tv Options Action CNBC July 6, 2018 5:30pm-6:00pm EDT
we're live at the nasdaq markets on a friday. the guys are behind me while they are doing that, here is what's coming up on the show. >> this the taste, this the test. >> and this is brian he is a way to get long shares of pepsi for less than two bucks. plus as media companies scramble to compete with netflix, one company is quietly kicking everyone's you know what. >> you're setting your self up, man, going first. >> yup, wwe. the chart master says beware, a body slam is coming. we'll tell you how to cash in. and -- >> you want to see something
really scary >> check out the yield curve because it's flat as a pancake and hurting financials except for one. mike has the trade it's time to risk less and make more the action begins right now. >> and we start with that yield curve making like an ekg from an old episode of er flat lining this year. in fact, it is the flattest in more than a decade today why does this matter it's a fancy way of saying business stinks for the banks right now and maybe that's why financials continue to go lower. chart master says he's found one space in financials so let's get over to him. carter, what are you looking at? >> american express. what we know, financials have been the dream with industrials and they have been a real misfortune for anyone who has been long or overweight and i don't think that's going to end. amex may be a way to do better so what we have here, something that's only happened five times in the history of the s&p 500
financial sector down five months in a row. now, here is this month. it's barely started. so disregard that. but basically we're talking about one, two, three, four, five how infrequent has that happened what is the outcome going forward? five months down there's the arrow. there's your number. now let's look at the data this circumstance has happened five other times in the history of the data going back to 1989 and what happened thereafter when this circumstance has happened what happened thereafter was more of the same financials one week later down two weeks later, down. three weeks later, down. the odds for that always down but this is an average but the odds down when they are pretty high. a bad area of the market
at this point that's very clear. what to do, maybe something like this if you have to be in financials. what we know, of course, if you've had a good response to this trend line repeatedly, repeatedly, and we're here again. i think another way to draw the lines is as follows. same chart on the top, but the bottom is relative performance to its peer group, a selection one could make relative to others what you have here is two things you have something of a cup and handle on the relative and a well-defined top from which a perspective breakout relative and a bounce off the line absolute i think this is a very important stock, obviously, and a stock that i want to be in in an area that's not good. finally, just look at what's going on here. this is the entire financial sector it's on the neckline, it's bad amex not the case. amex looks like it's, in fact,
going to break out and go higher this is the place to be if you need to be in a financial stock. >> mike, how are you trading amex. >> american express is a company, one of the reasons it might be outperforming they had a period of bad performance, miss steps, lost jetblue, costco affiliation. let's not forget when we think about payment processing, it's not necessarily all going to be about credit cards in the future especially if we look at places like chain the thing that does work fundamentally is earnings. that's what's coming up on the 18th this is trading 13 times earnings so the company is relatively cheap my inclinations because option premiums are elevated when they are going into earnings call spread risk reversal to make a modestly bullish bet here. specifically i was looking at july '94, '99, 104 call spread risk reversal. selling to collect $0.60 for
those. $2 on the july 99 calls, selling 104 for 40 cents net net that entire structure cost me $1 the stock trading just about that lower strike right now. we're expecting options premiums to come in before earnings, two days before expiration of these. that's a way to capture 4% upside in a relatively short period of time and essentially be insulated to some degree over 5% downsize move if that's the way the stock goes. >> this is why i love option trading. i don't particularly love american express, somewhere in the middle of the road here is a bet mike is making where he's selling options, selling downside put also upside call, not outlaying a lot of capital here all you need is a little bit of appreciation to the upside and, boom, you know the trade pays off. here is a stock outperforming financials in a sector not doing well and a bet that limits the capital outlay and you can still
play the upside a little bit so i like the trade in that sense. >> the critical thing here, also, i wouldn't necessarily compare them with all the rest of the financial space i don't think you would either. >> no, it'sown thing capital one, discover. but american express is different than those two companies. is it risk-free? francs crisis low, but i think in this current environment it's holding up well for reasons that are important, especially given the rate. >> american express depends very heavily on upper income spenders in a period of economic boom when there's a lot of spending in that particular group, one of the things you're definitely going to get is relative outperformance by axp. we have been certainly seeing that they get better margins and better rates obviously they got a favorable ruling which we just saw this week, which also is presumably helpful for those of you who don't know the idea was that retailers were not going to be table to provide
certain kinds of incentives so they could discourage the use of american express which typically charges more i think at this point that was obviously a favorable ruling we have rulings, they will probably speak favorably, a relatively cheap valuation. >> you have to be careful on financials one way i'm playing financials sticking with pro business like american express credit card business is an area you want to be in. i also like insurance companies in a sector, part of financials. straight up banks i'm worried about. we've seen a lot of bearish opportunities, morgan stanley. staying away from that, i like american express. >> if you're looking for a hot trade check out cupboard staple stocks like kellogg, sissoko, mccormick's, pepsi, up 14% from the low.
brian taking the pepsi challenge. >> pepsi keeps it simple, too. the taerngs coming up next week. i want to buy a call it's expire next friday. you're either going to pay off or not due to the earnings play here i'm buying 110 call expiring next week, only paying $1.20 for this above 111.20 i'll have the upside potential in the stock here below there i'm only risking the $1.20 for that option here in this sense i'm risking a little bit to make and participate in the upside here and play it that way. >> is this the way you will play pepsi? >> so often going into earnings we talk about offsetting elevated premiums. pepsi on average the week of earnings moves about 2.2%. what are options implying a mav of 2.2% which actually means that options are reasonably fail priced you're not overpaying to make that bet one of the things we had see today was make bullish activity
going into earnings expiring next week. i know you saw this activity, we were actually talking about it on the show, weekly 113 calls, those averaging $0.32. let's just say expecting the stocks to move about that much that means essentially a win pays you two to one if it gets to those levels. i think it's a reasonable bet if you want to make a bet into earnings on pepsi. >> what do you make of the breakout >> i think it's not specific to the company. you can overlay that pepsi ricochet it's a v put xlu in there. it's a money flow issue. that's what really moves stocks at the end of the day. yes, idiosyncratic moves go up or down if you miss but this is a group move and has nothing to do. >> the group move, does it still have more? >> i think it does. >> it does. >> we actually did see speaking to that group move, we saw actually a lot of bullish in xlu, utility, staples etf as well earlier this week to your point, i think this is
more of a broader issue than a single stock story. >> and the reason why i like using a call in this situation, too, is a couple of things one, mike talked about the option call activity to the upside that seems to be in play right now. two, this stock made a nice 10% or more move off the bottoms here so when you have that momentum back to the up side call it for whatever reason, lower interest rate environment playing nice safety stocks or whatever. i like replacing my stock, using a call, limiting something priced at fair value like mike talked about and continue to play for the upside. that way i reduce some of the risk of being long all the stock i was off that bounce on the bottom here and i like playing with just short data call option. >> for everything "options action" check out the website. while there sign up for super cool newsletter. this week has a picture of mike on a motorbike for real. if that's not enough to sign up, i don't know what is meantime coming up next. >> what the standards are all about.
>> there ain't no misunderstanding hulk. shares of wwe are a bona fide hit. but the chart master says beware the body slam. we'll tell you how to cash in. plus calling all "options action" fans reach into your pocket, grab your phone and tweet us your eson @optionsaction. if it's nice, we'll answer it on air when "options action" returns. see that's funny, i thought you traded options. i'm not really a wall street guy. 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 tap one little bumper and up go your rates. what good is your insurance if you get punished for using it?
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." trading all time highs, another group of stocks you know of but may not know are quietly surging. lelgts go to man we a-- let's go
a man we know and love, dom. >> i'm not sure people outside our circle of trust know and love me but it's nice to be loved. some well-known brand names at least if they were long the stocks let's kick off our look at some of these brand names with a beer, sam adams boston lagger, summer alley if you're snapping up photos, maybe you're using shutterfly, bulls have pushed that stock higher by 80% this year. then a real home run like world wrestling entertainment, wwe, which is higher and higher, thanks in part to getting top dollar for its broadcast rights to some of its top shows it's up 150% in 2018 we're going to cap it off with a look at watch/wallet/handbags/every kind of fashion accessory you can
think of company and that's fossil on an absolute tear up 265 year-to-date one thing worth noticing each of those stocks has relatively high short interest so that could very well be part of that bull run story as some traders try to buy to close out those bets against those shares. back over to you. >> all right thank you very much, dom chu the chart master says one of these stock's run is done. so carter what are you looking at >> looking at wwe, eithit's offe top rope put it in perspective. number one and number to best performing stocks in the s&p 500 over the past 12 months. wwe up 270 show you two, three-year chart to put things in perspective basically plus or minus all three up 300%. can you see the actual numbers,
299, 307 trat ejectry, what's key, wwe plays this huge catchup. catch up. let's zero in on the chart itself look at that it's a ten bagger for s&p 500. that's what winners are all about finding something. that's the green that beats the bench handily. let's go to the chart itself all right. this is back to '04. i just want to compare this current run with this current run. take those lines away, take a look at this what we have is how far above the average. again, how far above is it reasonable to think that you're going to get a check back so take a look at the next chart. this is exactly 90 weeks this is exactly 90 weeks this one is even a little bit
more than that one guess what, it's had an upgrade, fuse we know in terms of lucrative tv deals what's next? it has to maybe grow into these things i think if you have these kind of gains you take some profits do something. >> smackdown, mike, what's your trade? >> you know what i'm wrestling with, how is it going to grow into it. growing revenues mid to high single digits. that's very respect i believe, eps, but trading 70 times earning. netflix is growing revenues at 30 to 40%, eps growth of 100 to 200%, so you can understand that move a whole lot better. something i don't understand the price of options the price of options are 30% above average. i think the way we want to make the play buy august 75 point spread look at 75 puts for $3.60, sell
65 against it for $1, net debit of $1.02 a quarter of a difference or 10 bucks. this will capture earnings which they are going to report a week after july expiration. otherwise you have to go further out. i can't get my arms around the stock. a 16% short interest which is what dom might be alluding to and propelled it this far but i wouldn't want to bet any further. >> like this trade >> to carter's point, do something. the stock has had such a huge run is the right answer. i actually like this stock a lot. in our model rankings it's nine out of ten for us. the enterprise value to sales ratio is actually relatively cheap versus -- >> cheap. >> not cheap but relative to some of these other names carter mentioned here. >> what would your trade be. >> i would stay long but love mike's trade buying a put spread to hedge your self here. the stock has had such a big move here. mike makes a point about the
value of options being high, put spread is cheap here a great way to head. >> model, i'm sure yours is robust a nonranking for that comparison what is a netflix rank or amazon they get as high a ranking. >> when you talk about those names, have you to worry the growth will continue in those names. obviously wwe has had such a run-up you worry a little bit also some of these get out of whack once you reach lofty levels the stocks had that's why i love buying the put spread as a hedger there are concerns you talk about here there are concerns whether the stock can continue to move like this when we've seen decent growth and relatively versus some of the other peers that enterprise to sales ratio, can still perform. >> 7 x sales. >> that's the play on a lot of stocks when you look at huge groth names, netflix up, i think it continues. >> up next
got an options question for traders, i know you do send us a tweet. if it's a good one we'll answer later in the show. let's get a check on our cramer cam. we're not the only one talking pepsi. the madman taking the pepsi halening and discussing how it could set the tone for next earnings season at the top of the hour live at the top hour are more oa coming up. le to trade 24/5 mean to you? well, it means i can trade after the market closes. it's true. so all... evening long. ooh, so close. yes, but also all... night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness to light. ♪ you're not gonna say it are you? i've got a nice long life ahead.
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why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." it's tame to take a look back at open trades. just last week mike said shares of tesla were heading for a crash. >> the stock has a very big short interest that short interest can actually create a possible level of downside support you could spend $21 to buy one august 330 put you could then sell two of the 295 against it for 10.5 dollars
each. >> mike was right. tesla sinking 12% since the time of the trade what are youdoing with the trade? >> right now i'm staying with it since we sold two puts, what's happened essentially nothing to the spread we need to time to work. the stock finishes somewhere below that 330 level this will ab profitable trade as long as it stays above 265 that's really what we're targeting. right now we're kind of in the sweet-spot we need a little time to pass so we can see the value of two 295 puts sold continue to erode. >> what would you do >> when you look at some of the technicals on the charts it does feel like it's maybe going to hold the level and sit around. for mike's point wait for time to work for you, i like doing that as well i think that will eventually pay off and get you some of that decay in options that curse when you sit around that short strike certainly you've got to let it work a little bit here at least and decide before aerpearnings before you want to continue or not. >> also last week mike said
morgan stanley was gearing up for more pain ahead. >> you look at the one-year chart room for 44 level, 52-week low, maybe find some support you could buy july 48, 44 put spread paying $1.10 for them. >> shares of the big bank are down more than 2% since the time of the trade as you may have noticed dan is not here today fear not we were able to catch up with him all the way out in london, england, for a special update on the trade. >> hey "options action," dan from london. last week on the show we detailed put spread morgan stanley, below 48, july put spread the stock at 47 that put spread worth a little more than $1.65 for almost a $0.50 profit. at this point you stay with this trade, keeping an eye out towards earnings in a couple weeks. have a good weekend. >> isn't it amazing god save the queen plays all the time everywhere in london it's incredible. by the way, we'll see dan next week on the desk
carter, what do you think? >> it's unmitigated disaster, the stock is down 22% from the peak it's the market beta trend the market is struggling of late, morgan stanley beta trade. up next eetwts and final call from options pits see that's funny, i thought you traded options. i'm not really a wall street guy. 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 [ horn honking ] [ engine revving ] what's that, girl? [ engine revving ] flo needs help?! [ engine revving ] take me to her! ♪
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well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back time to take your tweets our first man asks, mike, why buy a debit spread on wwe if you comply volatility expensive short a credit spread instead. >> that's a great question actually two reasons we did this. one point, we did put on a spread higher implied volatility the other, this stock is really, really moving. selling a call spread on a stock that's on a rocket ship to the moon pretty dangerous exercise. >> final call from the options
pit. >> mike. >> wwe. >> carter. >> going higher, could be big. >> thank you for joining us on "options action. ssoks like time is expired, i'm melia lee. check out "mad money" with jim cramer 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. 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 save you money. my job isn't just to entertain but to educate and teach you call me at 1-800-743-cnbc. or tweet me @jimcramer today, employment trumped tariffs. which is how the dow gained a hundred points