tv Options Action CNBC July 8, 2018 6:00am-6:30am EDT
hey there, we're live at the nasdaq market site the guys getting ready behind me while they're doing that, here's what's coming up on the show >> this is the tape. this is the test. >> and this is brian and he has a way to get long shares of pepsi for less than 2 bucks. plus, as media companies scramble to compete with netflix, one company is quietly kicking everyone's you know what. >> you're setting yourself up, man. you're going out first. >> yes wwe. and 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 >> then check out the yield curve because it's flat as a pancake and hurting financials except for one mike khouw's got the trade it's time to risk less and make more the action begins now. we start with that yield curve making it look like an ekg like an old episode from e.r., flat plilining business, banks and maybe that's why financials continue to go lower, but the chart master says he has found one safe space in the financials let's get straight to him over at the plasma. carter, what are you looking at? >> let's focus on american express. financials have been the dream, same as industrials, and they've been a real misfortune for anyone who's been long or
overweight they need a place to do better something has happened that's only happened five times in the s&p 500 financial sector down five. here's this month, barely started so disregard that. basically we're talking about one, two, three, four, five. how infrequent has that happened what is the -- what is the outcome going forward? five months down, there's your 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 happens thereafter when this sort of thing happens what happened thereafter was more of the same financials week later down, two weeks later, down, three weeks lat later, down. it's not always down, but an
average. the odds of being down are pretty high. the bad area of the market, weak at that point. at this point i'd say clear. what to do, maybe something like this if you have to be in financials, what we know is if you've had a good response to this trend line repeatedly, repeatedly, we're here again but i think another way to draw the line is as follows, same chart on the top but the bottom is relative performance to its peer group, meaning the selections 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 you also have a well-defined top from which a perspective breakout relative and a bounce off the line i think this is a very important stock obviously and it's a stock that i want to be in in an area that's not good. finally, look at what's going on this is the entire financial
sector it's on the line amx, not the case. amx looks like it's 22 ready to go higher. i think this is the place to be, you need to be. >> mike, how are you trading amx? >> they had a period of underperforman underperformance some management under performance. let's not forget when we think about payment processing, it's not necessarily all about credit cards in the future, particularly looking in places like china the thing that does work fundamentally for this company is earnings. that's what's coming up on the 18th they're reporting earnings this thing is trading under 13 times earnings the company is relatively cheap. my inclination because options premiums are slightly elevated as they are going into this, a call spread risk reversal to make a modestly bullish bet here specifically i was looking at the july 94-99
selling the 94 puts i can collect 50 cents spending $2 on the july 99 calls and selling the 1.04 calls, net net that entire structure costs me $1. the stock is trading just about that lower strike right now. we're expecting options trades to come in which are going to be two days before the expiration of these options that's a way we can capture a 4% up side in a relatively short period of time and essentially be inflated against a 5% down move. >> what do you think of the trade? >> this is why i love options trading because i don't specifically love american express. somewhere in the middle road of everything here's a bet mike is making where he's selling options, selling the down side put, also selling the up side call he's not outlaying a lot of capital here all you need is a little bit of appreciation to the up side and, boom, the trade pays off
here's a stock that's out performing and it's a bet that limpgts the capital outlay sz. you can play the upside. >> i wouldn't necessarily compare them with all the rest of the financial space i don't think you would either. >> no. obviously capital one, discover. american express is different than those two companies is it risk free? no it's all about the stock but i think in its current environment it's holding up well for reasons that are important, especially -- >> well, american express depends very heavily on upper income spenders. in a period of economic boom when there is a lot of spending in that particular group, one of the things you're going to get is relative outperformance by axp. they get better margins, better rates. obviously they got a favorable ruling which we just saw this week which is also presumably a
little bit helpful for those of you who don't know the idea was that retailers were not going to be able to provide certain kinds of incentives so they could discourage the use of american express which typically charges more that was a favorable ruling and it's back stopped by a relatively cheap valuation. >> i said you have to be careful on some of the financials. one way i'm playing financials are places that are pro business like american express. the credit card business is an area to be in. i like insurance companies a lot of bearish activity. names like morgan stanley, bigger bank names. sticking with an american express here, i like that trade, mike. >> if you like a hot trade, check it out kellogg's, cisco, up 20% from the recent lows. some of the names making all-time highs you can add nestle
it is up more than 14% in the low. brian, you're taking the pepsi challenge. >> i'm going to keep it simple with pepsi as pepsi keeps it somewhat simple. the earnings are coming out next week i wanted to buy a call at the money call expiring at the weekend option it's either going to pay off or not expiring next friday i'm buying the 110 call expiring next week. i'm only paying $1.20. above 111.20, i'll have all the risk i'm risking a little bit to hopefully participate in the up side and play it that way. >> is this how you would play pepsi? >> it's interesting. oftentimes going into it we talk about selling some options pepsi on average the week of earnings moves about 2.2%. options are going to move about 2.2% which means options are reasonably fairly priced
you're not over paying to make that bet one of the things we did see today was some bullish activity going into next week you saw the activity we saw the weekly 113 calls trading. those averaged 32 cents. let's just say that we're expecting the stock 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 this breakout >> i think it's not specific to the company. it's literally a v you can put the iyr in there it's a money flow and that's what really moves stocks at the end of the day you can go up or down. this is a group move. >> as a group move, does it have more to move >> it does. >> it does >> speaking to that group move, we saw a lot of bullish activity
in xlu, we saw some of that in the staples etf earlier this week to your point, i think more of a broad eer issue than a single stock. >> the reason i like making a call is mike talked about the option call. this made a 10% move off the bottom when you have that momentum off the up side, a lower interest rate up side, people are playing nice safety stocks i like replacing my stocks, using a call, limit something that a call option is basically priced at fair market value and continue to play to the up side. how you reduce some of the risks of being long. i like playing the short data call option. >> for everything "options action" you can check out our website. sign up for our newsletter this has a pick tire of mike --
picture of mike on a motor bike. >> between brothers. >> there ain't no misunderstanding, hulk shares of wwe are a bona fide hit, but the chart master says beware of the body slam. we'll tell you how to cash in. plus, calling all "options action"s fans. reach into your pockets, grab your phone and tweet us at "options action. if it's nice, we'll answer it on air when "options action" returns. 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
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this wi-fi is fast. i know! i know! i know! i know! when did brian move back in? brian's back? he doesn't get my room. he's only going to be here for like a week. like a month, tops. oh boy. wi-fi fast enough for the whole family is simple, easy, awesome. in many cultures, young men would stay with their families until their 40's. 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.
joao welcome back to "options action." there's another group of stocks you know of but may not know of them quietly surging hey, dom. >> well, melissa, i'm not sure many folks outside of our cnbc circle of trust know me, but it is nice to be loved. some traders and investors have been loving the price action in brand names at least if they were long in the stocks. let's kick off a look at brand names with a beer, sam adams boston lager or ale. they're up a whopping 59% so far in 2018. if you're snapping up the vacation photos this season, shutterfly turns them into albums, post cards they have pushed that stock
higher by 80% this year. then there's a real home run like world wrestling entertainment, wwe, higher and higher thanks in part to getting top dollar for the broadcast rights up 150% in 2018. we'll cap it off with a look at watch/wallet/hand bag and that's fossil on an absolute tear up 265% just so far year to date. one thing though worth noting, melissa, 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 view to close out those bets >> thank you very much, dom chu. chart master says one of these stocks' run is done. carter, what are you looking at? >> look at wwe it's off the top row here, to put it into perspective. number one and number two best
performing stock in the s&p 500 in the past 12 months while wwe is up 207% let me show you a two, three year chart to put the names into perspective. basically plus or minus all three up 300%. you can see the actual numbers here, 300, 299, 307. the trajectory, what's key, wwe plays this huge catchup, right it's done that let's zero in on the chart itself the first look at that, it's a ten bagger for the s&p 500, right? that's what winners are all about, finding something that's the dream, beats the bench handily. so do charts back to '04. i just want to compare this current run with this current run. take the ones away, take a look
at this. what we have is how far above the 100 day moving average again, how far above and 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 even a little bit more than that one. guess what, it just got an upgrade this week. it has the news that we know including weekly tv deals. what's that? it has to maybe grow into those things i think you have these, take some profits, options to get to 2 something. >> mike, what's your trade >> you know what i'm wrestling with how is it going to grow into it? it's growing revenues mid to high single digits that's very respectable. it's growing eps mid to high numbers. it's trading almost 70 times forward earnings netflix is growing revenues at
30 to 40%. it's seen eps growth for 1 to 2% the price of options in world wrestling right now are about 30% above their average. so i think the way we want to make this play right here is to buy the august 75, 65 put spread when i was looking at those you could buy the 75 puts for 3.65 sell the 65 against it for $1. just a little bit of a quarter over the strikes or about ten bucks. this will capture earnings which they are going to report the week after july expiration, which is the reason i'm looking out to august, otherwise you have to go much farther out. i can't get my arms around the stock. a 15% short interest which is what dom might be eluding to and what might be propelling it this far. i wouldn't want to bet it's going any further. >> to carter's point, do something right here, right? the stock has had such a huge run is the answer. i actually like the stock a lot.
the quant model rankings, it's relatively cheap. >> cheap in. >> it's not cheap but relative to some of the others. i would say be long the stock but buy a put trade. the stock has had such a big move here. mike makes the point about the values being so high put spread is cheap. >> model and that model is robust just since i don't know. by comparison what is a netflix or amazon. they get a higher ranking? >> when you talk about some of those names, too, you have to be a little bit worried that the growth will continue with some of those names obviously wwe has had such a huge run up you worry a little bit with those some of these get out of whack once you reach the lofty levels. to that point, i love buying the
put point as a hedger. there are questions whether the stock can continue to move decent growth and relative to the some of the other peers, the enterprise versus sales -- >> at 7 x sales? >> yes >> i don't know. >> that's been the play on a lot of stocks this year. when you mentioned the huge growth names >> up next, got an option question for one of the traders? i know you do. send us a tweet t to @optionsaction. if it's a good one, we'll answer it later let's get a look at our cramer cam. the madman is taking the pepsi challenge discussing how to set the tone for the next earnings season that is at the top of the hour we are live from nasdaq market site much more oa coming up et 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.
(indistthat was awful.tering) 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 time to take a look back at open trade mike said shares of tesla were heading to crash. >> the stock has a very big short interest that short interest can actually create a possible level of down side performance you could spend $21 to buy one august 330 put you could then sell two of the
295 puts to get this for 10 1/2 dollars each. >> and mike was right. tesla is up nearly 12% since the trade. what are you doing with the trade right now, mike? >> i'm staying with it because we sold two puts, what's happened is essentially nothing. we need time to work with us right here the stock finishes somewhere below that 330 level this will be a 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 bit of time to pass so we can see the value of those two 295 puts continue to erode. >> what would you do >> when you look at some of the technicals on the chart it feels like it's going to hold it wait for final 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 occur, you've been around the short strike i think you have to let it work a little bit here. then decide right before earnings whether you want to
continue on. >> also last week dan said morgan stanley was gearing up for more pain ahead. >> if you look at the one-year chart, i think there's room back to the 44 level. that is the 52-week low that maybe it's buying. you can buy the july 48-44 put spread paying $1.10 for that >> shares of big bank are down 2 2% sam is not here but we've been able to catch up with him from london, england, for a special update on the show. >> hey, "options action" viewers, dan from london last week we detailed the put spread the stock was just below 48. july 44-48 put spread. that put spread is worth a little more than $1.65 for almost a 50 cent profit. at this point stay with the trade keeping an eye out towards earnings in a couple of weeks. have a good weekend. >> isn't it amazing "god save the queen" plays everywhere all
the time in london it's incredible. we'll see dan back on the desk next week. >> unmitigated 22% and this is an environment for the data trend the marketing is struggling as of late. a beta trade couldn't come to life. up next, we have the tweets and the final call from the options pits 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 does it look like i'm done?yet? shouldn't you be at work? [ mockingly ] "shouldn't you be at work?" todd. hold on. [ engine revs ] arcade game: fist pump! your real bike's all fixed. man, you guys are good!
welcome back time to take a tweet first dan asks mike why buy a debit spread on wwe. shouldn't you do a credit spread instead? >> that's a great question actually there are two reasons we did this we did put on a spread so we were trying to mitigate some of the higher implied volatility. the other is this stock is really, really moving. time now for the final call.
brian? >> pepsi earnings next week. i'm replacing stock with buying at the money weekly call. >> mike? >> put spreads wwe. >> carter? >> 98.62 close >> thank you for joining us from "options action" today looks like our time is expired i'm melissa. check out our website. meantime, don't go anywhere. "mad money" with jim cramer "mad [ female announcer ]er the following is a paid presentation for the keranique hair regrowth system, brought to you by keranique, the women's hair-growth experts. there's a problem shared by over 46 million women. it's like this taboo subject that we all want to pretend isn't really there. it's -- it's embarrassing. you know, if you don't talk about it, maybe it's not happening. [ female announcer ] women with this problem feel embarrassed, frustrated, and alone. like, even with a close girlfriend, i'm embarrassed to talk about that. [ female announcer ] the condition is female hair loss.