tv Options Action CNBC July 31, 2020 5:30pm-6:00pm EDT
it is the last friday in july already so you know what that means time for "options action." here's what's ahead. ♪ >> what global recovery? >> here we are. >> carter worth explains how the land of the rising sun could signal the sun is actually setting on any real bright spots. then -- ♪ as the song goes, it's a small world after all. >> things do not bode well. >> tony demonstrates how it could get smaller for disney plus -- even if the world right now is confined to getting
takeout and eating on the couch -- >> this is an interesting situation. >> mike thinks uber could be the way to go. it is time to risk less and make more "options action" starts right now. >> we begin tonight with breaking news. get right to julia boorstin. julia? >> james murdoch resigning from the news corp. board of directors with a letter to the board saying that his resignation is due to disagreements of content by the companies news outlets and other decisions. that's in his letter that is submitted to the board included in the s.e.c. filing notable move and speaks to the split within that murdoch family over some of the political content of news corp. >> we know, julia, already there's a family rift of james and his wife and his brother lockland over climate change
denialism by fox news and the other outlets and not a surprise with the division. >> perhaps not surprisingly james donated to the trump campaign fund and startups in the world and backing some climate change initiatives as you mentioned. >> thank you mike, comment on news corp.? >> yeah. so, you know, one of the things that news corp. is contending with isn't just the news department but obviously they have some challenges in other areas of the business including issues related to sports that are just a by-product of the preponderance of the evidence and there's a business implications and not thinking that the board of directors is weighing but advertisers get a say in this and there's news about that so i'm not sure that his resignation basically puts an end to this dispute.
other shareholders may also share the similar concerns. >> let's move on here. u.s. stocks continuing the rally as investors eye a global recovery but carter says there's a stock market that tells the truth about the world. what is it >> we'll get to a few charts in a second but here we are and today we made record low yields on the 10-year yes, lower on the plunge low of early march, as low as 31 basis points, but a record closing low and what does that say when again this week it was all the same thing, energy down on the week, materials, financials all down on the week with the same big five or ten driving the results. look at a few things and talk about japan. i have just written here global recovery i would point out and if one was looking yesterday and last night there was a complete breakdown in the topex machinery index
a collapse what is important if you look at the next slide and the japanese stock market tells the truth in quotes and that's because japan is so dependent on the world for growth right? it has no internal growth and what we're seeing and hearing from the topex machinery index is it is not all very good take a look at the next chart, a comparative chart of the s&p and the nikkei you can see the divergence. caterpillar's big competitor missed pan sonning. really not good. a few charts take a look at the ewj, the etf that tracks the nikkei and the well defined down trend line in effect for a year and every time
it's gotten up to the trend line and hit the head to the penny and in fact just a week or so ago. and so, one -- two more charts next one, this is a little tighter, up close and what we know is we have a double top meaning the ewj couldn't get above the june high. final chart i have drawn here we're hovering ominously right at the intermediate lows in effect so poor relative performance, diverging from the s&p, major trading companies in japan coming out with very bad earnings and it speaks to the question of is there a global recovery >> all right mike what's the trade off the back of that >> one of the things, we take a look at the top constituents in ewj, some well-known worldwide and easy to imagine some
negatively affected by what's going on, toyota motor, mats mitsubishi, honda. and that's the minority when you think about it and you have to think about the broader enducks here and the hazards that they might be facing and the signs to see from other companys that are in that group that reported. we take a look at the volatility on the ewj right now, typically a very low volatility index, much like the s&p was before everything that we have seen it was about 11% or 12% and then spiked of course along with the rest of the volatility in the markets globally in february and march up to about 45 and come back somewhat but it is still quite elevated right now 21%. nearly double what it was historically and the ewj is not trading at the all-time highs and it might make sense to use a put spread here. normally when carter gives a technical view i look out 60 to 90 days but here given the
weakness and rolling over i look shorter data than that out to september. the 54 -- 50 putt spread and earlier today you can spend $1.50 for the 54s. sell the other ones against it and spend about 95 cents, less than 25% between the distance of the strikes and it is less than 2% of the underlying and break even at 53.05 to the down side and not a big move is required to see it go in the money and the idea of a slightly shorter day to put spread here is if it does roll over sharply you won't necessarily see it go right to the maximum value of the spread and the more of that value you're likely to capture so i think that's probably the way to play it here a little bit shorter data than normally use on carter technical set-up but a trade to risk less than 2% for a bearish bet. >> tony, what do you think of this trade >> i quite like this trade with a number of concerns out of
japan. you have a rising number of covid-19 cases over the past few weeks and you couple that with what's been relatively soft economic numbers both from an employment perspective, sentiment and looking still particularly weak so i think this risk here are skewed to the downside especially when you couple them with carter's chart and i think mike has in my opinion the trade chart because ewj has not broken below the support level that carter pointed out so a deb it spread like this is the right to strategy to play for that potential breakout it's only risking less than 2% of the etf value with a 3 to 1 risk/reward ratio. >> all right we may have just closed out the biggest week of earnings season but far from over yet and gearing up to report next week but tony says a name on deck to lose the magic on the results
so, tony, what are you looking at >> i'm looking at disney going into earnings next week. i think that the risks are here skewed to the downside for disney next week and driven by the fact that we know that there's a significant decline from theme park revenue. we know that the media and studio division is soft and then the disney plus side and the only part of this business that is growing but the numbers for q2 not looked particularly attractive and not particularly strong on this earnings report and if you look at the chart here disney when they have reported what they announced disney plus the stock rallied up to 128 level and pretty important to be support for quite sometime before breaking below that in coronavirus and came back to retest that level as carter would say to the penny and not -- got rejected here in june
it actually printed a new low relative to the sector here today. if you couple that with the fact of relatively weak guidance over a past couple of weeks from analysts i think that you have a potential miss here for earnings next week. the options imply a pretty big move, 5.8% compared to the average of 2.8 over the last 4 quarters so options market are implying a pretty big move and the trade structure looking to use to play this is similar to mike's going out to august, a relatively short dated option and buying the 115.105 vertical put for the august 115 puts and collecting about 95 cents for the august putts and only about 2.5% of the underlying stock price and i purposely chose a short dated option because the goal to trade is binary option
of the announcement and looking to get into the trade maybe on monday and probably exit this trade by next friday. >> carter, your take on disney >> you just heard a perfect characterization of the chart, both absolute and relative i have a chart here of disney and what we know is that take a look at the picture here this is a well defined series working into the apex and that happens before news comes out and then you get a resolution. bulls like the case of breaking to the upside. i think it breaks to the downside and tony talked about relative performance disney's relative performance to the s&p not only making a 52-week low but 7-year relative lows. >> wow. >> with the covid news, what is it that's going to make it take off? i'm betting against disney with tony. >> your take on the trade? >> i like the trade and i'm definitely not bullish disney
here we talk about the relative weakness and just in terms of valuation at a $270 billion enterprise value and that number might surprise some people but they have taken on debt since this began and the valuation of the business is not as cheap as you probably think and the peak of $318 billion and of course it is trading at a lower valuation and just consider that virtually every aspect of the business is severely impacted by what's going on except for disney plus. and of course as good as that is it is not enough to make up for the other things going on here. >> check out the web side. you can sign up for our newsletter ♪ coming up, mike has a way for you to share a ride on uber. plus, calling all options action fans. reach into the pocket, grab your phone and tweet us your question@options action.
♪ ♪ ♪ ♪ welcome back if you thought the earnings train slowing down think again what if next the attractions are uber shares remain in positive territory. but instead of hitting the gas on the results crossing the wire mike says the stock might be gearing up for a break down. here's the call to action. mike, take it away >> so this is an interesting situation. probably somewhat unsurprisingly the options market implying a
move of 9% but the stock is still higher on the year this is pretty extraordinary when you consider everything going on and talk about the shutdown's impacts on a lot of businesses but that assumes that the company didn't have other issues to face ahead of this which it certainly is. big negative cash flow certainly b being one of the issues and that's a reason to be bearish. we have the litigation in the state of california with respect to employees so if you have a neutral to bearish view on the stock then you might look to put on a position but the thing to be cognizant aware of is that options prices are high and we have elevated volatility and one things to look at are ways to capitalize on it and take a neutral to bearish view. i was looking at selling a call spread specifically the august 30 1/2, 31 call spread
i could collect 40 cents to sell that going into earnings if the stock stays here that will come in some what and below that level through august i will collect that premium if it declines i collect it much more quickly if the stock does somehow come up with a positive surprise and go higher it is probably not going to go all the way to the full dollar value and not as if you're simply in the short term risking 60 to make 40 cents. it will probably stay somewhere in the neighborhood of 80 cents if it went all the way through and a situation of three things to happen. two are good and of course if it does rally it is a lot less risking than shorting the stock wound and if you bought a put you spend a lot to do that i was looking at the september 30 puts were costing $1.75, a significant portion of the stock price and need something big to happen to see it prop on a bearish bet. here you don't need to.
>> tony, what do you think of this trade >> so i think this uber earnings announcement is an interesting one because the primary focus here is going to be on uber eats and grown faster than expected but it is a much substantially smaller part of the business and a lower margin business and it is a really competitive market and the only way to do so is to acquire companies and why uber went after postmates so i'm not particularly strong here on this particular earnings cycle but i think that one of the most parts of the trade is mike's trade because he's collecting 40% of the credit spread look this. normally you're looking to collect about 33%. so the fact to collect 40% gives you a fair amount of edge and as mike said even if it goes against you you're not risking closer to 60 cents so you have a 1 to 1 ratio with a better
probability of profitability of the 50 p%. carter >> there's an expression the stock doesn't act well people understand that when the picture is not doing well or a player and that's what this is. down 3 of the past weeks, down 5 of the last 8. it's heavy this stock, two things dropped 67% on the march low an the first day of trading the best day back in 2019 and never above the ipo price. i don't like it. >> excitement about eats, though, it's a good point, mike. >> yeah. i think that is a good point but also one of the issues that's bringing up the anti-trust concerns you have this situation where everything is going on and whether it's a necessary service or probably not going to get out of the way of that and something else which is this is within of the companies that has been trying to get into autonomous vehicles but this is an expensive, a capital intensive
type of buds and facing stiff competition from quarters in that area and not clear to me with the current cash position and the negative cash flow to keep these things up, acquiring businesses, embarking on autonomous vehicles and the other businesses going on and a bad recipe and something will have to give at some point. >> all right. coming up, shares of boeinging hitting turbulence. we'll take your tweets we'll answer some questions on wereacr. a bk right after this turn on my tv and boom, it's got all my favorite shows right there. i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy.
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♪ welcome back time to take a look back at the open trades. last week they went out to paint the town green >> going back to the beginning of data 1985, sherwin versus the s&p, a six fold increase over the general market now the short, the nasdaq 100. we know these are the -- this is apple. microsoft. sherwin is even beating the nasdaq 100. >> i was looking out to september. you could buy the 6.20, 6.80 call spread and selling the 680s against it for a net price of $20 per share. >> sherwin williams jumped nearly 5% this week. mike, what are you doing >> yeah. it was a great call by carter i
have to say and worked out nicely, too, for us on the options side because it didn't run through that short strike that we have but we got the move we were looking for so i think now that we have it well in the money probably makes sense to take the profits and move on. >> what happens next with the stock, carter? >> that's right. there are two ways to approach a winner if you are there for a specific event, earnings, a specific chart set-up, we were, is it cause this point to maybe move on i think so it was a big week for sherwin and housing stocks in general. rate environment continues to favor this group over many other groups but there will be other plays. i think take the money and run. >> meantime tony said boeing could be in for post earnings turbulence. >> if you look at the relative performance to its sector it is starting to underperform here over the past few weeks so you couple the estimate revisions with the underpoirps we are
seeing against the sector and typically the things i look for for a potential miss here on earnings i will go out to the august 28th weekly options and selling the 180, 195 call spread i'm collecting about $14.50 and paying about $9.10 for the 195s. >> boeing down 8% since that trade. what do you do now >> so if you sold this call spread on monday you collect roughly $5 in credits. earlier today it was trading $1.65 so you would have collected about 65% of the max gain a rule of thumb is usually once you collect more than 50% of the max gain and you have more than three weeks left to go it is time to take profits so i think as of earlier today you would have collected 65% of the gains, take the profits there's further downside for boeing in the airlines so i would roll the profits potentially into buying some
puts. >> what do you think about that, mike >> yeah. i agree. the weakness i think is likely to continue for them and does make sense when you have the right trade on to take the profits in a credit spread like this because there's not that much left in it and obviously to press a bearish bet because the thesis is intact what tony is suggesting makes a great deal of >>nens > xt, we have your tweets and the final call i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪
welcome back time for a tweet one viewer asks what is the best way to manage in the money options when you're the seller, for example, yesterday i sold the apple 405 calls that expire today far credit the rest is history and it was a tough loss how would you have handled this? mike, some advice? >> yeah. so two quick things about this and i think both important selling naked options exposes you to unlimited risk. in this instance you only had one day to expiration and nothing to do but take the pain and move on and know next time. >> ouch. good advice though carter worth >> i don't like japan, black rock's i-shares etfs and ewj, sellers. >> tony? >> disney, lost its magic this
quarter. buy a put vertical spread going into earnings. >> mike? >> yeah. taking a look at carter's ewj thesis i agree looks like trouble and best way to play that is puts spreads looking at september. >> that does it for us ♪ ♪ good evening i'm lesslie picker this is a cnbc "summer school. big news from our favorite stocks amazon, apple and facebook if you're questioning whether stock trading is back, look no further. left for dead kodak. traders piling in and out after news the government was awarding the old e