tv Options Action CNBC August 2, 2015 6:00am-6:31am EDT
hey there. we are live at the nasdaq markets. look what i found, two brian, brian kelly and brian sutland. welcome. it's like brian's song options style. the brians and mike are getting ready. here's what's coming up tonight. >> i'm melting! melting! oh, what a world. >> that's what some traders think could happen to oil's lush dividends. we'll tell you what it is that has investors so worried. ♪ when you wish upon a star >> why is this man smiling? because disney's earnings are next week and some traders think it could be downright magical. we'll explain. i'm afraid, all right? what to hear me say it? >> and you have good reason,
rocky, because the vix is doing something funky and could spell trouble for stocks. the action starts right now. we'll get right to it because one area struck fear in the hearts of the traders today and that would be the energy. the sector had a record-breaking 13 straight weeks of losses exxon hitting a one-year low on records. the question is now, are big dividends still safe? we'll get in the money and see what brian kelly says. this is a rare appearance, so rare, in fact, you forgot to take off your tie. we'll start with you. >> i didn't have time. listen, i do think the dividends are a danger. particularly with the big exxon and chevron, those types of things. over the next 18 months there's time to buy these. it's not right now. we saw oil price increasing. that means oil production is increasing. i don't think saudi arabia is going to cut, i see oil in the 30s easily. >> the increase in production the around 2 million barrels a day. so that is obviously a huge problem. you pointed out the rate cut issue, there's a couple things
that could impact the dividend, not the least of which that the oil companies are making much less money. what i'm surprised is how surprised people are by this fact, though. look at the crude futures basically from six months ago. what you're going to see is we are down from over 70 on five-year crude to below 60. i don't know how people are all that surprised by that. turning a big enterprise in a short period of time is like trying to turn around a large crude carrier. if you look at the options market, the implied dividends are lower. two reasons for that, if you have less cap flow, you'll look for less shareholders reducing their buy backs. exxon reduced by 90%. >> jpmorgan out today saying conocophillips could cut the dividend because all the players want to defend the dividend for as long as humanly possible in order to keep the investors in the stock. >> to keep the investors, that's exactly right. when you look at advisors or
people in retirement to use the dividend plays or oil companies as mlps and what not, they are in danger. tech, you saw those moves apply to the dividend. 10% cut. most likely in my experience when trading options, they start making implied moves on dividend cuts, it usually comes down the road. if you're playing these for dividend yields, be careful. oil trading in the 40s, getting more comfortable here. oil is starting to price things in lower and we'll see the big conglomerates adjust to the lower price. >> yields go higher. there is a double-edged sword here. >> i think one thing you can do, certainly the stocks are cheaper, they could get cheaper still. i think if i was going to be long anything and looking for a yield in the energy space, probably would be on the debt side. i think the simple thing to do, you can look at the xle and by the september 70-65 put spread,
paid 220 for the 70 puts. but it already has so much bad news baked in right now, that i actually at some point am going to start taking to think about trading and getting long in the base, i think. >> a lot is baked in but what's the good news to get the stocks out from where they are right now. >> refining. >> refining. >> something like an exxon or one of the big names, there are so many moving parts to it. so the -- it's a valero, those are going to continue to do decently well in this environment. i think it's way too early to buy that back. >> that was a bright spot for chevron. they were refining business and could help support natural gas prices. eventually we'll have a mechanism to normalize gas prices between north america and other parts around the world. that could stabilize as well. >> the reason i like a put spread is because we have seen prices knock down so hard and fast. if you are pressing to the short
side, you have to be long in options. if you see the volatility compress even though oil is trading low, that's a time when you want to buy put spreads and whatnot. i do feel like when you look at the price of oil, 40 to 45 is a critical point here in the price of oil. i think another put spread will pay off. otherwise it will be long and tough to play to the short side. you may have a long-term process waiting here before i buy these things, but still we could just be -- >> the put spread, the lower strike option is going to mitigate the effect of trying to hold on to press that bearish spot in energy right now. if it doesn't work out in the next few weeks -- >> sounds like you put on a direct trade that would be directionally bearish. >> short oil directionally in this case. i like the put spread. it's hard to be outright short exxon with that value. so the put spread is kind of nice because you have a defined risk and can take advantage of
the decay. moving on, reports in the death of the movie industry have been exaggerated. julia borisen joins us with more. >> melissa, the u.s. box office is up 8.5% so far this year according to results and this weekend is off to a good start. "rogue nation" grossed $4 million at thursday night showings, putting it on track for $40 million at the u.s. box office this weekend. fan dango reporting it is selling out all previous mission impossible films. and "vacation" the attempt to reboot the "national lamb lampoon" franchise came in third. it is projected to bring in $30 million at the box office this weekend, but could benefit from strong word of mouth. this has been a year of successful reboots with universal "jurassic world," the biggest movie of the year grossing $1.5 billion worldwide. and the new "star wars" in december could make this the
biggest box office year ever. melissa, back to you. >> thank you, julia. we do have a slew of media earnings kicking off next week. take a look at this. disney, viacom, dreamworks, 20th century fox, lions gate just to name a few. which one stands out to you? >> i like disney. when you look at this stock, this stock has been unbelievable the last five years. year over year up 40% and continues to show growth. the pe is not totally ridiculous. here's a stock i think poised to do well. look at this. you talk about the movie lineup we have had for disney, it started the year basically "strange magic," whatever, but it just keeps growing. tomorrow land, and to end the year, "star wars," right? a great lineup disney is putting out. they are poised to do well. it seems like a tale of two cities. we talked about oil before. all the oil stocks having
declines, benefits from this. companies like disney, who benefit from lower price oils, more pockets in the consumer and the consumer doing okay. low interest rate environment which is good on disney. taking a look at disney, i'm looking at the call spread. the stock had a nice run-up. it is difficult to play the stock on the long side. the best time to buy the stock is down at the 100-day moving average. but the call spread to find my risk looking at the august 28th, i look at the 120 strike call for $270. at the same time, sell the $125 strike call. net/net, i paid $1.90 here. that's only up a buck or so, almost two bucks in the stock. so i'm basically risking $2 to try to make $3 if the call spread goes to the full value and the stopgap is higher after earnings. otherwise all i risked $2 and the stock goes down and i gain an opportunity to purchase the stock and wait for a lower point. but this is a different way to play the upside at this point. >> disney shares hit a new high. i feel like we're in the kind of
market where when stocks have big run-ups going into earnings it has to deliver on every single metric. are you concerned at all with disney reports? >> well, certainly one of the things about disney is the evaluation up to the upper end and the stock performed very well. but one of the things i think is interesting here right now, pointing out that you've got the "star wars" movie at the back end of the year. that's where they shine, find the consumer angle as well as the movie angle. the other thing is options premiums are relatively cheap. usually in the month following earnings the stock moves about 5%. notice that the call spread he was talking about, what's it targeting? up about 5%. so the move implied right now is about 2.5%. to me if you're going to play it, i don't know how to bet against it. how do you bet against the winners in this market? you don't. >> you're exactly right. you can't bet against disney but what you can do is take profits and use the call spread as a stock replacement strategy. that to me seems like the logical thing to do because disney had a good run. i would not short disney going into earnings. >> would you consider that?
>> i think you make a great point of stocks running up to highs before earnings, look at apple and facebook, those sold off after earnings. they have to blow it out and got a guide to move significantly higher, but the momentum is hard to the upside in the stock that if i keep playing to along the side oppress that, there's a call spread. >> there's one way to express yourself. send us a tweet @optionsaction. only one place to go, optionsaction.cnbc.com. like you died and went to options heaven. can you imagine? here's what's coming up. confused about stocks? well, one shark can hold the clues and we'll tell you what it is. plus -- ♪ take these broken wings ♪ learn to fly again learn to love so free ♪ >> well, mister mister, that's what cohen carter did with earnings and they have a way to make sure. they will explain when "options
action" returns. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. thousands of hotels when youwith travelocity,f it means you can also afford to get up to 50% romantic-er romantic sunsets. making it the place to find a place for summer escapes. go and smell the roses.
ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. volatility is near lows but volatility is near lows but does that mean trouble for stocks? brian sutland is here with the vix. brian? >> when you look at the vix, it provides insight about the markets because basically
volatility triggered in the stocks bleeds over and starts from the bond market. and that triggers down to stocks. as soon as you see stock volatility, that shows risk. what we like to do is take a look at the vix to see where it's gone from, where it's at now to determine if things are too complacent, right? what typically happens when looking at the vix, you see the little cup formations. when things get nasty or volatile, it usually doesn't happen off of a big sell-off. it goes right back up. but we get a resting heartbeat period here instead of the big spike. so you get the cup formation where the market sits around at new all-time highs or 52-week highs and start to see higher lows in the vix. that's when you take the profits and sell stocks because the market is complacent. we saw that over the last five years. when you look at the next basically last year or so, january 2015, all of 2015, we got this cup formation already, right? so this was a period where we had a spike at the end of december, beginning of january,
volatility came back off in the springtime. and you saw this long resting heartbeat period. all of a sudden we started making new highs in the market and the vix started climbing a little bit higher. and right in here where the vix is making new higher lows, that was an indication of when you needed to get out. we had the greece issue, we had china, the cause of the market to spike involving the spike. now we're in a period here where vix is basically trailing off and made basically a down trending formation here. which to me is actually a bullish indication for stocks. we are not in the resting heartbeat quite yet. so to me, i'm not ready to sell this market just yet. and when i take a look at it, the one thing that i would look at is how is volatility behaving in all kinds of areas. yes, certainly treasury volatility trading higher. gold volatility higher than stocks. you would think volatility in the stock market would start to bleed in as everything moves together, that some of that would move back up. but i'm looking for the vix for that sort of resting heartbeat
to occur around 10 or 11 on the downside. that's when i look to sell stocks. then we get a spike back up in vix, i like to see 50% and 75% moves up in the vix when you go back in to buy the market. now we are in the in-between stage and the market continues to press higher until we reach the resting heartbeat in the vix. >> brian, the same page as the markets? >> yes. you should probably, if you want to, it is a substitute for stocks, think about buying calls in the spy, for example, take advantage of the lower premium. the only thing to spell trouble to me is when i start to see things like spreads widening out a bit. things in the credit market, if they see the ice cracking beneath your feet even though it's summer, sometime sooner than the equity markets do, so i think there's anxiety there. keep an eye on that. >> the credit spreads are interesting because the lack of liquidity is in the market right now. what people are doing is using spy puts to hedge their credit or bond market portfolio.
so there's a linkage there that goes into your vix string. when you start to see the credit market, look at hyg, when you see that come in and the vix is at a low point, that's when you buy the vix calls. >> i think you'll start to see that institutional money that will come in to buy the s&p puts. the vix is tied to s&p puts. so when you start to see that you get the resting heartbeat. the vix stops going down and sits in the resting heartbeat, flattens out and you see higher lows in the vix. to me, that's when the heathers are starting to push all in and expecting a sell-off on the market. look for the vix at 11, that's a sign of complacency. until then, i think the market will be in a trending area and maybe to the upside. cohen carter bearish on twitter. they'll tell you what they see for the stock right after this. here at td ameritrade, they work hard.
wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. need to hire fast? go to ziprecruiter.com and post your job to over one hundred of the web's leading job boards with a single click. then simply select the best candidates from one easy to review list. and now you can use zip recruiter for free. go to ziprecruiter.com.
whenthousands of hotelsoff with travelocity, it means you can also afford to get up to 50% swedish-er swedish massages. making it the place to find a place for summer escapes. go and smell the roses. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information
for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. twitter shares fell more twitter shares fell more than 12% this week and that's great news for cohen carter and here's why. on "options action" is how we
make trades trend. risk less to make more. that's just what cohen carter did with their bearish bid on twitter. carter felt twitter could tank on earnings. >> literally 50/50 kind of thing. i'm taking the 50/50 downside on this. >> but shorting the stock could lead to social destruction. so to define his risk, mike said the august 34 strike put for $2.10. now to make money, mike needs shares of twitter to fall below $34 by more than the cost of the trade. or in this case, below $31.90 by august expiration. spending $2.10 just to get against twitter -- >> it's not even a question i'm considering right now. >> so to cut his cost, mike sold not one but two of the august 30 puts collecting a total of $1.60. but he did something jack dorsey can't do, making money easier and here's how. between the $2.10 he spent on the higher strike put and the $1.60 he collected on the lower
strike puts mike cut the total cost of his trade down to just 50 cents. because he spent less, mike needs shares of twitter to fall below $34 by more than the total cost of the trade or below $33.50 by august expiration. >> people shouldn't be measured by what they look like. >> that's right because there is a tradeoff. and by selling more puts than he bought, mike could be forced to buy twitter stock at that low put strike price, or in this case for $30, even if it falls below that level. but the profit is on the way down to act as a buffer and mike won't see losses until shares of twitter fall below $26.50 by august expiration. twitter shares have fallen more than 12% making this trade a quick winner. now "options actions" fans all over the world have taken to twitter. they just want to know one thing, what will cohen carter do now? carter is not here but dropped us a postcard. hey, gang, have a great show. i've been on the road marketing
in chicago, milwaukee and madison and am looking forward to the weekend. twitter went down, could have gone up. was a 50/50 coin toss as discussed last friday. came up heads, how nice? from carter. all right. >> very good. is he actually telling us what to do next here? i don't know. i'll tell you what i can't do is grow a beard like jack dorsey. but what i can do is actually stay in this trade. and the reason i want to do that is because we were basically targeting that $30 strike price. those options still have some significant decay left in them so we have $1.60 in premium we can continue to collect to press this short bet. that's what i'm inclined to do. this looks like grim death right here. >> it hit 30.85 today. >> this is wilting on the vine. pun intended on that one. they need a new ceo. they need somebody coming from outside the company that could revamp it. i don't think it's going to be jumping jacks. >> i nominate b.k. he has good suggestions for this company. >> twitter, i like the 30 strike
there selling the two puts. that's going to find support. that's an area that basically from a while ago sort of bounced and moved to the 50s and is coming back. you'll see support around the $30 level. let the puts decay out and that's a level i would be willing to get in on the stock. >> at what point would you be inclined to say, maybe go long by options. i'm going to risk -- i'm going to limit my risk. >> this trade actually does that. because we were long 30 puts, effectively you were going to get long near the 26.50 level. >> that's your level. >> that's my level. >> that would be an all-time low. >> an all-time low and that's not the place to reach out to catchle falling knife. >> maybe revisit the trade. >> we'll revisit management looking for somebody new. that could be the catalyst to propel it higher. >> carter cohen is not the only one making profit being social.
the longest call, what are you doing now? >> the trade worked out great because it was a long bet to the upside but yet facebook actually fell a little bit post earnings. and the trade is actually a winner because the july calls that i sold went out worthless. there's still value in the august. i'm more inclined at this point to roll the calls down because $100 is quite a big move with nothing on the horizon for facebook to compel it significantly higher unless the stock market moves higher. i'm compelled to buy something lower and take it long that way. buy something lower and take advantage of low volatility in the marketplace and play to the upside and roll them down. >> i agree with that. that's the way to go because the premiums came out in net earnings. coming up next, don't forget we are on twitter and will be taking your questions right after this. so tweet us. here at td ameritrade, they work hard. wow, that was random.
random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. need to hire fast? go to ziprecruiter.com and post your job to over one hundred of the web's leading job boards with a single click. then simply select the best candidates from one easy to review list. and now you can use zip recruiter for free. go to ziprecruiter.com.
ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.
we have a tweet here, how can i offset my losses quick? we have a tweet here, how can i offset my losses quick? >> this is a really good question because it's a common one. stock recovery trades. if you're in a stock and want to stay in it and make your money back, it's going to be very hard for the stock to break through the previous highs. there's going to be a ton of resistance there. so make some money on the way back up. and the way to do that is to take your core position and do a one by two call spread overlying it. so this stock is down 80 bucks plus, but then you need to look out to october and do something spread for $5 or $6 in the net debit to give you a lot of extra juice up $40 and give you a way to recover. time for the final call. >> i actually like brian, the other brian's call on disney going into earnings as a stock replacement. so you do a call spread, sell out your long stock, do the call spread into earnings. the low premiums, i still
think you can stay along the s&p and the way to do that is the call i made last week, spy call. and i'm melissa lee. for more "options action," check out the website and check out our daily segment inside "fast money." see you next friday at 5:30 eastern time. . you know that confidence you get when your hair feels good and looks great? sadly, that confidence can be quickly shattered when your hair starts to show signs of thinning. thinning can be the sad reality of over-processing, over-styling, and aging for all hair types. what are the problem signs so many of us experience? thinning, dryness, brittleness, breakage, frizzing, lack of luster, loss of bounce, and an inability to style. if these are issues you're dealing with, you're not alone. a recent study has reported that 65% of women