tv Options Action CNBC December 3, 2021 5:30pm-6:00pm EST
brakes on tesla. plus -- we're trading the tech rack professor ko up with a big update on how you can use options to protect your portfolio. and later, tony is breaking out his grinch suit. why he sees a big down side ahead for one retailer this holiday season it's time to risk less and make more options action starts right now. >> all right there it is. your agenda. we kick things off with a major sell-off in technology, specifically on wall street. the nasdaq plummeting nearly 2%, closing well off the lows of the session but still, finishing roughly 7% below the all time high as tech continues to tumble, the chart master says it is time to slam the brakes on one high flying name. carter braxton worth kicking it off. we teased it but you're looking
at tesla why? >> let's look at it. it is a question of, it is a beta trade it is now down 20. three simple charts. what do we know? we know that tesla gapped up on those news days that hurts buy cars, sell cars to hertz it ended going up 30, 40%. you can see the wedge is drawn look at the second three charts so often after breaking out the well defined top at a common level, you will check back to it if you simply take the highs from which the stop-gapped up, that gets us back to the 9, 1011 that's about a 10% from here the final chart of three is all the lines together so we're down 19% from the peak. that would make sense for such a high flyer it has some beta
the question is, do we fill that gap from that euphoric knee-jerk reaction on october 25th on the hertz news my hunch is yes. if you fill that gap, buy some tesla. if you have tesla now, sell it >> all right cbw, it closed down 6.5% call it 10.15. it is in the extended trade now. if it really is a 9-10 target, what exactly is the trade on tesla. >> it depends how much capital someone wants to allocate. speaking of tesla, when we talk about stocks we'll have a valuation conversation that follows carter's technical view. i would point out that he had two very good bullish call on tesla back when it was sub 800
we followed along with that. we were not making the valuation case it is a remarkable company doing regardable things. if you start seeing the stocks exhibit some weakness, and we certainly have, there's reason to believe that could be an affliction that would affect tesla as well. anybody following today's moves in stocks was probably also following what they were seeing in the vix and it closed above 30 despite the s&p was only down fractionally that exhibits how much anxiety is being exhibited in the options market right now and that is magnified many times when you look at tesla options in a situation like this, we want to take advantage of selling options. in this case we'll do the exact opposite of the trade that we did when we were making bullish calls. we'll sell one this time
i was looking at the january, 1,100 call spread. even though this stock $1,000 a share, you can find smaller ways to make appearish bets by selling the calls by about $84 a page and you'll collect about $7 that's about 33% of the distance relative to where it traded, it would need to see at least 9% and then losses would be capped, 20 less than the premium collected. so 13. i think that's the way that you can play the stock's weakness, give yourself a little buffer to the upside it seems likely between now and january, given the way the market is behaving >> so the maximum made if it
moves lower. you've capped it off is that the way you would be playing that tesla side of things >> yeah. i think mike has the right trade. to go back to carter's chart here what is interesting about the flag formation that carter showed you, would it imply further upside what is interesting about this, we've seen declining value of that gap level that means we're likely to fill that, the 10% down sigh. if you look at the business, tesla is by far one of the strongest as far as car manufacturer, despite the chip shortages in october i think it is difficult to wrap your head around the fact that this stock is trading at nearly 100 times 2023 earnings.
that's an incredible valuation so a 10% decline is more than reasonable if you look at the trade structure, he's collecting it. almost 35% of them yet this call spread is 8% out of the money we're collecting only about 20, 25% and that's because of the elevated volatility before the 59% in volatility percentile >> there is such a magnet effect of tesla, right? if it's not one of the, it is the most trafficked single name in terms of the option market. so tesla drawing in some of that kind of interest and bidding up of those implied volatility numbers as well. so that's the tesla side of things we should note that retail stocks are getting hit up the ticker srt, call about it 1
3/4. it is now down nearly 10% over the course of the last month with the holidays very fast approaching, one mall based retailer may leave investors out in the cold shivering. tony which retailer is it that will be putting coal in investors' stockings? >> yeah. this retailer has been in business for 120 years nordstrom. unfortunately, i think this is a retailer that is heading in the same direction as another old retailer that has gone bankrupt. sears. if we look at the chart. it is around the $25 mark. we recently broke below that level. this suggests that there's further down side going into the holidays it gapped from $13 to $15. a pretty big turn-around for a
stock that peaked in 2014. that leaves a pretty big gap similar to the tesla where we have an unfilled gap it is difficult, about ten times cash position. nearly $3 billion in debt. what that is doing is squeezing the operating margins down to 2, 3% i think it is hard to justify the 28 times next year's earnings that it is using. so taking advantage of what i think is some potential. i'm paying about $2 for the january 20 and then collecting about 38 cents to sell the january 15 puts. i'm paying about $1.60 for this put vertical spread.
that will, and down to that 15 gap fill level or lower by the january date >> make, i wonder, this is a similar time of move that you are making with tesla. what dwouth that the payout ratio? what is your take on tony's trade? >> yeah. it's interesting that you mention that there's a relationship between selling call spreads and buying put spreads. they're equivalent to each other. out of the three things that can happen, you need the stock to move we would say that two are bad and one good the difference is that the payoff changes in this case, paying off 2-1 normally when i'm trying to buy put spreads, it is more like
3-1. but he referenced why they would be more expensive in a name like n nordstrom's. they've always done a very, very good job on inventory management through a lot of crises that we've seen one of the few retailers that we can look at ten years and see they've made some growing. that said, with the weak, we can see why they don't like the stock right now and it is pretty unit versally disliked by the analysts >> i'm just looking at one for the last 15 to 20 years of nordstrom. you can see there is a very cyclical type name of this maybe it is not destined for failure but we'll see what happens. for everything that happens
option action here's what's coming up next still to come. short sellers taking aim at draft kings. how can you gamble on the name using options? mike lays out his call to action reach into your pocket, grab esur phone and tweet us your qutions at options answer. trading isn't just a hobby. it's your future. so you don't lose sight of the big picture, even when you're focused on what's happening right now. and thinkorswim trading™ is right there with you. to help you become a smarter investor. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform. because we take trading as seriously as you do.
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the stock falling nearly 10% as big drama breaks out over the future of this sports betting stock. our own contessa brewer is on the front lines of that fight and joins us with the details. >> i'm just watching it like tennis match, back and forth, back and forth jim reveals his short position in draft kings trash talks the amount of money spent on marketing jason robins said chanos forgot how to do math >> it is less than half that i'm not sure what he's doing other than, jim is a smart guy i'm sure he knows better and we all have to get up in the morning and look in the mirror and many people say anything to make a buck. we're not really interested in people selling short we're focused on the people who are elievers >> chanos responded, pulling out the third quarter for draft kings. his premise rests on the third quarter results.
and the third quarter is the weakest seasonally with a margin of just 30%. if you run chanos' hypothetical scenario, four time the revenue, then you use the annualized margin of 40%, there you come up with an operating income of more than 300 million again, this is drawn out version of what would happen if they made rev new four times what it currently is but of course, chanos is standing by his map. and after the last segment he tweeted that draft kings has lost 1.48 billion in the last month. jason robins is also standing by his numbers. he said draft kings will be profitable in each state where it operates two to three years after it launches in that state and it alreadyhappening in new jersey so it looks like this would be a virtue >> i sue at the back and forth
volleying that you referenced. contessa, thank you very much. >> if you share jim chanelos' view, the negative one on draft kings, you could go ahead and short the stock here how to in the call to action >> first of all, i have to give a lot of credit to jim chanos. he's one of the most well known short sellers. and selling stock short over the long term is a challenging thing to do. and a couple of reasons. number one, stocks generally rise so you're basically fighting the tide the other thing is when you short stocks, the potential games are final i'd. that means the most you can make is whatever you've collected maybe it happens to go to zero and you basically collect all of what you sold it for that's very unlikely on the other hand, your chances
are infinite and the other thing is that the market can remain irrational longer than a lot of short sellers can remain solvent that is to say, missed pricing can resist a long time so a couple things to think about. first, is yours a short term catalyst you're thinking of? also, how high are options premiums often times style options premiums are quite high. and what are acceptable risk and reward tradeoffs so taking a look at draft kings, if you were thinking this is a stock that could see further babiness, i was taking a look at the january, may calendar. though may options, the may 25 puts cost about $3.65 a
contract that's a lot when you consider that the stock itself is less than $30 a share but also, it is expensive. you could sell the january puts for $1.65. this would make the most money if the stock drifted down by the january expiration so this is a way that you can take advantage of the fact those very high premium options will decay more rapidly to the stemt that it lingers within the profitable range, you can go ahead and sell another put when the january 1 expires this is a way you are targeting. if it overshoots the, one of the reason we use diagonals. but i think a move before 20 is unlikely >> so there's the range. so carter, i wonder what your take is on draft kings i'm looking at it.
i'm not a technician by trade but it feels as though these are some levels where some people could you argue want to take that leap in and maybe buy it. some others would say the momentum is to the down side here what is your take on the draft kings chart? >> well, doing that, it characterizes catching the falling knife. i would be inclined not to but let's move through some charts quickly. no annotations or judgments by me we know it is cascading. the importance of the 27.50 level. keep that in mind and look at the third chart. this wide ranging channel, the lower band is also 27.50 next chart is it a massive chart? of course it is. but that 27.50 level is key. look at a table to put this in context. does it have anything to do with draft kings? of course it doesn't penn is the same percent
decline. zoom, zi zillionow >> all right okay they're not even in the same industry for some of them. they are very characteristically moving in similar fashions i wonder, what is the thought here you saw the charts that carter laid out and you saw what he might have done with his particular trade what would you do here >> i think what we're seeing is, the head and shoulders pattern that krcarter showed you, i thik as reasonable metric the one everybody is paying attention on is revenue growth when you have companies like the growing, losses faster than revenue growth, that's a concern for me when you look at make's trade structure, he's collecting 50% of the premium he's paying for
those may options in those january options. that's a large amount of premium to collect in about 45 days. with the calendar spread, you have some losses to the down side and this has to go down about 28% before that happens. >> so an interesting move. thanks we are laying out some of the protection plays as technology tanks. our traders are using tiopons to limit that damage. check it out we're back after this.
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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 another brutal sell-off in technology today the nasdaq plunging nearly 2%. that's off session lows. if you caught the show two weeks ago, mike said it was a good time to take some protection >> when you're hedging, it is a form of insurance on your portfolio. you'll spent some premium to mitigate your down side risk if you spent the premium and use
the premium, chances are, things are generally good i was looking at january at the 380 put spread when i was lack at it today, would you spend a little over premium the buy that spread which is about 1 quarter% to that current level of qqq if you annualize it, that would be 6% in terms of premium spending >> all right that's down nearly 2% since that trade. what do you do now >> obviously, this put spread is up a bit here's the thing we didn't buy it as protection for the qs to go to it, we bought it so it would go through. i think you can keep and it sleep at night and you'll enjoy the holidays if you don't, believe it or not, it's not overwhelmingly still to
buy this as a bit of protection if you need some >> insurance for sure. all right. up next. the final call keep it here it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪
thanks for watching options action have a my mission is simple, to make you money i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you find it. "mad money" starts now >> hey, i'm cramer, welcome to "mad money." welcome to cramerica other people make friends, just trying to make you some money. my job is to educate and teach and call me at 800-743-cnbc. tweet me @jim cramer you never want to see a high profile tech name yet nearly cut