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tv   Options Action  CNBC  November 1, 2013 5:30pm-6:01pm EDT

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for the first time in the 12 year history of the transportation security administration, one of its officers has been killed in the line of duty. this after a shootout at lax, los angeles international airport, just after 9:00 this morning, local time. authorities say that a gunman carrying an assault rifle in a bag, took it out of the bag, blasted his way through security. then was shot in a gun battle with police. the suspect, identified as paul anthony ciancia, 23 years old. u.s. citizen, living in los angeles. apparently originally from pensville, new jersey outside philadelphia. quoting local authorities, and this confirmed by federal authorities, say that paul
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ciancia sent his brother a text message this morning, claiming that he was thinking about taking his own life. pensville police were alerted after the incidents took place. the police chief called the lapd asked him to check on him. he was not there, roommates said he was okay. clearly he was not. authorities say that seven people in all were wounded in the shooting. six of them transported to local hospitals. none of the identities have been released yet. again, one tsa officer killed, multiple wounded, that's the latest. we are keeping track of this developing story, options action begins now. this is options action. tonight -- >> rain man. >> yeah. >> let's play cards. >> casino stocks on a hot streak. we'll tell you why their luck could soon turn. plus, why is this man's company flashing a warning sign for the market. >> i been working on the
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railroad. >> we'll reveal in a special report. and talk about the ultimate defense. >> if it doesn't fit, you must acquit. >> no. not that type of defense. we're talking about why defense stocks continue to beat the market. so how can you play the hidden rally? the action begins right now. live in the nasdaq markets in the matter of new york city's times square i'm melissa plea. these are the traders on the desk and in super hot texas. there is one name we're watching tonight, and that is apple shares of the tech giant off slightly today. this is the ipad air went on same. one man pounding the pavement and doing checks on early sales results. piper jeffries top ranked analyst joins us. gene, you say better than expected lines soap better than expected sales? >> yes. keep in mind expectations were pretty low. the ipad air, only 35 to 40% of
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total ipad units, keep that in mind. and overall slightly better. we weren't expecting to see anybody in line today and we saw modest lines. >> bigger launch to watch will be the mini. what are you expecting. what can we glean with the december quarter? >> well, as far as ipad, it's going to roll out at some point in the next couple weeks, they haven't given a definitive date. let's call it 65%. and really, this is going to be the one that drives the ipad units. in total, it's 25% of apple's business. so it's important that that gets off to an important launch, a big launch. this is not as critical. as far as the december quarter, still all about the iphone, 57% of sales this quarter. obviously off to a fast start. they are having a hard time. so production will be the key to that number for the december quarter. >> all right. gene, great to speak with you. thank you. dan, what's your take on apple going into what should be a strong seasonally strong quarter for apple. >> no doubt. i think gene does great work on
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the checking out those lines and kind of getting a sense for what early sales will be like. like he said, i think some of the rumors for this retina mini will be november 21st, right before the holiday selling season. so to me, my biggest take away from the pricing with the new ipads, they are defending margins, that's what the stock traded off there they reported their q-4 earnings, this quarter, you had this disproportionate amount of 5-s sales then you have this higher price ipad mini in that hot holiday selling season. so i think it's safe to assume margins likely to be better. to me, i think this stock sets up pretty interesting right here. it got to unchanged on the year. right before they reported earnings, it's fell back. it's consolidating. i think you probably see another run at the 2013 highs, which was five, five, five. back in the first week of the year at some point as we get closer to cyber monday on december 2nd. >> mike, you think five five five is in sights for this one? >> you know, i think here's the
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way you have to look at this. first of all, we do still have carl in the picture, a lot of cash on the balance sheet and a lot of shareholders might be encouraging them to do something with that that is in their favor. that creates a level of support. so the market is also extremely strong. and this stock relative to market price at least in terms of multiples is fairly cheap. so it does seem like i would be -- if i was inclined to make a bet, i'd make a bet it would go up to those levels that dan described. >> scott. >> i think gene makes a good point. you have to be really excited about apple, specifically in order to be excited about the news today. option traders weren't particularly excited. volume a little less than you would see on an average day. calls relative to puts, not particularly bullish. actually fewer calls traded relative to each put. than you would see on an average dave. i think the interesting thing about margins, the fact that the 5-s, the iphone is really strong, speaks to good margins, you know last month and the month before, people were worried about apple, because of
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margins and the new lower margin phone. and it turns out evidently, that's not going to be a problem. >> dan, you are clearly bullish, you think the stock could run to five five five. >> this is a holiday, it will be a sentiment trade. when i look at the chart, i see probably potential down side to 500. like i said, on the upside i see about the highs, 555. it's a plus or minus $25 move from right here. so i don't think that's a great risk reward just to buy the stock. that's why i want to set up the options trade, which gives me much better leverage to the upside and defines risk. >> let's get to dan's bullish bet, using a call fly. kind of a tricky trade. we want to crack open the playbook to see how this works. a bullish strategy, you buy one call and sell two higher strike calls against it. to protect yourself, you then buy one even higher strike call, sounds trick each. but this is the bottom line, you want the stock to go to the two strikes you are short. that's your target for the stock. so dan, what's the trade? >> sure. today when the stock was 518.5.
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i bought the december regular, 525, 550, 575 for $4. i bought one of the 525 december calls for $15. i sold two of the december 550 calls at 7 each for a total of 14. and then i bought one of the december 575 calls for $3. that cost me $4. between 529 and 571, i can make up to $21. that's five times my money right there. and mike melissa said, i want the stock to go to 550. my max risk is $4 below 525, and above 575, and i could lose up to 4, between 521 and 525. and between 571 and 575, here's the deal, i'm setting a limit price here. i'm willing to risk the stock is above 529 between now and december expiration, that's all i'm risking to make maybe $20. >> let's wrap this up on little stocks versus options, want to buy 100 shares of apple,
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$52,000. five to one payout and risk just 400 bucks. let's move on to a story, that you may have missed. that is the torrid winning streak casino stocks have been on. it's not las vegas that fueled the rally. dominic. >> melissa, gaming stocks definitely in focus, that's because october was a record month for the casino business in the world's biggest casino gaming market. they reported revenues that month of around $4.6 billion. that is a big record month for them. shares of big casinos lined las vegas sands have been riding the wave so far this year. both of these stocks, lvs and wynn are up around 50% on the year, far outpacing the gains of the s & p 500. and of course melissa, the dow industrials, back to you. >> dom, thanks for that. so should you play the hot hand? let's call to the charts with the fellow some people call rain man's muse. hi, carter. >> hi there. by our work, these stocks have
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already priced in this kind of good news, they barely moved today with good news. here is wynn, we like to measure trend by the smoothing mechanism. and you are as far above trend as you want to be. the presumption is you will get this kind of thing next. take a look at longer term. you are about as far as you can get. and typically, when you're this far above trend, this is when you come back. take a look at it on a longer term chart. this is going back to the early 2000. this is not time to buy in principle. and there is something else about the long term chart. we're up against the internal trend line. that's a difficult level. more often than not, it's right to bet against something, that has just come up to a level like that. we would say -- >> do you agree with carter maybe it's time to take profits? >> i do. and i think what's interesting here, actually, is that the levels that cartser is talking about are kind of consistent with how much over the
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historical multiple turns wynn is trading. for example, depending whether you look at price to earnings, whether you are looking at revenues to enterprise value, this stock is trading probably 10 to 30% richer than it has over the course of the last two years. it's also trading at a significant premium to its peer group. basically what our expectation would be, the market is going to basically price the stock back to its more conventional multiples. that would see the stock dropping down around the 150 level. so to me, when i take a look at this, the fundamentals line up nicely with carter's charting work. >> what's the trade? >> i think very simply here, you know, this is a situation the market is strong. i'm not inclined to just make out right bearish bets. but i want to make one here. what i'll do is set up a calendar put spread, specifically i'll buy the march 160 puts, pay 8.25 for those and sell the december 160 puts against it to help finance the trade for $3.50. that basically sets up a net
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debit of $4.57, or $475 to make a bet that this stock is going to drop down to the 160 level or lower. the nice thing about this trade on a stand still basis, because that near dated put will decay more rapidly than the longer dated. i will make profits even if the stock just sits here. >> dan, do you like this? >> i like is. i like choice of the strikes. it's tough to buy premium in a name like this. i like the strikes. i think you have a good shot of this thing consolidating near 160 on the down side. >> the difference that i have with this is that wynn had a huge fantastic blockbuster bond sale last month. so there is huge appetite for this name. that said, mike thinks it's going nowhere until december. he wants the december put to expire. i disagree. if you will be bearish this is the only way. >> send us a tweet @cnbc options, we'll answer it after the show on our web site. tonight scott's taking a look at how to profit from oil slides. check it out.
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here's what's coming up next. >> so it wasn't exactly a military victory. carter made a bearish bet on northrop grumman, they got the direction wrong but didn't lose much on the trade. plus sound the alarm. because carter worth detected a serious sell sign in the market, that could spell pain for your portfolio. he'll reveal what it is, when options action returns. there wn who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being get live squawks right in your trading platform with think or swim 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 ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ welcome back to options action, let's get you right to the headline numbers for warren buffett's berkshire hathaway
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operating earnings coming in at $2,228 per share. that's short of wall street estimates for about $2400 a share. but those sales, the revenues better at $46.5 billion versus estimates for 44.5 billion. book value, this is an interesting number, it came in $126,000. buffet himself said in the past that berkshire would buy back its own shares at up to 120% of book value. that implies a possible imaginary floor for the stock. melissa for about $152,000. back to you. >> thank you very much. despite berkshire results, traders say a warning sign lurking for financials in the market as a whole, dan and carter breaking it down only as they can at the plasma. both of them standing there. this is a historic moment by the way for options action. carter, kick us off. >> sure. i mean, the reality is financials, the biggest part of the market in terms of import, and second biggest weight. they don't act well. here is just stats that back that up. if you look at the one week
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performance of the sector, financials, insurance, broker dealer banks. underperforming on one month, two month and three. in fact, underperforming on a fourth and fifth month. not a good circumstance. look at something else. watch these big banks. jpmorgan, textbook reversal. hasn't made a high since july or august. markets making new highs here in october. same circumstance for citibank, another biggest bank in the united states. same circumstance, hasn't made a high since august. take a look at goldman sachs, biggest broker, same circumstance, underperforming the market. hasn't made a high since august. markets making new highs september october. here is a big life insurance company, same circumstance, hasn't made a high since august. these are all sort of topping out formations. now, here's berkshire hathaway, just pulled up light on earnings as you heard. and hasn't made a high since august. this is not a good look. now, the xlf itself, we think, which is the entire sector, is
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going to basically pull the same stunt. it's starting to stall. it's not performing well. here are the visuals. this is the relative chart of the s & p sector, relative to the s & p. it's been underperforming for five months. that's a problem. um, and for what it's worth and i'll turn it over to you, the market is not cheap. this is the long term pe. it's a ten year basis. adjusted for inflation. we are basically at the top of a range, if you net out the 1999 bull market excess. we are at the top of the historical range, that's not a good circumstance. >> that's pretty convincing, i have my own little pen here. i just want to say, i figured something out here, you remind me of like harold and that purple crayon. i keep getting this question a lot. people have experienced a lot of nice gains over the last couple years, they are thinking as we get possibly close to the end of
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qe and maybe hint to it some time in december, we could have some trouble in the markets. maybe the financials are telling us that. here's a portfolio hedge, if you will, implied volatility is low. price of options are really low. so to me, i think you can look out to december 31st, quarterly options, the spy, you can put on a portfolio hedge for really cheap here. this is the quarter lease, they go out. you don't have to do regular expiration, when i priced it up, when the spy was 176, okay, i basically -- you could do the 172, 162 december quarterly as a $10 wide for 1.70. paying 240 for the december 31st, 172 puts. and selling the 162 put at .70. your max risk is $1.70, between 170.30 and 162, make up to 830. you're basically risking 1% of
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the spy to protect your portfolio down 8%. here's the thing about that 8% level. we haven't had a selloff more than 8% all year long. this is basically a said it and forget it. you risk a certain amount to have down side protection between now and end of the year. >> scott, smart move? >> i like the protection he's not spending very much money. if you spend the money then you end up wasting it, you've wasted the money you spent on life insurance, just because you didn't file a claim. >> coming up next, defense stocks on the warpath. two traders say retreat from this hot sector. they will explain, when we come right back. [ indistinct shouting ] ♪ [ 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 ]'ll bust your brain box. ♪
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all on thinkorswim from td ameritrade. ♪ [ bell ringing, applause ]
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five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. welcome back, time to get called out. we look back on our losing trades. a couple weeks back the trade on northrop grumman hasn't worked out. but they didn't lose too much money. here's why.
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on options action just because we risk less doesn't always mean we make more, that's what happened with mike and carter's bearish bet on northrop grumman. carter thought it was time to get defensive on shares of the defense company. >> the problem is northrop has gone bonkers. we are a seller of northrop grumman. >> mike said, let's do this. but shorting the stock, that could mean infinite losses. so to define his risk, mike bought the january 95 strike put for $3.75. now to make money, mike needs northrop grumman shares to fall below the strike price by more than that 3.75 he spent. or below 91.25 by january expiration. but spending $3.75, just to make a bearish bet -- >> if you don't, you'll be dead. >> my point exact mean. mike, can't we do better? >> sell the 85s for a dollar. >> to spend less mike sold the january 85 strike puts for $1
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and created his put spread. that means he's made it easier to make money. between the 3.75 he spent on the higher strike put, and the $1 he collected by selling the lower strike put, mike reduced the cost of the trade to just $2.75. and now instead of needing northrop grumman to drop below 91.25. mike sees profits if the shares fall below $95 by more than the 2.75 he spent or below 92.25 by january expiration. it is impressive. but keep in mind there's a tradeoff. by selling that put, mike has capped profits to the difference between the put he bought and the put he sold minus the cost of the trade. but it's a good thing he did spend less, because since the time of the trade, north rop shares have grown over 10% higher off of earnings making this trade a loser.
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>> and now options action's biggest fans have just one more question. >> do you think i'm cute, private powell? do think i'm funny? >> actually what they are thinking is what will they do now? perhaps this will make us feel better. had you shorted 100 shares of northrop at the time of the trade you'd be out 1300 bucks, if mike closed out his put spread today he'd look at a loss of $245. not great. but mike, what are you doing with the trade at this point? >> well, i wouldn't close it, because there actually isn't anything left to close. so it's a heavily levered far out of the money bearish bet. if the market sets up for any kind of a pull back, that might hurt the stock. it's fully valued for a defense name. all of that remains true. my view of it is, you have to stay in a trade. sometimes you commit the premium, know that you might lose it. that's what we did. that's what i'll do. >> carter, what's your take on what mike is doing next? how do defense stocks in general look? >> as steep as they were, they
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have gotten steeper. it's even worse now. the principles are the same despite the horrible trade. that this is unsustainable, steep, uncorrected, and we would stay short. >> coming up next, the final call from the options pits. [ male announcer ] once, there was a man who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being get live squawks right in your trading platform with think or swim from td ameritrade. i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80%
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[ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ ever wonder how mike khouw looks so good. his secret, a time lapse video shows how a model can be digitally transformed into a blond bombshell. her hair, legs, eyes and stomach have all been photo shopped. makes you wonder what the real mike khouw looks like. certainly does. that's tonight's optional viewing. time for the final call. around the horn. mike. >> i like calendar spreads like the one we outlined. >> cbw. >> financials, if you're a short seller sell short, xlf.
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>> scott. >> all about crude oil. >> dan. >> call flies in december. >> looks like our time is expired. i'm melissa lee thanks for watching for more check out our web site and also, check out our daily segment inside of fast, optionsactio have a great weekend, everybody. 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. i don't just entertain but to educate you. as november begins we have to take heart in a unique statistic. during the last 50 years there have only been four our times when the s&p 500 was up more than 20% in the first ten months of the year. li


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