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tv   Options Action  CNBC  December 8, 2018 6:00am-6:31am EST

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>> hey there after what has been another wild week for the markets, the guys here getting ready behind me in the meantime, this is what's coming up on the show. >> stocks are getting crushed, and as investors run for cover, dan nathan says even the so-called safety sectors are dangerous. he will give us the trade. plus -- >> it's a bird it's a plane >> it's just tesla taking off as the rest of the market crumbles. if you missed a rally, there's a way to get it in and retailers getting wrecked
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ahead of the holidays. >> how horrible our christmas will be. >> that's exactly what carter worth says, and he has the charts to prove it it's time to risk less and make more the action begins now. >> and we start with the markets as the sell-off went from bad to worse this week. the s&p 500 falling nearly 5% straight back to the october lows now tracking for its worst quarter in seven years as the broader markets plunged, investors are running for coverage utilities, it reets, staples are all higher let's get in the money right now, and you are looking at the utilities etf. >> today was trading at a new 52-week high up about 20% from the 52-week lows made back in february one of the things that we have a one year chart, it really was tracking the performance of the s&p for most of the year, and there's been a bit of a divergence over the last couple of months. you see that orange line where
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it's gone up into the right. you see what the s&p has done. it's gone down into -- it's gone down into the right, and to me that just doesn't make a whole lot of sengs i get the notion of going to safety when you look at the -- they're getting expensive utility stocks trading above market multiples i just don't get it. if you go back and look at a 20-year chart and you look at the relative outperformance for a little bit in the utility stocks, in the xlu, into the past market corrections or market crashes, ultimately it follows suit not too long after either. one of the reasons i was looking at the xlu is that there's kind of a heads you win, tails you win sort of situation in my opinion. if we stay volatile and let's say into the new year, the s&p goes down much further, i think utility stocks will follow suit. if the s&p were able to find its footing and start to make a march back towards its prior highs at some point in the next couple of months, i think utilities get sold we're at that in between period
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where investors don't know what to do. they're flocking to that safety. lastly, look at that five-year chart. i'll let carter speak to all the charts. >> it's $1 for that and one for the 55 puts and selling more than 49 puts at 25 cents there's four months for this thing to play out, and i think we'll have a lot of ways to win. >> this thing pays five to one, and that's one thing you should pay attention to the other thing is that the xlu, much like its constituent stocks
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pays a handsome dif depd, and it's going to go for the march expiration date. >> how far out of the money is that only about 45 weren't e cents. when you this i about how many xlu would need to deline for this to be profitable, if you held it to expiration, and i don't think you'll need to, but i think you're going to get it before then, it really isn't all that far i like this trade a lot. >> what this is this is is just money can get over excited about big fang names and then decide if it's going to reverse it's now and has been happening for a while getting over excited about staples utility health care the thing is, though, you need a market to do well for this on a relative basis to where they win. even though when you cited that, until it drew down as much as the market during the 2000, 2002
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sell-off, and then -- they do outperform on a relative basis until the very end i mean, i like this better if the market somehow comes to life if the market is going to sell off, utilities almost definition will sell off quite less >> the relative outperformance is definitely an issue timing that if you go back and look at that 20-year chart is a hard one to do that's why looking out to march expiration it makes this things -- you can have this back down and have more than a double, and you may take that trade. i mean, the point is the risk-reward sets up really well. i think the chance of run-away break-out above that prior high is not particularly great right now. the s&p is down less than 20% on the yoo year we're in correction territory, but if we go down 10% in january, everything is going with it. >> this will go down >> yes >> now to retail's nightmare before christmas the xrt retail etf is down more
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than 15% in just the last three months nearly every single stock in the group is sitting in a correction or worse down more than 10% off their respective highs the chart master here says it's only going to get uglier carter, why don't you head over right now. >> look, we know that consumers have been sort of a myth for a long time. the sector was being propped up by amazon, home depot, and other high flyers. 1riz securities and businesses are basically in trouble there are others that have held up well. we're going to look at costco at the end of this story here it's about 90 plus stocks. it has everything from amazon to home depot, and lululemon and so forth. it's a well defined head and shoulders. that speaks for itself if i were to put the lines more than forward, and what we also know is that it's come down to -- i mean, look at this right to a trend line.
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if i clear those out, watch what it also is you're right back to these prior lows, which is also support until it's not i think that is what we're setting up for we're going to actually break the trend line and break below these well defined 52-week lows. let's look at now costco now, compare costco to an etf is maybe not the best or fairest, and costco is a staple they make most of their money by selling fruits and vegetables, so to speak. this divergence is starting to become interesting because ultimately, costco is still the retailer, and they do have to produce christmas results and so forth. i think this is the opportunity. costco has held up too well. i think it ultimately will break down costco, a few ways to draw the lines. you can draw it this way we have a well defined break in
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trend. what's so telling, right, is that when you do adhere to a trend line beautifully and perfectly and then finally you notice when you get back to the under belly line, that's where it failed. that's deadly. to recover back only get your head and then fail at that line is not what you want to see. that's bad action. >> all right one or two more charts here's another way to draw the lines. now, some people talk about heads and shoulders, cup and handles. there are diamonds, pennants, these things that have to happen what they represent is consolidation after a big move this big primary drop and then you measure the width of the diamond and it often gives you a resolution or a measured move. that implies as much as 10% lower. i think you get out of costco if you are long >> is this worse than the death cross? diamond of death >> diamond of death.
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i don't know, but -- know, those things have their implications when something has dropped aggressively, and then has a -- people making a huge bet that it's going to do well on its number or plunge usually you get resolve in the direction of the primary move. a measured move, how far could it go, is done by taking, again, from the top to the bottom of the consolidation range. >> okay. mike, how do you trade this diamond of death >> the diamond ofdeath is the first time i've heard of it. i don't like the sound of it, i have to say. here's two things i would point out about costco number one, when you have as much volatility as we've seen recently options prices rise the opgs on costco are relatively expensive 25% implied volatility well above average. the other thing that's expensive is the stock itself. it's creating about 28 times forward earnings that's well above its own historical averages. it's very tough to press shorts in circumstances like this dan just is looking to short something that is basically trading at its peak.
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after we have seen nearly 5% declean on the week, i have a hard time pressing shorts, but i don't mind selling overpriced options. i think the way you can do this, i was looking at january, the 230, 240 call spread e spread, you could sell that for $4 .10 sell the 230 call for $7 .45 and buy the 240 calls against it to hedge the up side. you collect $4 .10 that's more than 40% of the distance between the strikes if the stock sits where it is right now, youare going to collect that premium if it rises slightly, you are still going to get it. the worst thing that can happen to you is that the stock rallies all the way up to that higher strike, and you hold that all the way to expiration, which you would be unlikely to do because presumably to get that, we have new news about the market. you actually sht are not really even making that 60-40 trade-off. you are making a 50-50 trade-off, and you are already having it work in your favor that's the way you can basically bake a somewhat neutral bearish bet. >> i think it's really important to differentiate between what carter said he thinks is going
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to break the diamond of death and go down 10%. i think it's really also important to understand what the news is. why are options prices elevated. they just announced november same-store sales that beat expectations they're also reporting earnings on december 13th there's a lot of uncertainty how that's going to go here. you know, mike's trade is really interesting. it's obviously very near the money. if it is below here on december expiration, mike is going to collect that $4 and kmang. if it's up $10, if it's up 3%, 3.5%, he is going to lose six. to me it's not exactly commensurate with the bearish call that you are making, but it is a good options trade because you like to sell >> this is a little like utilities. it's very defensive security in fact, you look at the performance at s&p, and it's making new all-time highs, even as it's been trending sideways it is a place where money and things get really -- >> i mean, and a lot of it does. i mean, we seem to find ourselves at costco too often
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for citibank this is part of the holiday indicator. lulu has a big showing up on our bills, and costco keeps. you know precisely what i'm talking about if you have been there and tried to find a parking spot while you're there, you can sign up for our newsletter. here's what's coming up next >> zoom zoom >> tesla shares are racing higher they could soon reach unchartered territory, according to mike. >> plus, calling all opgs action pass grab your phone and tweet us your question at options action. we'll answer it on air if it's nice 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?
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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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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. >> tesla shares are surging. the stock is up nearly 40% in the last three months. it's trading right back to the funding secured level. phil lebeau is in chicago to break down what is behind this rally. phil >> melissa, one interesting note about this rally, as it's moved higher, 359.88 it's that price at death sentence e financing, convertible bonds, that's when the bond holders, when they come due in march, they can convert
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that or tesla can say, look, you can have securities instead of cash it's below that. it's a cash payment. clearly, this would help tesla in terms of conserving cash. one other piece of information regarding tesla. actually, two. the first one being this sunday. you do not want to miss "60 minutes. that's when there's a profile and interview with elan musk in which he explores a number of topics the most interesting that we've heard so far is his pension for social media here's his take. >> there are people who say the company cannot survive with you. >> that's hilarious. >> they say it because of the way you acted over the summer. >> yeah. >> doing things that seemed impulsive, unceo-ish >> well, first of all, i am impulsive. >> he goes on to take about the
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fact that he believes twitter is a war zone, and that if you are in the arena, let's go that's yes uses twitter to convey his thoughts on a number of topics. jeffreys upgraded the stock today to a buy price target $450. it gave the stock a boost today. now it's trading, what, just under $358 $359.88. you'll get a lot of attention as we head towards the debt payment maturity coming up in march. melissa, back to you >> phil, thank you phil lebeau. well if you missed the tesla rally, relax mike says the stock is heading even higher. he has the call to action. >> we're actually going to talk about our call and whether the stock could go higher or lower i think we are sort of -- that's still a questionable situation one thing was the convertible bonds. it's astonishing how the stock seems to hold in when it gets
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around this $360 level, which is also where those happen to convert. the 920 million dollars. as a percent pictures, they had about 2.9 billion in cash. they had continuous cash -- free cash flow problems up until this last quarter, and supposedly this coming one. $400 million is what they're expecting. the other thing is what can support a stock that just doesn't seem to give up the ghost when everything else does. a really high short interest i mean, there tbz to be very high short interest in the stock. some of these shorts are going to be in a very bad position if they're going to be margined out on longs that have been dropping, that puts them in even tougher spots. finally, i mean, just out of interest, out of humor, whatever, we're looking at this 420 level, that was the level that he had referenced for reasons that might have involved smoking joints, who rknows? that's what he talked about when he talked about taking them private. i think it's highly unlikely that that jeffries target of 450 is where it's going to get i would imagine that it will get to that level and is probably going to run into resistance
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when i was looking at this today, actually, it was significantly higher on the back of that price target raise it was probably trading right around 370 at that time. you are spenting a little over $16. this spread ended up much cheaper because the stock ended up lower than the level where you was taking a look at this. do you think the shorts could get squees e squeezed out or the stock is going to hold above that 360 level when the converts come due in march? if you do and you are inclined to make it, this is the way to do it. i mean, i kind of feel like it's going to be a binary situation either they pull the level and it could actually go higher or they fail, and they're going to have to come up with the $900 million, and it could go lower >> so what do you think, dan >> i think targeting that level is an interesting psychological
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level. targeting the shorts into, you know, the -- i just think march is a very, very long time. the stock has been extremely range-bound, although it's been very volatile. it's been a large range. we know that there's been some volatility on their deliveries and so if model free were to be less than expected when we get news in january, the stock could be down back 10%, 15015% >> as a technical setup, though, it's about as precise as it can be it's very well defined tops. over the past 24 months. repeatedly pushing up against the 385, 390, and i would say it has as good a chance as any to blank out. it also has, of course, short interest, which it comes in accelerants the further you go to more difficult it is for someone who is if in a bad position >> michael, last word. >> dan just referenced the model three, and one of the things we did hear recently was that they may have actually gotten a lot
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of those problems sorted out, and maybe we'll start seeing them hit some of the targets that elan had previously identified if we're going to hit those targets and interview that's coming up that we're going to see on sunday is well received, it wouldn't surprise me to see the shorts get squeezed this coming week and month. >> thanks a lot. bank stocks getting slammed on 7% this week crush crashing to its lowest level. plus, got a question send us a tweet. we'll try to answer it later in the show we are live at nasdaq and times square more options action coming up. what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees.
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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? >> welcome back. time to take a look back at some of our open trades shares much citi were going from bad to worse >> citibank is the one i want to focus on here. the thing just acts down right horrible $60 where it just bounced off of seems like an important level. it goes through that, and that's in early 2019. you'll have a stock probably in the low 50s. the stock was trading today on a 64.75. you could buy the december 64.60 put spread >> and it was a great call
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citi group getting slammed with the rest of the financials this week down more than 9% since the time of the trade what are you doing here? >> it's not just this week i think we've been consistent on this it's been all year the under performance and then just the total crop-out is troubling in the last few months this was a short data trade. it was paid one more a $4 wide it could be sold right now through the low end for $3 i think you can take the profit and move on. i'm going to be very consistent here the highs are in for all of these banks for a very long time, and i think you continue to sell rallies. >> yeah. i mean, this was definitely a great call, and i am inclined to agree. i don't see how they could get back to those prior highs, and would we're well off them now for sure they would have to go pretty far pretty fast to even come close >> given also an ethof further market weakness, which my odds have been, this is the trade to the down side. >> they will trade as a group no motor what the bulls will say some stories are idiocincratic.
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>> that's bad, and there will be a regional bank or two whose loans are fine and will hold up, but big banks, big prop poenent of the kre will be trading down lower together >> up next, your tweets and the final call i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪
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what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those.
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i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ skbroor welcome back jim has agreed to -- whatever happened to mike's spy put spread from several weeks ago? do we hang on or liquidate the position what do you tell @fun dude 777? >> that will depend on the coming week. the highest strike was 2 of 0. we were looking at this last time we were testing these levels in the s&p, how do you buy protection this is your protection if you still hold it against your stocks you can hang on to it. >> time for the final call carter >> retail, not good.
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i would be short xrt and costco while defensive. i would bet against it going into earnings. >> still call spreads costco >> retail is horrible, but the xlu is ready for a pullback. >> see you back here friday at 5:30 don't go anywhere. "mad money" with jim cramer starts right now - [voiceover] the following is a paid presentation introducing the new dermawand pro, brought to you by ictv brands. introducing the new dermawand pro, 50% more powerful than regular dermawand for even more exciting results. also, dermawand pro is thinner, lighter and with soft grips, easier to hold and use. and anytime during this show you can call to upgrade to the new dermawand pro. now here's lisa. - hi i'm lisa varga, i'm 40 years old. i've never had cosmetic surgery and i'm not afraid of high definition cameras.


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