what you see is this big boost up in zrichlts here's the relevant performer that the so-called trump bump
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it happened in financials. what we know is that that was the peak in this performance so that actually all of this has been a negative alpha proposition. meaning, other choice, one that we could have made were better so the issue is not only are we at five-year relative low, on an absolute basis, we're back to a difficult level so let's move forward and take a look at what we got here so here's the same chart. each time on an absolute basis, that we've gone back to this line we have failed. so there are some arrows i can put them in for you, you can see it, basically, repeatedly, we've let this line and we've failed the question is, are we going to fail yet again we are starting to approach it yet again. the strength is sort of news related or there is talk of a meeting. the meetings are always talk, talk, talk, talk as to let's see, it's all about
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earnings and so forth. so here's a chart of the etf you can trade the lxi, the spider what i see in the following, i see a clear break in trend, there is no way around that that's not opinion that's a trend line, that's the trend line that's the break in the trend line now, after breaking, we have thrown back quite close to the under belly of the lion. my bet is you will start to falter here. i want to be short xli >> all right so mike, carter is calling for a short. what's your trade? >> 83, taking a look at industrials, i think it's interesting here dan was actually talking about it just about 20 minutes ago, actually peak earnings for the industrials took place pretty much in the first quarter of 2018 they're down about 6.6% since then if we take a look at priced earnings or enterprise eb that met trek we are very close to the all time highs
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what i'm trying to figure out what options trade to use i've noticed to some of the volatility, we are looking at el 58ed options premium this is one of those things you are not looking at short oranges they're not that high. we are using a spread, i was out to tept september. the put spread on xli you can pay a dollar-and-a-half for that it gets to us that nath we typically like, about a kwerter of the distance between the spread, meaning if it did decline, will you see a payoff of approximately 3-to-1. you will be risking a small amount of the xli in the meantime plus that put that you are short is going to decay and mitigate some of the effects in the meantime if we could see a recovery in the earnings, if we change our thesis, we will have an ton to get out of this trade. >> flexible trade. >> i like the width of the spread and what he is peaing for it it's near the money here
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if you look at the charts, it's been an opportunity to short this thing, now that path support is financial to be resistant to the upside. i think as carter said, it's a bit of a hope straid trade >> that said, this is not the names weighted in the xli that have some various idiosyncratic issues boeing one of them to me this sets up groups that tone work well to the megacaps relative to the performance. i think you sell rally. >> also, part of the industrials, the rails, which are big heavy weights continue to act poorly on a price basis, also the data keeps coming up, volumes are down, there are issues it is an area that gets a lot of hope, but it hasn't worked and i don't know what changes that. >> in terms of the chart, carter, you have seen sort of the approach back to the trend line, are we at a point?
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you think it will bounce below the trail line >> it's got on the underside of it that's a critical juncture, strength here, pushing above a downward trend line is impressive, more often than not, though, when you first approach a trend line having faltered it. you have a trend line. >> have you taken reports on what you want to do with this trade? >> i don't think we need to wait, the last time we saw earnings decline in industrials that we are seeing right now for 2011 and 2015, i'm talking post-credit crisis both of those instances, we saw it dip in a pretty weird sector overall, they can draw down with 13%. i don't need to remind people what 2011 looked like, i think carter's next tick am analysis basically reports that. >> from industrials to iphones,
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we will hear more of apple's big event kicking off on tuesday, which means monday is your final day to trade the stock our reveal lucky for us dan is here to play that what do you got this. >> we often preview these evince because earn is pining away to see whether or not they're going to upgrade their super computer in their pocket. what we are seeing over the last few years is these upgrade cycles are elongate. we walk away less excited than we were when this country was innovating on a much quicker scale here you know, when i look at this event, i look at it the way option markers are looking at it they're not too excited about it,er that implying a $5 move between now and next friday's close, which is 2% there ist chart of applied volatility about 24%, that's at the lower end of the one-year range here i also tell you short dated option prices are cheap. what does that mean for you out
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there? if you are a long holder, you can think of long oranges replace your existing stocks or buy puts there is a cart, a nice uptrend from that low january 2nd. it seems to have a lot of technical resistance, where did it get today 214-and-a-half dropped like a lug that seems to be near term resistance >> that term, 2018, to 215, you moo it have a straight shot back up there >> that has to happen hon an earnings event so the way i think about this trade, the way i think about the trade war in general, apple has been really volatile relating to this trade war it's hit the name recently with this new round of consumer tariffs. if you want to be characteristic, play for a breakout, you like the idea of the new phones and the trade war moderateing, the actions market is saying you can do that by buying cause, let's say if you want to be characteristic on the
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name i would look out to okay expiration and say, okay, this weak might be consolidation, but maybe i want a place to move interearnings, into these october trade talks, i would look out and buy the october 215 call paying $6.50. >> that breaks even at 221 point 50 >> that above that july 31st post-earnings high the way i think about this, you are risking upside participation, playing for a breakout, playing for better news on the trade front. i think this makes sense. >> what about all these lines? >> you get those lines back on there, talk about it so what we know, if you look at dan's charts and the no nations he has apple makes a lull with the general pre mark, the last day of december, early january, apple peaks day one, apple bottoms on euan 1 and then here we are back at the may high.
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the market has exceeded its may high to some extent, maybe this stock can do what the market has done, which is catch up. i think in the content, it is basically a bullard. are you seeing that by the options indication is not a big move that's really what we got here something that is basic am lay fair price. >> mike what do you think of dan's trade, gip what carter said about the charts? >> well, i think there is reasons to use options here. let's just consider if we are bumping up against some form of resistance, getting being to those prior highs, there is some risk that fails, obviously, o owning calls is a case make that a decent way to make a bullish bet. so i think basically when you take a look at the price of option and how the price has performed and where we are relative to the mark this trade makes a lot of sense the other thing, dan said this many times, i support that these are the kind of trades you
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looking to manage. if the stock does break through that level by some significant amount you roll this into a call spread or up and out ar simply take profits. that's how you'd want to manage this trade if you see that. >> i want to be the last word, that high, investors were psyched about it it was trading 220 the next day there is a tweet, the stock went from 220 to 93. you sa that you uptrerngsd that's 190, 193, why do you want to risk that near term participation, make no mistake, this stock can be down 1 percent. i see this risking about 3% with a 10% downside on a couple bad headlines. i like risk reward. >> check out our option action.cnbc. check out our news letter. what are you waiting for here's what's coming up next. >> shares of lululemon stretching higher on its
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earnings this week if you missed out on the move, take a deep breath mike ko is laying out a way to play the rally for less. plus, calling all options acts fan, reach in your pock, not your phone, tweet us your questions that's options action. if it's nice, we'll answer it on air when "options action" returns. returns. >> 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 yo>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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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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. well come back to "options action". take a look at shares from lululemon crushing it. if you are looking for a way to play catch up to the rally, they are laying out the call to action make, take it away >> yeah, you know, so this is interesting. we saw some unusual call activity, earlier this week, we talked about it on "fast money," targeting $2 after earnings. >> that looked like a fairly recent trade, clearly. what do you do, though, if you like the stock but weren't in it when that good news took place we will tack a look at trading a call risk result that es are trends we look at when options are expensive, volatile stocks typically, usually, this is on or around catalyst this has already come and gone the stock did get higher what we will try to take a look at is a way if the stocks should continue higher, only giving you the risk associated with having
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the stock at the price before the event took place, how does a trade like this work we will be looking at the december 220, you will sell the 185 put. buy the $200 calls, sell the 220 calls against it basically, the risk here is if the stocks should fall back to 185 or lower, you will own it at that level this of course, approximately where it was trading if it continues higher, you get a 10% to the upside this stock moved a lot today so if the stock is lower on monday, you might even be able to adjust the lower put. in fact, earlier today, you could have done the 180. that's really our objective here is to make sure you avoid the first 7-and-a-half to 10% of the downside, get the first 10% upside another point i would quickly make is this will capture one of
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the elements they're hitting on all sliepders, essentially where macy's pulling full 20, 21 earnings, this stock is trading, going on sale. so this is quite ap expensive stock, they're getting them for now. but this is a way you can participate if you happen to miss this nairly food earnings result we saw early this week. i like it. this stock has had a series of gaps after wereing, obviously, this year, it's paying new highs on multiple occasions on those gaps i will mention this, it was doing the same until 2018 and had a q4 the only warning i had is after such a massive, massive rally year-to-date and this thing is at all time high, selling that 185 put that's don't 10% or a little less than current levels. to me that means current risk if
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this were to have a q4 sell-off. it has nothing to do with their fundamental also which happened last year. >> if you look at the most repeat gap in april from 145 to 170 and what happened thereafter of course is that the stock had already priced if all of what was coming by that gap and so it was follow, didn't move, may, june, july and so forth. so the issue here is does the stock now -- is its can counting all that's coming? that's my hahnch if you have 3, 4% that's one thing. this is 8, 10, recovery prices here and a lot is exploited. >> michael what do you think of that, stock is follow? >> well, actually, that's a really good point and speaks to the structure. in the stock linger, the break even at expiration, what's going to happen to the short put and the short call is those will actually decay for the short
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term anyway than ae option is. it's possible if the stock were to simply track sideways and stick around the 203 level or thereabouts, the district could see fairly modest profits, maybe not the profits you associate with being long with stock 185 had you been, but it is a situation where the stock lingers for the next 60 days, you won't get hurt on this trade. >> tech is rallying next week. one trader made a name in this place. plus, it's friday, you know what that means send your burning handle to "options action" uma it get your hand him on air. we are live, much 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.
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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'm not really a, i thought wall street guy.ns. 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 , welcome back to "options action". taking a look at your august trade, five or six gains ahead for the s&p. >> we are not actually taking options premium as high ha as they should be we've averaged just under 1.5% interday move, the vix sitting
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around 20, should be probably 50% higher than that i was looking out to september you can buy the 295, 300 call spread, you will be spending about a buck 20 to put that trade on so the payoff will be better than 3-1 if we get a move up to 300. >> well, the s&p 500 etf is up more than 2% since the call. what do you do with that, mook >> we spent about a 120. it's worth 325 the risk reward subpoena as attractive hear. you can take these profits that you've made and roll up and out f. we do see the market continue higher, you could get some participation. you can take the money off the table and get an upside and the rick reward will be more favorable for you. >> i think we simply recovered the losses we saw at the beginning of the month we're back to the same, quoting
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the mark the s&p is believed to be good under the surface, there is continued problems. >> all right last week dan said microsoft could top the tech trade this fall. >> i think about this company, it's expected to have in this fiscal area, 10% sales growth, it's trading 26 times. that's getting kind of expensive, really not above the other fast growing tech peers. i say to myself, i'm tryb to be constructive and look into the fall and peck some stocks that can be picked out. microsoft has to be at the top of that list you can simply buy the okay 140-150 call spread. it will take about 2 pope 65 for that. >> microsoft is looking closer to brake even. >> carsen mentioned the problems of the s&p it overimportant, it was up 1 and a quarter percent, a little below the s&p.
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again in this range, obviously, it looks like it's poised to play out it shows relative strength on down days. this trade that costs 265 or 270 is worth about 210 on a move higher i like it, i think are you playing in the money amove the prior highs of 141 so i think you stick with this one. >> what do you think >> it's better that its software peers. its not exciting, itself >>fallow looks that. >> i have to look that up, what does that mean >> sleeping. >> from dormier. >> all those things. mike, how do you feel about microsoft? >> yeah, i like microsoft. i like actually this is the way you want to make your bullish bets hear. tap was talking about it earlier, when the market inches hire and has these big draw downs, i they don't want to be short puts, necessarily, this is
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a situation he could go higher, if it doesn't, i'm risking relatively little. that's the way to play this market now. >> upnext, we have your tweets on the final call. ♪♪ ♪♪ ♪♪
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♪♪ welcome back to "options action". we have time to take one tweet, steve wants to know if it's too late for target when it's standing at all time highs. >> yes, it is, it's up 86% of the year, up 27% in the last month, where do you think it's going? that being said, i don't mean to sound dismissive about it, if you have a much more bullish decent, i would rather call stock up so much >> time for the final call, mike ko if san francisco. >> take a look at call spread. >> bullish on industrials, i would say rethink xli, go down
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some. >> nathan. >> these apple product events oftentimes sell to news, if you want to be constructive to fall and by calls make it after due date >> that does it for you, have a terrific weekend "mad money" with jim cramer is up next. the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym. i feel fabulous and when you

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