Transcripts For CNBC Options Action 20161002

What are some of the names you can still buy . Lets get in the money and find out. And dan, surprisingly, has become a bit of an optimist as of late. I think it has something to do with the callender and technology. When you think about some of the m a. And i know some of you have been bullish on semis. Intelligence division, that was the news this week. Theres a lot of stuff that people have been stuck on this pc and smartphone supply chain are thinking about the next 20 year. Its kind of repositions itself. Tech is not just about mobile hand sets and pcs. You have the ceo of volvo coming out and saying he expects to have selfdriving cars in five years. You have a secular shift going on in the economy. Even if the economy is weak, this is one of the areas were bound to see, obviously, a lot of things happening. Theres plenty of room, i think. And theyre definitely yield chasers. Some of the old names. Getting long and really big tech in general, im not sure thats what youre saying. The charts still look good, carter . Heres the issue. Its been for a while, its the biggest weighting in the market, 21 , 22 . To some extent, if one is thinking that there is more m a and more consolidation, how many of that is priced in now . Not all of them are going to consolidate. Theres a greater pool in that. What about this notion that microso microsoft, y 2 k, 57. 5 right now. The thing is going to trade at 60 at some point. When they october on october 20th. The stock is going to break out and make an all time new high. Im not bullish on microsoft. Theyre trading 20 times. Thats like a tenyear high. It has underperformed the broad market. Its only up 4 versus the nasdaq. Its up 6 . Id rather take the shot targeting the earnings. Its going to make a bullet for the 60, but i would want to do it with defined risk. If i was long stock i might c consider the detail. Heres the trade. Very simply. You look out to october expiration. The companies are going to report a day before that. The october 57. 5 calls are offered at 1. 45. 2. 3 of the underlying stock price. The stock has moved 7 . Thats a pretty reasonable, definedrisk way to play. The next three weeks and an earnings event, if im wrong, im wrong. Im not willing to make a bearish bet. You can keep it really simple and just own premium. In this case, just owning calls or the puts, especially in net of what happened this week is really the easiest way and least expensive way. If theres any guidance as who how the earnings might come out, one of the best things you can look at is the prior quarter. There was that gap. You are playing for this fatherly tight range. There are new businesses, lowermargin businesses. You dont like the linked in deal. You have to differentiate your product. The Cloud Services are going to have to get people basically built onto their platform. Were not going to know anything about linked in. Obviously, we want to know the cloud revenues. Salesforce. Com, one of their major competitors right now issued billings below expectations. The Enterprise Software could be soft. Investors may be looking beyond it. You have microsoft at 20, a massive bucket of cash, momentum to their back. This this is a good, defined wa. And this is a chart for you. I think the stock has really good support, 56, 57. Theres risk down to 54. But if you can hold here and they have good news. The stocks go to 60. There was not a moving thats a moving average. Thats not moving. The reality is that youre playing for this tight range to be resolved up not down. If it goes that way the last quarter, you will get that, presumptively. Lets november on from tech to financials. It was a brutal week for wells fargo. Take a listen. If somebody walked into wells fargo tomorrow and robbed your bank, or defrauded your bank, and then after they are caught, they say, well, im sorry. Im going to take full responsibility. Would you allow the person just to walk out after robbing your bank because he is now sorry that he robbed the bank after he took the money already . I have come to the conclusion that wells fargo should be broken up. Its too big to manage. Mr. Chairman, im going to be talking to you and the members of this committee hoshoed their outrage today. Im who having forward today to break up wells fargo bank. Thats an outrageous thing to say. Talking outside your court of the chart master says the bank might be so bad it is actually good. This is the antithesis, hes saying something down so far, maybe you can catch a firm bounce. Lets see some charts and see if we can figure it out. Buying in weakness in principle is the worst thing you can do. Fossil watch, people arent buying watches. Theres something wrong, their shadow accounts. But heres the thing that appeals to my eye. You have the bank index itself of which wells fargo is a big piece. And this spread is starting to become optically something that appeals to me. I want to show you on a twoyear basis. Tight. Keep in mind, if you didnt have the orange line doing this, the blue line would actually be higher. Theres auto correlation. So that appeals to me. I think perhaps, perhaps, its so bad its good. Everyone knows the news. Look what we just heard from those esteemed congress men and women. This is the same chart as this. These are the two lines absolute. And then this is held as a concept. This is the bank index as though it didnt move and showing you the relative performance. Youre making shocking fiveyear relative lows. And literally, its a free fall. So it was outperforming and then now, okay, heres the chart. Five years, weve got ten, not the bank index but the market. So heres wells, theres the s p. That optics is starting to say, you know what . I want to play for mean reversion. That perhaps its so bad its good. Heres your daily chart, and what i that i you have lehere i the real prospects of a triple bottom. And perhaps the news is based on an intermediate basis. Wells far sgoe go is relativ inexpensive. Demanding on how you look at it with j. P. Morgan. Compared to those banks, they are a are the only ones who have seen positive relfvenuerevenues. All the other big banks have seen declines of like amounts. If you are going to try to do the risky thing, which is to reach out and try to catch the falling knife, there are fundamental reasons why you might want to do it here. How would you do it . Very simply. We already articulated, options are cheap, keep it simple. Im just looking to december, 1. 45. So youre spending a relatively small amount, relative to the price of the stock. Though is this is a situation where the stock price could continue to decline, and if you dont believe congresswoman waters that it would be broken up, she has no authority to do that, by the way. We all love carters work, and the chart work was very convincing, carter. It was . In todays session where financials were up so sharply, wells fargo. That made the opening remarks that buying weak naus ness, it fourletter word. Oh, its cheap, i love it, at 7, i love it at 2. Its a rich history of cheap stocks that got cheaper. First of all, im sorry to say this. I disagree with your charting. I think the stocks going to be at 40 before its going to be at 48. There are three bottoms. The question is, does it break or does it to my goto chartist when youre not around, a new 52week low, below the last two lows. So this one headline away from thats whole point. Thats why im calling at that. Stump gets stumped when he goes to the hill. Today and then look what happened to the stock, nothing. Know the rules to break the rules. The rules are, dont buy weak stocks, but i know that. Im going to break the rules. The whole trade if youre going to do that, youre going to break rules. I wasnt counting the table on microsoft, but the idea of buying a call for 2. 3 of the underlying stock price makes a sense. Premiums are high relative to other names in the banking sector. If the stock sells off a little bit, you want to sell some premium and you could sell it at a discount to where all the banks are. While you are at options action, check out our newsletter. In the meantime, heres whats coming up. Have we got the trade for you . We will show you how to make money if stocks go up or down. And heres what traders think could happen to one dow stock. Well tell you what it is and how you can profit when options action returns. Im here at the Td Ameritrade trader offices. Options action sponsored by think or swim by Td Ameritrade. Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Welcome back to options action. Its been a wild week for the markets, we dont know where stocks are heading next, we have a call of action for a volatile market. Lets look at the spy and what the Options Market as it relates to movement. You hear us talk about the implied move all the time. And i just want to talk about what were doing a little bit. Were looking at the at the money is straddle. What is an at the money straddle. This will help you understand how we think about these. The straddle is the call people yum plus the put premium of an underlying security in the same expiration of the same strike. You put it together. And if its at the money, that is basically the amount of money that somebodys willing to bet that that stock could move up or down during that time period between that and expiration. Okay, why would you seussuse a sfradle. Lets say you wanted to buy movement. Maybe you had conviction that there was going to be volatility, but you werent sure on direction, that way if were you long a call, at the money, if the underlying were to go up a lot you should be able to make money to clear the premium that you paid for or if it were to go down in the same capacity. You would generally try to do the this when options prices are cheap. When youre buying expensive vol, i just want to go over an example here in the s. P. Y. Today when it was trading at 2. 17, the october was 2. 50. Each one costs about 2. 25. And whats really important, when you think about this, is that that 5 in premium, if were you to buy the implied move in the s p a hundred through the. Spy options, we know its been consolidating a little bit. If you were to buy the 2. 17 straddle in october, you would need that move at 2. 2. But look where 2. 12 is. One of the important things is the main point, its a real tough way to make money, but if you are convicted on it, then you buy the call or you buy the put. Because then those are relatively acheap and its much easier to make money in that capacity, but if you get the direction wrong youre out of luck. We have had two trades, and its buying premium. When do you decide going the simple route is better than doing a straddle. A straddle is still a relatively simple route. Buying a foot that its i think it could. Earning season is going to kick off before october expiration. Alcoas usually the unofficial start of the earnings season. Thats going to happen before the expiration of that straddle. October is historically a fairly volatile month. You put those things together, add in maybe an election, and suddenly, you have a situation where its hard to imagine that the market is going to be that range. Heres the thing, though, folks, most of you probably already own stocks. Youre already making the upside bet. A less expensive way to play would be to just buy that put. Now youve got your straddle on. So carter, what do you see in the charts for the s p . Its the same thing. We had that very tight range. 43 cents was not moving more than 1 . And then it was resolved down. We came in from labor day, straight down. Now were just back to the point after which we collapsed. I think we stay in the range. But regardless of that, it really is about asymmetry. Theres so much more down side risk in my opinion than there is upside. And how much are you spending . 1 . Thats kradiest thing. 1 . I start looking at the straddle. What is the market implying over this period of time . This was kind of a volatile week. We had election stuff with the debate. Deutsche bank and earnings news. And were going to have all of that again in october. If you are convicted, spy options holook really cheap. Its been the rocky balboa, i dont know, but another hard blow, maybe it doesnt stay up there. Up next, theres one sector that soared this week and took everyone by surprise. Well tell you what it is and why there could be more room to run. More options action ahead. Options action sponsored by think or swim by Td Ameritrade. Show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Welcome back do options action. Time for an upside call. Dan talked about nike last week ahead of its earnings report, take a listen. I just want to look out to a put spread in october expiration. I want to keep it really simple where the stock was trading 55. 5 today. Paying 1. 25, that is your max risk. Pretty good call, dan. Nike shares took a dive this week, will it keep falling in . What do you do . Its down about 3 since that trade was put on. I dont think it made a really great rebound here. So this is one where it was almost a double at its lows. Im going to keep this one on a tight leash. Up next, carter talks about oil stocks. Take a listen. Im going to make the bet that we are going low, low, low, i want to sell and do xle as the vehicle. December, put spread, you can spend it 2. You can sell the 59s for 70 cents. Energy was the bestperforming sector this week. But theres a still time. We have acts of god, an opec day that ran us over. The question is, and this is to be determined, right, was the action in crude really that bullish . This is the first time theyve gotten their act together in years. Weve got some time that this still works. These types of promises for production cuts havent borne much fruit. We have other producers in the region who have brought inkrimtal production far greater. Has anyone forgotten, iran alone. They talked about upside call spreads to make up for the money we may have lost already. Coming up next, final call from the options picks. Im here at the Td Ameritrade trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Get a tweet in. Dan callahan asks us, how do you know when options premiums are high. Two ways to do it. The hard way is implied volatility versus realized volatility. Think about what dan showed us earlier, though, with the price of the straddle. Take a look at the call and put. And see how much the two of them are together as a percent ablg of the stock price. If its 5 , is that a lot . If its a stock that moves around a lot, that might be very cheap, but if its procter gamble, a stock that doesnt move a lot, 5 might and lot. Compare it. Class dismissed. Make a bet that wells fargo is so bad its good. Microsoft. Thats a good stock alternative. Looks like our time has expired. Im melissa lee, options action. Cnbc. Com. Stay tuned. Cramer starts right now. Announcer the following is a paid advertisement for the shark rocket complete with duoclean technology, presented by sharkninja. To get your carpets really clean, you might think the bigger the vacuum the better. But big means bulky and heavy. Is that really what you want . So shark introduced a totally new idea with the original shark rocket ultralight upright and nearly 2 million have been sold. With true no loss of suction. The power to deepclean carpets and floors. 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