tv Options Action CNBC September 20, 2019 5:30pm-6:00pm EDT
happy "options action" friday, everybody. i'm melissa lee live from the nasdaq market site in times square we have a big show coming up. >> announcer: is there a doctor in the house or at least a chartist there is carter werth checks the vitals of health care by putting bristol myers unthe microscope then microsoft, apple, google and now amazon dan nathan completes his maga market quad effect aire. find out how to play the final name for the win plus, we're going to keep running with the second sports
theme. mike versus nike mike khouw ha has what you need to to know to outpace the quarterly report next woke it's time to risk less and make more "options action" starts now. well pharma in focus on wall street as washington lawmakers grapple with the best path forward on drug prices but there is another side of health care that could be head forgive a breakout carter werth at the plasma to break it down. >> i thought we'd look at bristol myers haven't done this stock in a long time it's an opportunity. 30-year chart, two lines you can see the optics and the orange line is bristol mier relevant to peers, the s&p 500 health care sector to some extent bristol meyer undershoets and overshoots the great undershoot, great overshoot. thedy veerjens of late appealing to me and more immediately how it's behaving day to day
you have the sector up 50% more than bristol going back 30 years to 1990. let's zero in on this and look at the spread. over the past three years, again sector up 27, bristol meyer down 18 bottom fishing is not good it's usually dangerous but if a stock is starting to reverse this and that's what's happening. then it's interesting. lagging dramatically and yet day to day i want to show you the following. here is bristol on top and bristol's relative performance to the seccer. if i put in this line what you see is something very pree precise. it sfald at this line. failed at this line failed at this line. and now it has pushed through. we have broken through meaning relatively outperformance for the first time in a long time. we have the 1-2 setup. the long-term outperformance now starting to come to life look at the chart itself
i think at a minimum we simply get back to trend. and that would take you here if if and as we simply have continuation of the current run that gives you a 10 percent move stock closed around 50 targeting 55 that's the trade. >> carter come on back mike, what's the trade in your view. >> this is one of situations where there are probably a lot of points that- folks interested in looking at value stocks might have been tempted to try to make a play and get long this thing trading at 11 and a half times forward earnings now of course it looked cheap for all of the recent declines we have seen. options are not particularly expensive despite the fact that the stock is considerably lower than it has been i think the thing you want to do is really straightforward. i was looking out to december. looking at 50 calls. about $2.5 earlier today those were slightly in the money. obviously the stock was trading about 50 and a half or a little bit higher at the time really there is 50 cents wofrgt
worth of extrinsicville in these things that we're looking at. the idea here is that you know when you look at expiration where you have 2.5 or $5 wide strikes and targeting the move up to 5 a dollars. obviously you do not want to buy the $55 calls because you're in a situation options traders want stocks running through the long and to the short strikes in this case there is only two strikes, the two and a halves or the 50s. we elected the 50s risking 5% of the stock price to make the bullish bet. stock is fairly priced a and options fairly priced. if it turns out it's not a rebound you risk a relatively small amount. >> lou do you feel about bottom fishing. >> the stock has a rally and it's been in a downrend trend for a couple of reasons here it's obviously the group is pretty much out of favor and this one in particular is. mike talked to challenge the charts set up toward the moflg filling in the gap from 2018 i think this isa really good example of buying a call that's
already in the money here. you're risking that $2.50 in premium which isway you risk if you bought the stock here. but that's it. and you lose the risk of some off of idiosyncratic piece of news take the stock back to 45, giving you 15% of risk i like this risk reward. and if you get the move that carter thinks and people start looking at you know pharma stocks that are yielding 3.25% trading below market mums, i think the trade. this is the way to trade this idea >> i mean usually just independent of in particular call to buy bristol health care is strong. best sector on the day also top three performers in the dow jones industrial average were health care stocks. and i just think there is a little bit of a shift into in area generally and bristol has been such a laggard, right but the key to bottom fishing is you want it to start towork. we're not finding something just down and down and down it's something. >> there is a sign of life. >> it's starting to turn and come to life and outperform.
>> yeah. >> the final thing i would say is very often when you see stocks with pro longed declines one of the things you see in the options prices is that they get higher and higher. we frequently see the recommendation lower prices core spoerpd to higher complied volatility but this has been a steady decline we have seen and this is a fairly steady stock. s in a situation where options premiums are not particularly elevated process and that's one of the reasons why we're we don't need to be particularly creative to buy options to make our bullish bet here. >> in the meantime check out shares of amazon second a in dan's maga here. having a really rough go of it dropping 2% down almost 9% since the disappointing earnings report back in july. not only has the stock failed to recover but dan says it could be getting worse. how much worse >> well this is a good example i'm putting the together the technical and fundamentals here. we've been spending three weeks agody a constructive trade on microsoft. two weeks ago a trukt constructive trade on apple and last week a constructive trade
and alphabet, google whoa i goat to amazon i have a different picture here the three names to me that i just named before had fundamental drivers to maybe re-test or make new highs. amazon has a fundamental driver i think taking it lower. the fact that that stock broke down below the uptrend this had been in place in december. staying down the last month and a half or so tells me it's weak to regular relevant i have to maga cap peers it's you goings 200 day moving average the only technical near term support and then the next earnings call the last week of october i think what did we see in the last call? they told us they do one-day prime shipping they saw units and retail sales accelerate and also operating margins going down because they deal with the higher fulfillment costs and labor costs and host of things dealing with that. the chart that's the price of options implied volatility in amazon short dated options and looking cheap.
i think to myself late october i can't imagine that they're going to be able to turn in spicket off on the spending they are all in on this one-day prime this is the future of the company. and they're not getting off the -- off the trail for one quarter. so i think there is risk to the quarter when we get to late the october. that's the five high pressure year chart it's held that long term uptrend nicely there but if you get through the near-term support i think you re-test 1500 the trade to me is kind of simple obviously risky if we have some trade deal and stocks take off this thing will be back up higher. but today when the stock was trading about 17.95 you could look to november expiration which is going to catch that earnings event and buy the november 17.60, 1500 put spread paying $50 for that. that breaks even at 17.10. make up to 210 between 17.oh 10 and 1500 to the downside pup risk the $50 that's a few% of
the stock price or a little less but make up to 12% if the stock is down 14% over the next couple months with that catalyst. to me, uneye, you say to yourself, why sell that $15 -- or that $10 put at $150 oh bucks it's massive support i'm getting a good risk reward i like risking 50 to make 210 if it's down 13%. >> the thing i point out about sell the downside putt look at the last four quarters we had some bad news a month later basically in terms of price action for the stock i was looking at this. 8.5% decline 4.6% 2.7 appear nearly 16% were the one month post earnings declines the last four quartering st. think about selling that 500 strike put this is quite a ways down. even if the results are negative i think that it makes good sense to they'll sell that you're collecting $10 that's $1,000 per spread every time you do that trade. and in the sprm that's actually going to mitt fwat the decay in
the event that between now and the 24th of october when they report if you change the point of view you're not paying away quite as much in decay daily this fifs you the tune to put a trade like this on and evaluate it continuously does new information come out you have an opportunity this way. >> you know, just in a word i think the chart is ominous i mean it is like literally hanging by a thread. we no he know the price volume core is bannerish well active strength is pooren a it's a darling. if there is any trouble in paradise this is one of the most embraced stocks in the marketplace. and i think 80s quick swoosh down to the june low and then obviously targeting lower levels but it feels to me as though that's coming. >> do you see the path to 1500. >> i'm saying you got to get to the june level, 16.72 and then on from there. what it's likely is not slow likely to be quick. >> if there is a fundamental driver et cetera going back to support levels look at netflixism obviously amazon is
big are stump. but when the fundamental story changed make no mistake is change in the last few months and got acknowledgement today. this stock has been- dsh it's down 30 would be 40, 50% some point this quarter from the all-time highs i don't know why you would think that amazon couldn't do that and don't forget, apple also a darling last year had a 40% peak to trough decline from the pry prior highs in 2010. >> it doesn't need to get to 1500 if you thought it was to that or through it you wouldn't sell it. just like you were saying before you want it through the long strikes, to the short strikes or somewhere in between i think you sell the 150 oh because you think that that's probably as bad as it could get out of the upcoming earnings result not that far only a month before they report. >> there is always -- the ongoing debate, the pain that's being felt on main street is amazon's gain. but amazon is not exempt, right, from general cycles. and ultimately the risks that the consumer is peak everything. peak claims are as low as
they've ever been and so forth. >> one last point on the actual trade. also when you do the spreads we know that a high dollar stock like this when you buy a $60 put we know that one contract can be a lot. one much am atrying to do trying to alleviate the cost and cut a target moved selling the downside put that's the consideration there. >> for everything options collect out the website. keck out our supercool news already. what are you waiting for i'm melissa lee. we'll be right back. ♪ ♪♪ ♪♪ ♪♪
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 check out nike sprining higher off recent lows shares up 0%
this year but the stock closing in and all-time highs it might be time to send the sports wear jin to the berj. at the plays where a with the call to action. >> i think we are getting to a tough pris level here. as you pointed out basically getth right back up to very close to its all-time highs. in conjunction we see that it's pretty to it's all-time peak valuations as well and so looking ahead to earnings as a potential catalyst, i thought we might try to take a look at putting on a put calendar let's look at both of these things first, here we are price to earnings, i think it's trading just under 34 times forward earnings, that's a high level as you can see there have been a few instances where it's been high are but not much. i think that's a critical element to consider here one of the reasons why you would see an spanx expansion in the price to earnings ratio is if you see material sales growth. we have seen better flow-through
to the bottom line but the top line revenue growth impressive as it is as 7.5% this per year is remaining constant when he take it in mind we have to bear that in mind as well here we can we can see the stock is basically right there we are just under the all-time highs. we are going into earnings three things can happen. it can breck out to new highs, sit essentially right here and struggle to make it anywhere or could potentially go lower i was taking a look at putting on a short-dated calendar spread so today when i was looking at this, the september 27th weekly. on monday these are the one nas expire next friday you could sell the 87.5 puts for 2.10 appear by the october 87.10.pennsylvania 45 cent debit. the idea is that if earnings turn out to be a non-event and the stock lingers, now we own the longer dated put at a low level. i was trying to put this trade on today, it was bid at ha for
most of the afternoon. i had a 45 bid for some reason didn't get executed maybe i forgot to hit send but it's definitely a trade i'm looking at on monday because essentially the benefit here of owning that longer dated put to have that potentially for as low as 45 cents i think it makes sense. the implied move at just over 5% is high are than average which is 3.9 over the last 78 quarters that's the relationship you look for. are options prices higher now than they indicate it smub baseened on the movement we see that's when the calendar spreads make sense. >> all right, mike, come on over dan what do you think of this. >> his setup is interesting. here is the stock coming back to 90 level pl carter can speak to the chart we know we have the catalyst when i think about nike i think about star walks premium brand and valuation. some consumer discretion discretionary for intents and purposes that's a stock down 10% from that pop that it had on earnings a couple months ago. so you know this one i think
there is risk especially thinking about what what's going on with china i think there is potential at least some nationalistic feelings about our products i like if you really are bearish on it i'd say don't sell that weekly put, you know, because you may get the move, the rejection at 90. if there is any amiss and a guide down it goes back toward 80. >> it's a setup. the technical you have well defined tops at common level mid-april hits 90. mid-july hits 90 then we try to approach the breakout level again and the stock actually exhibiting very poor action where it should be actually amgts level and toying with a lot of tension to break out if indeed the earnings are going to be good. the market is saying if you interpret it this in fact whasks li in fact what's coming and i think it fails here and has a dramatic selloff. >> the last earnings season people thought it wasn't going to be good and it was fine. >> yeah, actually i think it was
in many respects better than people anticipated here is the thing. i mean, when you have stocks trading very close to the peak valuations, and you're going -- you have to say okay what are they going to now? what would would they have to say that's getting pronounced move higher? >> no slowdown in china. >> no slowed you'll have to see at least all of the growth currently priced in that's not immaterial. we're talking about 7.5% year on year broegt faster than the overall economic growth. and no trouble coming from any other quarter which i think in this environment is kind of hard to believe but here is the thing i would say about in calendar spread 45 cents if it just sends up sitting after earnings, just die on the vine, this is a trade could be worth call it $2 something like that. that's not a bad pay off call to four to five times what you risk what you are risk something a very, very small fraction of the current stock price. to dan's point if you thought this was going to fall out of bed what happened in fedex punched me in the nose this
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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. ♪ action." it's time to check on a couple of the open trades now back in august khouw and carter said marriott was headed for a travel nightmare. >> it's a well defined trend and it's a breaking trend. this is a problem. and i think one wants to be very cautious on marriott. >> given the fact that although options prices are elevated a little bit, they really aren't as high as i think they ought to be given the risk factors and how much equities have been moving around lately i was lacking out to october, the 125, 115 put tread spend $2.65 for that >> well marriott down 5% after
getting hit hard on the oil spike. how are you managing this trade. >> this thing is -- we lost with 75 crepts or so in did he day but i think we set up well the stock looked like it behaved poorlily the only thing i point out is we have earnings on the fourth of november if you want knows then urcht roll it out i have a feeling it's break lower before then. >> what do you think. >> i mean it's very heavy. and in stock is in a way a beta trade. if the market is going down this stock is going down. i think you stay and you want to be short. >> all right just last week dan said alphabet could be on the way to all-time highs. >> to me, i think in sets up as a good candidate for a call calendar where i want to sell some shorter dated out of the money calls and take in the proposal yum and help finance some longer dated calls going to catch the earnings event that i think will be the catalyst for a move up to prior highs near 1,300. when the st. croix was trading at 1235 today. you could buy the
october-november 1,300 call calendar paying $15 for that >> alphabet moved around quite a bit. what's the next move, dan. >> moved around, down 50 fif dhars in the on the 1235 stock the spread selling october, buying november for the earnings event is down a buck cost 15. worth 14 right now doing what i want it to do at some point soon that october short 1,300 call you're going to cover that and you're going to be long that november and then at that point you think about okay what's the setup into earnings in late october maybe i spread it and turn the november 1,300 call into a vertical call spread. >> wait a minute, so last week was google this week was amazon. >> ga. >> you were doing maga. >> stay with us here four weeks ago microsoft three weeks ago amtzen last week google >>. >> slipped that in there. >> in order. >> in order i'm sure our astute
viewers caught that. up next the tweets and the final call 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. ♪
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 a tweet the first viewer asks would you buy december 150 calls with kinz and earnings next month. >> no, i would not first of all you are talking about the stock breaking out to all time highs right now the options market implies about a 15% probability the stock gets above that. i think the probability is lower than that wouldn't you grew he i would say close to -- close to zero. >> close to zero. >> we know it he the epic rerateding you a the all the netflix news and every since it's flat. not such much catalyst take to you that level. >> are the carry back to you. >> you know bristol meyer things are brewing. i'm a buye >> mike options in bristol relatively inexpensive buys december calls is the way to
make the bullish bet. >> dan. >> my quick comment on dijz. the gap you said to see it hold that amazon i think the i agree with carter ominous. put spreads in november. >> that does it for "options action." see you neck friday at 5:30 p.m. eastern anywhere "mad 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. 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 make you some money. my job isn't just to entertain but to educate and teach you so call me at 1-800-743-cnbc. or tweet me @jimcramer. every day we keep having the same debate about the health of the economy and it makes you feel like we're balanced, we're ba o