tv Options Action CNBC November 8, 2014 6:00am-6:31am EST
money, and it is this -- people first, then money, then things. now, you stay safe. now, you stay safe. bye-bye. tonight -- that's what some traders say about alibaba, we'll tell you how high the tech giant could go. plus, it's the question every trader's asking. >> can i borrow your child. >> not that. they want to know if crude bottomed out and we have a secret indicator that says yes. and more like abercrombie & fitch. >> yeah, i killed me. >> shares tank on earnings. why some traders see even more pain ahead. the action starts right now.
>> live i'm melissa lee. these are the traders here. we start with a juicy story that is the talk of the options world. unconfirmed rumor bill acman is taking a stake in walmart. a bounce in the stock leading to a flurry of call buying. this is retail stocks at all time highs. could walmart be the next target? let's find out. dan, some are saying acman is going to press walmart to spin off sam's club. >> this has been a theme throughout industries throughout the big underperformers. walmart is unchanged. it rallied about 10%. they issued a profit warning a few weeks ago. a company not expected to grow. growth estimates it's basically low single digits for eternity. remember, this is a massive retail company, so it does make sense. like some of these huge targets although you know in past activists never wanted to get in the mega cap. it's worked in apple, in procter & gamble. >> one of the thing about this
that does make sense of course is the idea that you do need to unlock shareholder value. walmart has been stuck in the mud and spinning off sam could make sense. what doesn't make a lot of sense to me, though, the fact that walton enterprises, the holding company of the walton family which founded this company owns 50% of the outstanding stock, so it would be hard for activist to come in and do anything. you can go in and they can either take your advice or not. basically they can tell anybody to take a walk if that's what they want. >> here is the other thing. it's not a particularly expensive stock. there is not a lot of growth. it has a decent dividend yield. >> this could be true? >> what if it's an investment you believe in that you sthi a low risk investment and then you maybe have the potential to kind of have this family see the light and say here, you guys own 50% of this thing, let's unlock this together and make money together. >> yeah, i mean certainly the way this would work is if he is in conversations with them, and saying okay, let's talk about
how we can get more value out of the company that you own. that is the only thing that would make a lot of sense to me. >> does this have broader implications for the retail sectors. some nice perform instances, this is a walmart story. what do you make of the move in retail? >> obviously we're going to talk about oil but i think the rth is making a new all time high. the xrt. these indexes are going up. i think a lot of people think that cheaper oil is better for the consumer. i think it's important to remember that the u.s. consumer is kind of strapped here. if you look at autos, home building, they aren't acting well. we've seen a number of disappointments. i mentioned walmart. you look at in the last couple weeks we've seen coach, coors, a few others that i'm forgetting here, and so to me i don't think that this is the sort of thing that you want to chase at this stage of the game, especially it could be as good as we get as we head into the holidays.
>> you say coach and coors, there is kate spade. it dpenls on the retailer. >> that's the perfect point is there are retailers that are brand specific, coach, coors, abercrombie & fitch which we'll talk about later. these are names are they falling out of favor. it's not so much consumers. consumer confidence has been rising and we're going into the holiday sochblt my expectation actually is that we're probably going to have a pretty good season for generic retailers. >> it's interesting as you know yesterday we celebrated our 25th anniversary at cnbc. he would not want to be a retailer that sold other people's stuff. to that point dan, you got -- you were taking a look at macy's. >> why wouldn't i. when you think about it. that guy is a genius. kohls was the other one that disappointed and that's the same concept. so macy's going to report next week. this is a company that performed well in the last year, early in january they announced restructuring, brought costs
down dramatically, but when they reported in august they disappointed here and the stock in the last few days rallied from about $56 to $60 just in four trading days. they are going to report next week. the implied move about 4.5%. the stock moved on average about five. i don't think this is a great seat up here to chase the stock. i think the stock is probably fine. it's traded between 55 and 60 for six months now. but to me it looked like a good entry for a near term trade on the short side. i'll tell you why. if i was the management of this company going into a potentially difficult holiday season, and my stock was just back up at these highs i'm not certain i would give overly ambitious guidance. the trade was simple. at 60 bucks i was looking at november put spread. two weeks out, the november, 60, 55 put spread. it cost 1.30. i was selling one in november 55, puts at 35 cent, and
basically this trade breaks even at 58.70, and down to 55, i can make up to 3.70, and think about it this way. the stock was trading at 58.70 this morning. okay. this is headed into a potentially volatile event next week. >> it is a potentially volatile event. the other point trading at 12 times next 12 month earnings. it's not like this stock is expensive so. shorting it especially coming into a season with consumer confidence high. doing the spread makes a lot of sense because actually option premiums in anticipation of this have gone up a bit. so the spread makes more sense f. i was to make a bearish bet on macy's this is the way i would do it but i'm not sure there is a lot of down side in the stock. >> to be clear, this is just a trade into the event but longer term do you like macy snaes. >> you know, i'll tell what you i thought about doing is playing for consolidation trade. i think it's a sort of thing if they give poor guidance and the stock sells off toward 55 i think it's a buy.
it's cheap. >> at 55. >> yes. i think that's where i'd want to do it. this is an event trade. >> let's move to one of the biggest stories in the market, the drop in oil prices. a barrel of oil is almost $30 cheaper than it was five months ago. there are signs that a bottom is in. so let's call to the chart master and find out what those are. carter. >> sure. importantly, even as crude has gone lower energy stocks have not. and we think that's a good tell as to the end for the sell-off in crude. so a few comparative charts, this is all s&p energy stocks versus the commodity. starting october 15 when the market bottomed shares have rebounded even as crude has gone lower. but look at a few other comparative charts. a five-year. this again is the shares market versus the commodity. this spread is fairly extreme. and at this point now here's a better one. crude overshoots, crude undershoots. this looks like an undershoot to
us. again we would play for a bounce in crude here. relative to -- even going back 20 years. this is about as wide a spread as you're going to get. we think you play crude for a bounce, so let's look at it. two things we know. we know we found the 2012 bottom, and today we reverse nicely, right at that low, about the 76 level. so you have a 30% decline over six months and the presumption is here that we're going to -- see if i can move this forward. we seem to be stuck. so here's the play. for uso, looking for a 10% move back up to this trend line. yikes. excuse me. 10% move uso to reflect an oversold condition in crude to catch up with the energy shares. >> all right, carter. technical tifltys. we've got an opec meeting coming up that could provide a little bit of a juice to the trade. >> yeah. to the extent that owe speck as
relevant as u.s. north american crude production is. i think it is going to have some kind of impact. i wonder whether we're seeing a lot of you know, basically, effort just to scare everybody out of it. i personally take a look at the longer term in crude. what i look at you go back to early 2009 when we were in the depths of the credit crisis, everything was as grim as it could be we were around 70 bucks, that's about a 10% decline. it's a technical trade so. from my perspective if you are going to try catch the falling knife i probably wouldn't buy it at these levels but i am inclined to think that it's better set up for a bounce than it is for a much sharper decline. >> the trade on uso. >> using uso what you can do is look to the january 28 risk reversal. sell for 70 cents and buy the 32 call for 60 cents, collect a dime to do this trade. the point i would make is that
that actually targets that lower level. about 70 bucks in skrud where you would be effectively getting long. that's the longer term support i would see going back more than five years. >> dan, would you set this up? >> some of the viewers remember back in august i looked to use a similar structure in uso. at the time i was looking at the 33, 37 so. you think about it in january, smik doing me 28, 32 right now. his timing is better and i got to tell you, that the thing looks washed out right here. the trade looks like a really good one. you consider the move that xl lee. if you catch this thing this is to the up side. >> to that point in terms of the xle, does that follow that the -- does the xle predict this? >> i guess the crude stock market a thin market. but it is. it's only a few big players in the middle east, wealthy people in texas. whereas, the equity market and specifically the shares market
reflects all of the judges made by the biggest managers in the world. so the presumption is and this is often the case, that shares lead a commodity. it happens in gold, mining stocks versus gold bouillon and here too we think that the non-follow through to the down side in energy stocks is a tell that actually crude is at or near an end in terms of its decline. >> got a question out there, send us a tweet. check out our website. we've got the hottest options news, videos flout the week and trades so. do check it out.
dan thought alibaba shares were worth a play ahead of earnings. buying the stock dan, what would jack's idol say. >> stupid is as stupid does. >> buying 100 shares of alibaba means risking $10,000. to spend less dan said 100 strike call for $4.20. now to make money dan needs shares to rise above $100 by more than the cost of the call or above $104.20 by november. but something's wrong. >> what's the matter? >> the matter is we're spending more than four bucks to bet on alibaba. to cut costs dan sold not one but two of the november 110 strike calls for a total of 250. now instead of needing shares to move above 104.20, he'll make money as long as they rise above $100 by more than the 1.070 he is spending or 101.70 by november expiration. >> the most beautiful thing i've
seen. >> slow down, forest. because there is a down side. you see, since he is selling more call thans buying dan is effectively short the stock at 110, if it rises above that level by more than the money he makes on the way up, dan will see losses stretching up to infinity. >> and beyond. >> so define his risk dan then bought the november 120 strike call for 30 cents, now between the 420 he is spending on the lower strike call t the 2.50 he is collecting on the middle strike call, and the 30 cents he is spending on the higher strike call, dan is laying out a total of $2. that means dan makes money as long as alibaba rises above $100, by more than the $2 he is spending. above 1.10 profits trail off but he won't see losses until alibaba shares hit 118 and his losses will be kapd at the 120 strike call that he bought. since the time of the trade alibaba shares have indeed risen
sharply making this trade a quick winner. now "options action"s biggest fans want to know one more thing. >> actually, what they really want to know is what will dan do now? >> so dan, what do you do now? >> stupid is as stupid does. i know the stock was going up 14% i would have sold every put. this is really one of the problems here. at this point two weeks expiration, the stock has gone in the direction you want it to do. the magnitude of the move is probably healthier than i was expecting. now it's about timing. so you got to keep a close eye on this, really what you want this thing to do settle in a little bit. we know that on november 11 it's singles day t biggest day of the year. we have a chart. last year 2013 they did like 6.something billion in sales. alibaba alone, look what we did on black friday and what we did on cyber monday. it's going to be massive for them. i think the stock could be rallying ahead and maybe sells
off a little. what you want this thing to do is settle in around 110 and try to get the maximum. >> hindsight is 20/20. there were good reasons to do a trade like this. the fact is the options premiums were actually very high. and you're not really putting the odds in your favor when you go out and just outright buy calls. i don't think that was the play. the fact that it actually went up as sharply as did it would have worked out but i think trade was the smarter one. >> is there a corollary trade when it comes to yahoo!? >> it was. yahoo! moved up nicely but to me at some point yahoo! is going to have to stand on its own. >> there is no pop on yahoo! into singles day. >> it's going to continue to move with alibaba. at this point alibaba is a better trading vehicle. i would rather trade alibaba and not trade with the mess of the yahoo! core. >> we've got back to the ipo high, consolidated, broke out a 50% move. i would harvest some gains. >> harvest gains. what does this mean for
technology, carter? >> one of the issues with technology is nasdaq composite is driven by huge names, microsoft and apple. there are good statistics showing that. the nasdaq itself, up 11% on the year. nasdaq 100 is up 16%. the average stock is actually down 1%. so you have a very much of a skewing and you can look at it in terms of cumulative or a breath line. we have big names doing all of the lifting. that at some point runs its corps. >> you look at the nasdaq 100, the top ten names have $2 trillion with a t in market value. the rest of the 90 have about the same so. you think about it those top ten are average or up about 25%, they are doing all of the heavy lifting in some ways a majority of the stocks could be in bear markets if you want to drill down. >> the final thing, pretty hard to imagine how bob is going to sell off hard going into the end of the year from my perspective. we had a lot of institutional
have. now you have retail taking a look. >> so as long as people have faith, confidence in the structure of the business, which is the biggest question i have about it, it actually looks 50%, year on year revenue growth. this is going to trade -- >> the rest of the nasdaq from september 19 it's extracted $282 billion out of the rest of the nasdaq. >> you think about that's the market cap. >> that would be my bigger concern that if institutions love alibaba and want that on the end of the year that could draw away from some of these other losers into year end. >> google is one of the biggest names. down on the year and can't get out of its own way. >> it's very much a case of haves and have nots. usually ends with lower price for aggregate. >> traders are ditching the fitch. why some are betting on more pain.
abercrombie shares out of fashion dropping 17% after missing estimates but mike, it seems that some options traders are thinking that the retailer could get cheaper. >> that's right. this one traded more than four times its average daily options volume today. now we're going to see if i have trouble with this board as well. what they were buying was the november 28, puts paying 35 cents four that. you can see the stock was trading over 30 at the time. it's going to have to break down below 28.15 for the trade to be profitable. in two weeks from today. taking a look at the one-year chart we see this is a volatile
stock. what's interesting to me is that this marks the fifth consecutive quarterly revenue decline. i don't wear abercrombie & fitch but i don't need to, to figure out others don't want to either when i see revenue numbers like that in what seems to be a pretty good economy. >> i would mention it's not just abercrombie. gap went from a 52-week high in september to a 52-week low in october so. this is also a teen retailer. back to the -- >> not quite teen retailer. >> you know, there's a lot more retailers that disappointed, your kate spade, you like their shoes, i know that about you. >> you call immediate out on that. carter, mike was looking at the charts. what do you see? >> it's a testament to resisting any temptation to buy weakness meaning that's what value traps are b. today though it's down 17% it got more expensive. after a drop in gap typically it's not all priced in. there is authority to the 30 level.
we think this break, 20 bucks is where this is going. >> mike, is it your thesis this is representative of the retail sector in general? >> i think this is very case specific. abercrombie & fitch had a certain look, their name on shirts, it's clear people aren't interested. the company has discussed that fact and said they were going to try overhaul the fashion. when you were defining a trend and now the very next you're trying to figure out what everybody actually like, that's a dangerous game. i don't really see how they are going to fix that soon. >> okay. well, grab the popcorn. epr properties in the 6% yield in a portfolio pull of athlete terse and cramer's gotten an appointment with henry schein to see if it can make you smile. top of the hour. coming up next the final call.
time for a tweet. ann asks how are you trading ibm, carter? >> i wouldn't. but if you are long i get out and resist temptation. this is what value traps are about. you think it's going lower, stay away. >> what do you think? >> this is another one of those situations when you see flat to declining revenues it's evidence that there is a business problem there. and the valuations don't matter. when things look cheap it's because they are getting cheaper. >> it's not a short. if you get to the end of the year lower than it is here you will see restructuring that could be a catalyst. my crystal ball. >> the final call. carter. >> play crude for a bounce. >> macy's if you want to play for a pull back giving back some of the gains of this week, look at november put spreads. >> mike. >> if you are going to play crude a risk reversal in uso is a good way to do it. >> looks like our time excease-fired. thanks for watching.
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