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tv   Options Action  CNBC  July 13, 2013 6:00am-6:31am EDT

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have a great independence weekend. bye-bye. this is options action. tonight, a grand plan. which one of these three stocks could hit $1,000 before tend of the summer? khouw and carter say they have the answer. >> we'll see where the waves take me. >> they've got the answer and a possible way to make you money. they'll reveal. and talk about a deal on ebay. >> this is good. >> dan nathan has a way to make money ahead of earnings if the stock goes up, down, or nowhere at all. and worried about stocks going into earnings? relax because scott nations has a way to protect your portfolio for free.
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the action begins right now. live from the nasdaq market site, i'm melissa lee, these are the traders here on the desk. and we do want to talk about the markets, all the records in the markets. we want to get to a developing story. a major deal, at&t making an offer for leap wireless, $15 a share. leap wireless is trading higher in the after hours session. 16 and change is where it's trading at right now. that at&t is making the stock a new high in today's session up 2.5% in. there was unusual in the options market. >> you might not have caught it. there was probably six or seven times normal volume in the most active lines today, i think i'm looking quickly. the august 9 calls traded 1,400 times. next week, exploration traded 1,300 times, a lot of them were bought and also the october 8 calls were bought too. some people might have had a
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little bit of inclination -- >> 1,400 contracts on a near dated upsided call and a name that normally trades about 1,400 options in the aggregate for a whole day is unusual. >> and an $8 stock. >> all of those things are kind of red flags, but actually, dan made the point while we were -- before we came on that actually this stock broke out a little while ago. it may be hard to follow a name like this. but the stock had been flat lining for a while and started to break out a couple of weeks ago. it was an opportunity there to say maybe people were taking a look at that point. >> also, i think mike made this point earlier, if you bid $15 for an $8 stock, you're trying to say no more bidders, we're done. i think what is going on here, at&t is trying to find the nexus between the iphone and the lower cost cell phone providers. i think that's where they think growth is. and i think that's what the play is here for at&t. >> so you're looking at the stock move higher in the after hours session.
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this is a significant move above the offer price. and that would signal potentially there's another offer out there, a higher offer, a sweeter offer. >> well, this is small change. this had a $600 million market cap on today's close and it was up 25% like we said. they do have $3 billion in debt. it's going to take a little bit of financial engineering to make this thing work. this is probably a market share leap. you know, there's been a lot of consolidation leap, no pun intended in the space here. but someone has to believe there's no higher bid. >> it's a great point to bring up the debt too. you're saying well, that's a dollar over the offer. the enterprise value, that's what the companies are buying. when you see an extra dollar, two dollars over, incrementally on the total enterprise value of the company, that's not that great. if you think there's a bidding war, that explains the afterhours. i think there'll be a very dangerous exercise, though, for
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most people to go out and start chasing it. >> although, everybody buying it today, this afternoon, after the close thinks they have a put-in at $15. they're not looking for the stock to go down at $8, but they think there's a greater fool who comes in on monday or later in the week to bid $17. >> we should go to the tremendous short interest in leap wireless and that could contribute to the pop we've seen in the afterhours session. that's helping the stock move higher too. again, 16 and change above 15 the offer price from at&t, that's tremendous. >> no, i think that's true. the short answer is another good important thing to bring up. also, a lot of people have gone home for the weekend. you're not getting the stock called in at this point or hopefully not, you're on your way to the hamptons or whatever. we'll get a much clearer look at this on monday. >> we'll continue to track the story and the move in the afterhours session. let's get to the market here because new records for the s&p 500 as well as the dow jones
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industrial average. behind this euphoria, though, are signs of concern. everyone was focused on boeing. falling 6%. here's why it matters to you money. citing a sluggish domestic economy as concerned for earnings and revenue. is this a canary in a coal mine as we head to earnings? let's get the money and find out here. this seems to prove your point precisely. >> doesn't prove anything. listen, the markets are all-time highs. i guess the action that i would say is you did have this new dow high. and today you had two of the biggest dow components that made all-time highs just in the last 24 hours down 6% on news. and to me, what that tells me is that investors had their fingers on the trigger here. and to me, i don't think, i said it a month ago at these levels and i'll say it again, i don't think this is a great place to put new capital work. boeing this morning at $107 at all-time highs.
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and i'm saying to myself, this is completely mental. how are you going to make money? the stock broke out. it's been on a run away breakout with all this bad news. where is it going to go? and to me, i think what is a very troubling sign with some of these names that our slow growth but trading at stretch multiples, we could see some very interesting double tops starting to form. >> you know, it's interesting you mention ups specifically, fedex warned not that long ago. and of course, got bid on other activity this week. if you're taking a look at two, could you find two better to look at than these two companies? >> let's go to carter braxton worth who has made it in from oppenheimer. we want to know what these stocks mean for the overall market and what you see in the charts. >> sure. just as discussed here. two big names, both of which found all-time highs only to run into trouble. here's boeing, of course, the epic plunge to the '09 low and
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equally impressive recovery, touches the '07 high. they had a bad earnings report, or in this case, i guess it was a fire. that's ups coming up next. but either way, it's found difficulty at a difficult spot. the next chart, same circumstances. instead of an '07 it was an '04. but a stock having a lot of trouble and returns to the level which made an all-time high and stops dead cold to the penny. now, here is an industrial name that long ago took out the highs that has actually been one of the worst-performing stocks, looks like it's going to get worse. the well-defined lows in effect for about a year here, the stock is toying, hovering at those lows. if you look at this circumstance and put it in the long-term chart, you will see the importance of this level. basically, this is not a good set-up where you have a flat bottom and a series of low or high, low or high, and the presumption is down. whether it's a u.p.s. or boeing failing at an all-time high or
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something like caterpillar which has been a laggard about to get worse, it all smells odd. >> smells odd, presumption is lowered, dan, do you agree? >> yeah, that's one of the worst-looking charts i've seen in my life. and i'm not lying to you here. >> that's not hyperbole. >> i think it's a better game than trying to pick tops in u.p.s. and boeing to try to press some names like caterpillar that basically are really, really strained here by all of the news that let's say u.p.s. and fedex have been going down for of late. i think you take one more shot at that 80 level in caterpillar. i think a lot of the bad news is known in the name. it's a cheap stock, trading at 11 times 2014 earnings. at some point it's going to start to discount a very slow global economy. but i want to take one more shot from the a trading perspective. >> dan is doing what's called a put calendar.
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we've done plenty before, but it's good to refresh. let's crack open the playbook. you saw a near dated put. it's a bear strategy but requires some timing here. you want the stock to be above the strike or the put you are short by the first expiration below the strong at the longer date put that you're long by the second expiration. walk us through. >> yeah, i'm looking at caterpillar's july 24th q2 earnings event. i want to create a structure where i end up owning august puts that will get me in place for the earnings event. what i did today, i bought the july/august 85 put spread for $1.25. i sold one that expire next week at 35 cents and bought one of the august 85 puts for $1.60. that cost me $1.25 and that's my max risk. i want the stock to move down towards that $85 strike between now and next friday and what i want to do then is either look to sell the following week, expiration strike to further finances or sell something in august below it. and so the whole idea is here to finance that put for the earnings event here and just, you know, it's a bit threading
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the needle here, but the implied move for earnings is 2%. i think there's a good bet it happens. >> i think this is actually a pretty good play, partially because i think dan would know on a fundamental basis if you're looking at multiples in caterpillar, i wouldn't say the stock looks that expensive. we've sort of seen stocks get up into a area and languish a little bit, it could come back to that level. but the fundamental values are likely to support it. that helps you play that drift to the strike. i think this is a good way to play it. >> well, the level is just below the 200-day moving average. so you have to worry about that. if you're a bull, you've got to worry the socks will get through that. i don't think it is. i don't like that the fact that the u.p.s. is blaming the economy. and the problem with the chinese economy -- >> hang on. >> they said it. i don't know.
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fedex said three weeks ago -- >> but -- listen, listen -- u.p.s. said they're going to blame the domestic economy, that's why your trade works. >> regardless -- >> now you're fine. now you're fine with what i said. >> that's the bottom line. both of these guys like to trade, dan. let's wrap up here. stocks versus options. unlimited losses. dan's put calendar requires a little bit of timing but defines his risk to just $125. got a question out there, send us a tweet @cnbcoptions. we'll answer. tonight, scott has a great way to protect your portfolio for free. this is something you want to do with the dow and s&p of record highs here. also find us with great trader blogs, as well. coming up next. place your bets -- >> they're off. >> three big names making all-time highs. but which still has lots of room to run? this man that called it contrarian. dan nathan has a way to make you
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money ahead of earnings. he'll explain how when "options action" returns. if investing were a horse race, these stocks would be ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ if investing were a horse race, these stocks would be money in the bank. shares prices on amazon and google touching all-time highs in today's session.
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amazon, priceline, and google are up respective 36%, 37%, and 57%. so the question is here, which one of these stocks can you still buy right now? let's call to the charts with the man who made the best call of the week when he said last friday to buy gold. gold call really paid off this week. carter, are these stocks still a buy? >> anyway, thank you for that. but, yeah, i like them all, actually. there's good things going on. they're all long-term charts. let's have a look. one cannot debate this is a well-defined trend. amazon has continued to defy the shorts and there's every indication momentum's intact. and then we think you're going to play to the top of the channel. so into the low -- you know, about 340. and that's plenty from here. take a look at google and price line. and what's important and we're looking at the past tops in something like a boeing. this stock has exceeded the past top. whereas u.p.s., once you break out, you're free to run. this is trading in low 900s, 10% higher. remembering that set-up, when
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you see a boeing getting back to a past top or u.p.s., priceline has not returned to the dot com era high of 990. a little more to go, about 10%, 12%. we like them all, ones to own. >> ones to own for all three of them. but, mike, you're focusing on priceline, why? >> well, despite the big run, priceline is not overwhelmingly expensive, it's trading about 23 times earnings. this is a company growing their top line at 20% and the bottom line, this year eps growth over 35 account p. as big as the company is, they represent a relatively small percentage of the overall market they're in and they obviously are the leader. i'm not sure who could come in and potentially take them. the only concern i have about the company really is the fact that everyone is so overwhelmingly bullish on it. we see that in the price action on the stock, the analysts basically recommendations. everybody on the street seems to love this thing.
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i think that's pretty much the only downside risk to it right here. >> is that troubling to you, dan, as well. >> the stock is up 1,500% off the '08 lows. listen, you'd have to be crazy to go in and buy these stocks after the moves -- >> crazy. >> yeah, crazy. carter said on priceline, it's got another 10%. have a ball, go buy the last 13:30:10:10% in priceline. >> priceline's very different than amazon. moderately priced on p/e, amazon, not so much. >> i'm going to sell a put spread, and it's to dan's point. the idea is we're not going to run in and chase the stock. i'm going to sell the august 9 puts, going to collect $4 on that trade. if the stock stays here, if it goes higher, and even if it drops down in the interim, i'm not going to lose the total of the 6 bucks of risk i'm taking and $6 is the total amount of risk i'm taking. that's really the idea here. i'm not going to risk $900 plus dollars, i'm going to risk $6 if
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carter's right. >> i'm going to do stocks versus options now. you need the point, don't want to buy the last 10%. that may be true. take a look at stocks versus options, buying shares will set you back almost $90,000. but you can make money the shares go up, down, or nowhere at all. the most you can lose is $600. with that said, does that make this trade more palatable? >> the 50-day moving average is back at like 812, i think if you can get the stock back there at that level it consolidated at before it went on the parabolic run. mike's trade, it is defining his risk and taking advantage of high, implied volatility. >> we look at the cost of the spread, how much you're collecting, given this is $20 out of the money, not a whole lot for $920 stock. but it's out of the money, the math lines up pretty well. >> does that concern you at all this may be the last 10%? and even though you're only risking $600 with this, it's
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still chasing after the last 10%. >> if you are interested in trying to chase the last 10%, this is the only way to do it. i would never naked sell puts in a name like this. and the premiums are too high. going out and buying calls on this thing right now, they're quite expensive, certainly relative to how much the stock's moving around. i think right now is the time to collect. bear in mind, this thing will report, i think it's august 7th, i believe. if you're seeing profits at that point. >> they also have mini options. >> our thanks, of course, to carter braxton worth. now options traders are seeing a big move on earnings. find out when we come back. ♪ [ cows moo ] [ sizzling ]
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more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]
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...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ it may be make or break time for technology next week. we've got earnings from yahoo, intel, ibm, microsoft, google and ebay. so which of these names got the best opportunity here? let's make the call. what are we expecting in technology?
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sort of like a wide array of expectations. >> well, you mentioned ibm in there, i don't think we can get too excited about that one. looking further down the road, that's going to impact hewlett because the services side was one of the places they were going to be optimistic. yahoo has had a heck of a run. and i have a hard time imagining that marissa has blown the doors off. >> i think yahoo is going to be more about what is said than the numbers. and i think the same thing is true for microsoft. microsoft unveils the big reorg, so i don't think what they have to say as far as the numbers is going to matter much either. >> i think q2 earnings is baked in the cake as far as the numbers are concerned. i think it's all about the commentary for the second half. and when you think about the bernanke dialed back some optimism from a few weeks ago about the u.s. economy here, i think you have to be careful and look at corporate guidance. >> and you're looking at ebay specifically. >> yeah, i think it's been a laggard like ibm has. it's rallied 6.5%. and just like the trade, i think you can look to option trade
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around earnings to take advantage of the high, implied volatility. i think ebay settles into the mid-55 range or so and probably hangs out there a little bit because i don't think you're going to see a big beat in raise. i think the stock around 56.90, i looked at the july/august 55 put spread cost 50 cents, so i was selling one of the july 55 puts at 70 cents and buying one of the august 55 puts for $1.20. and the stock could consolidate after that earnings event and then maybe you own those august puts for what could be a downdraft later in the summer after we get through earnings. >> mike? >> yeah, 40% of the business is paypal, 60% is auction, auction has no growth. all the growth comes from the paypal business. and that's priced in. i think it's baked into the cake when you look at valuations.
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>> both of these catch earnings -- this really shows you how the math works for the calendar, though. both of these catch earnings. and july only has a couple weeks of life left. august, you get a bunch more time for a bunch lower cost per week. >> we saw verizon coming up on the calendar again. taking a step back, at&t making a $15 a share in cash bid. we are seeing leap shares at the after hours session high trading as high as 16.93. tremendously above the offer price that at&t is putting out on the table. so we are continuing to track this in the afterhours. meantime, coming up, the final call from the options desk. stay tuned. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first.
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learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ a scooting dog generally isn't a good thing, but in this story, it's not only great, it's
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world record worthy. your eyes are not deceiving you. that is a dog riding a scooter. this clever canine named norman scooted his way into the guinness world record books today under 21 seconds. the 3-year-old sheep dog isn't sheepish showing off his talent to 100 or so people who cheered his accomplishment. that's not the only trick up his sleeve. he can grab his on treats and wipe his mouth after a drink. and he can also ride a bike. sounds better than some of my ex-boyfriends. time now for the final call. scott nations? >> market at all-time high. this week's webex, about how to collar up spy to protect your gains. >> earnings, buying premium into earnings events is a dicey proposition. i like using calendars to finance that premium. i like names like c.a.t. rather than pressing it short. rising rates, rising gas prices, how is that going to affect the casual dining experience? we're going to write about it
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and put it on the website of darden restaurant. >> we'll tweet that trade, as well. our time has expired. thanks so much for watching. for more "options action," check out our website where you can find that trade. we'll see you back here next friday, 5:30 p.m. eastern time here on cnbc. have a great weekend. >> announcer: the following paid program for the shark sonic duo is brought to you by euro-pro. [whirring rapidly...] >> both imitate: zzt zzt zzt... [whirring...] >> zzt zzt zzt... [whirring...] >> i have never seen anything like it! >> oh, my gosh, i love the shark sonic duo! the carpet's like new again! >> my kitchen floors are cleaner than they've ever been. [whirring...] >> it's the best cleaning system i've ever used in my home. zzt zzt zzt... [laughs] >> announcer: bright, beautiful carpets, rugs and floors make your home look amazing. but no matter how much you vacuum or mop, you get

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