Someone reach out and touch someone far away some investors wish they had never touched telephone shares, but if you lost money, well show you how to get some of it back using options the action begins right now. Lets get right to it. One overlooked story this week, Energy Stocks coming to life again with Big Oil Getting a bounce from the weak dollar and hurricane irmas impending land fall exxon mobil up 3 . Chevron, royal dutch shell, British Petroleum all climbing 2 this despite a late day selloff. Energy crude down over 14 year to date. The second worst performing sector in the s p 500. Do you buy this Energy Balance lets get in the money now and find out dan, do you buy into this . I dont think so. Look at the ox le, almost 50 of the weight of that etf, we had a little bounce in that sector this week. Theres obviously some reasons that investors are looking to be a bit contrarian there i dont buy it we have a oneyear chart of this thing. If you look at how this stock has traded from the 52 week highs in december, its well defined to use my main man carters term, on a down trend its about to break out of there. When it was looking like it was going to get going, it sets up as a good entry on the short side for traders who want to be nimble. Guys, as often is the case, you have Something Like this, the storm we had in the gulf and now the most recent one, these types of things can be a shortterm catalyst to basically propel a price change. That doesnt mean that the longer term secular head winds in this case dont remain intact i think that they do the demand side for crude, thats the bigger story. I think whats interesting, of course, how bad it is compared to how good it was last year the best sector in 16 was energy here it is the reverse, at the bottom the down trend that dan has been talking about has been very distinctly characterized they are 5 and this is another one. We have another chart we have the fiveyear chart. I dubbed a chart called have you ever seen this chart . He laughs whenever he quote, unquote, term. Its the convergence of the 2015 breakdown to me, i dont know, does that look ominous to you. Ominous is a better word maybe. Im not there, name it anything you want its not what you call it, its a bad chart. I think youre taking advantage of the counter trend rally whats the trade . Real simply, you guys have actually done a nice job catching those counter trend rallies a couple of times i think this year. I think obviously if history is any guide, you set up and you sell it. Right now options prices are particularly low in the xle. I think you want to look out to october exploration. You can look at near the money put spread when the stock is trading at 64. 5. You can buy the 64. 60 for about a dollar that is your max risk. Breaks down even at 63 you can make up the 1. 40 at 63. Two get a retest of the lows, it was trading just there i think this is in play and you have it where you want it. I like going the opposite way of looking down, looking for a retest of 60 over the next three weeks. Risking 1 to possibly make 3. I like the risk reward. This is a situation where people are wondering why we dont use credit spread and it makes sense. Options are quite low. Usually when stock prices decline, option freeze prices go up where xle, thats not the case options premiums are close to the lowest point theyve been all year so i think absolutely a spread is a good way to make play. What do you make of the levels well, look, the key issue is that if something changed long term that is more permanent . And i think thats the case. Just think about going back in history. Things like coal, top of the heap energy lost its way. Maybe theyre permanently impaired. I get that the longer term trend is down in the secular changes. We have irma, we have jose, we have all of these other hurricanes lined up. I think history will show theyre all spaced so to me i think were in a market where the stuff that works continues to levitate. The stuff that doesnt work is a sell on any rally. I think the sector falls right into this. Energy is not the only sector on a tear. Health care stocks on fire the chart master says theres one name in particular that is set for a move higher. Carter, what do you see . Well, im going to talk about amgen. Health care when we come back. Lets talk about the subject more broadly first, lets look at amgen it is the if not the best performing stock of all time, one of the best. Lets try to move that heres a 30 year chart of the s p 500. It is what it is its up. Markets go up 70 of the time. Lets add some competitors put in mcdonalds. All of a sudden thats a spiker. Keep going lets put in nike. Now mcdonalds is the piker. Lets put in home depot. Even better than nike. Keep going apple. Almost 1 trillion lets keep going apple is a piker compared to andrew nothing close. Now whats interesting is this great stock has done nothing for three years. So you have the setup of the greatest stock of all time and then here and now well, i have a table here. This is what happens if you put money on you get 150 grand, they get 11 million. Thats the same thing as the chart. Lets keep going this is the real setup amgen has done nothing for three years, nothing the greatest stock of all time having been dormant looks as though its coming to life well defined tops at a common level. You can see them they are well defined over and over and over, and we are sitting here yet again the presumption is that we are going to bust out in a big way, yes . So im making that bet that were going to get a nice breakout heres the longterm chart with no annotations or drawings here is how i would draw the lines and then you simply put your arrow in and make your bet. Long amgen. Coming to life. So whats your trade you know, i think this is an interesting situation. The stock is relatively cheap compared to the market one of the reasons for that, Companies Like this one which used to be great growth stories are less so now that theyre dealing with new drugs this is a situation where like xle in dans trade, options premiums are relatively low. We have made a fairly sharp move recently on a relative basis i want to use a long premium trade. Im looking to december, the 185, 200 call spread i think this is a seasoned way to make a play to the up side. Youre going to be risking about 3 2. 5 to 3 if that breakout actually takes place were not subjected to the risk in case it fails yeah. Two things that i really like about it the chart is pretty fabulous long consolidation, you look at the way the rest of the sector is acting breaking out quiet break out. Unloved sector for the last, what, 18 months, two years when you look at a name like amgen, you look at option prices, strategy i like the way to play for an alltime high. One of the reasons we saw this is i wigilead buying pike. Sure. The thought was that gilead buys kite and this opens the flood gate for all of the biotech money washing around waiting to make some sort of a deal is that the presumption of what could move the stock higher . What could help move it higher we see deals from time to time i see them more on the acquiring side than the acquired side for sure. Right. There was a point that you made on fast money and i thought it was a good one, companies with latent Pricing Power traded a premium ones that are exercising it is true in the pharmaceutical sector do not. That is one of the reasons why this sector has been trading at a big discount people expect these mature drugs to increase. Were not seeing explosive growth like we did when they were an Innovative Biotech company as opposed to large, as guy would say, a Pharmaceutical Company now. Maybe theyre the same thing you listened to fast money. I did my point is, you are not seeing declining pipeline. So i think the discount is probably justified. I think also if you were to go pregilead, it was second best performing and it has defensive characteristics. The market will keep going you can get a lot of participation from the biotech side if the market gets in trouble, the defensive characteristics, 1 3 of the S P Health Care sector is in big farm ma. Right how does the i. B. B. Chart look compared to the amgen chart . I. B. B. Was bombed out because its a lower name in the group the biotech altogether looks great and amgen is far away the biggest pickup all right forced to choose im an amgen guy. Im going to tell you that i want long the 55. If youre going to use a bar bell strategy where youre going to own something that hasnt been doing well and trading and in an industry that is always growing, 17 of gdp health care space, this seems like a pretty good place to have your money if youre going to spread it around. All right for everything options action check out our website, options action. Cnbc. Com we have exclusive trades and while youre there check out our super cool newsletter. In the meantime, heres what else is coming up its the final countdown apples getting ready to unveil its big new iphone, but if youre worried, well show you how to protect yourself while still being able to profit. Plus, calling all options actions fans. Reach into your pocket and tweet us and if its nice, well answer it on air when options action returns. Logical are you doing . 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. Its a warm blanket. Its a bottle of clean water. Its a roof and a bed. Its knowing someone cares. Its feeling safe. Its a today thats better than yesterday. Every dollar you can spare helps so much more than you can imagine. Please donate now to help people affected by hurricane harvey. Your help is urgently needed. Its not just a donation. Steve, other than making me move stuff, im here at the Td Ameritrade trader offices. 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. See options data like never before. With thinkorswim only at Td Ameritrade. Welcome back to options action. Im dominic chu. Some traders are jockeying for position around apples shares the Company Event next tuesday where theres a lot of buzz about the anticipated release of the new iphone according to our partners, the last five iphone releases have helped to lead to some big price moves in the medium term in the 60 daze trading days following the iphone 6 and 5, the stock rose by 19 . It was up 7 in that span following the september 2014 of the 6 and 6 plus models. It was down 6 in the 60 days after the september 2015 release of the 6s and 6s plus models and the march 2016 release of the se model, it was down around 14 . Most recently though after the september 2016 release of the iphone 7 and 7 plus models it was down just a mere 1. 5 in 60 trading days melissa, its all going to depend on just how much wow that event is going to generate as we head towards the Holiday Shopping season. People will shell out big bucks for the phone. Back over to you thanks, dom have a great weekend. Iphone jitters weighing on apple. Stock prices down 3 dan has a way to play offense and defense on this tech giant hes over at the board in call to action. We are looking at strategies where youre trying to replicate exposure i want to go through reasons why you might consider stock replacement Strategy First and foremost that youre considering there could be a volatile event or period in time coming up for that underlying stock. The other one would be to define your risk and possibly lock in gains and lastly because you think option prices are attractive, that doesnt mean theyre actually cheap depending upon the strategy that you want to employ. I just want to quickly talk about apple here we know we have this one event next tuesday we know that theres not only going to be the unveiling of it, but theres going to be the launch of the product and an earnings event in late october the way i look out for the next six or seven weeks, i see three possible events. Could be a very rocky period the stocks up 37 year to date. If there is a lot of this good news potentially in this stock, thats another reason why you may want to lock in some profits. Lets just look at this chart right here i mean, obviously its pretty clear the up trend here. We have some pretty good support in the low 150s. Thats where the stock gapped from after earnings in the beginning of august to me. You probably have some good support at 150 air pocket down to 140 thats one other reason why you may want to consider defining your risk. Lastly, the point i made about options prices, when we buy options you want to make sure theyre kind of cheap. You want to make sure you earn out that premium in this case look at how implied volatility in apple has been moving higher well before the earnings to me that kind of suggests that options prices have been ticking up the stocks hit a new 52 week high earlier in the week, new alltime high. Lets think about strategies here the stocks are down a few bucks from that alltime high. Today when the stock was trading at 1. Poi159, i was thinking ofn premium trade because i want to mitt i gad what i deem to be slightly expensive options i want to get the long economic exposure i want to look at a call butterfly, november expiration it will catchall three of those. Next week, the launch of the device and the next earnings event where they give guidance today where the stock was trading at 159, you can buy the november 160, 170, 180 call butterfly paying 2 for that what are you doing there youre buying one of the november 160 calls for 6. 75 youre selling two of the november 170 calls at 1. 50 each excuse me, at 3 each for 6 one out of the money for 1. 25 that costs you 2. You make money between 162 and 178. You can make up to 8 your max gain is 170 sounds complicated but think of this, between 162 and 178, you can make up to 8 and your max gain, 8 at 170 its kind of threading the needle but youre only risking 2 i like this trade strategy as a defined risk long premium way to play for a breakout to new highs into this potentially volatile period with lots of events and im mitigating my risk to a small amount of money. Another point i want to make, i expect options prices to come in thats why im looking at the butterfly strategy thats why im looking at this versus a call purchase or call spread. Do you like the trade, mike i like butterflies in some cases. The issue i have the longer data the butterfly is, the harder it is to thread the needle. If youre thinking about a 5 move into next week, you think the stock might lose 5 by next week, thats one thing saying its going to be up 7 and you have a couple of months to go, it becomes a lot harder even if it runs up to that price in the interim, it wont go to the maximum level of that butterfly unless it lands there at the end thats one thing im less enthusiastic about looking at the catalyst, ratio spreads make sense you can consider using the first two legs against the long stock position to boost the gains. I think the most important point that you made, the criticism about my trade strategy was the timing. Right. Thats a really important point when people consider long premium trades, specifically ratio spreads in the event because you might get the move to 170 where the spread is worth the max value. Then you have to wait and make a decision what i like about this trade is that the premium outlay is so cheap that even if you got a move directly to 170 in short time, youre going to have a trade worth multiples of what you paid for it. Youre going to be happy for it and take it off and not worry about it. Do the charts support this trade . It is literally a 50 50 its gapped up three times and gapped down three times. Wow how do you feel about that you know, were in the gambling business here, you know what i mean . In terms of how its going to react to me, it really is about the risk reward. Up next, at t plummeting 7 in the last month. Thats bad news for dan but hes got a way to come back from his losing trade more options action straight ahead. Hey gary, whatd you got here . This bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at 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. Last month dan bet on a bounce for at t so today when the stock was trading at 37. 50 lets say you were to buy 100 shares of stock, you would look out to october expiration and sell one against that 100 shares, 1 of the october 39 calls at 38 cents you have a buy rate on. The stock has tanked almost 5 since the trade now with the premium selected losses are mitigated somewhat. Dan, how are you managing this listen, this 2 drop in the last few days really surprised me i started looking at it higher than these levels. I think you have a couple of catalysts. Theyre internally okay. Theyll get good news on the time warner deal you want to look out at the 37 strike deal do a roll as far as rolling down that short call strike at the end of the day i expect time warner news to be good news and i expect them trading up im happy staying long at these levels. Its always tough to cast on that this wasnt a stock doing well getting into the trade. We are getting to a point where yield and valuation are starting to potentially throw a floor in for the technical view were going to have to go to him from a fundamental perspective its hard to see a whole lot more damage i think before earnings. Yeah. There was a gap. Fill gaps like a magnet. All right up next, final call from the options pits 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. See options data like never before. With thinkorswim only at Td Ameritrade. Hthis bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade welcome back to options action. Time to take your tweets first question comes from peter roberts. He asks when selling to open call credit spreads or put credit spreads, do you recommend closing early or wait until it expires . Professor ko it depends how much its moved. If you sell a call spread for 40 of its value and suddenly its worth 5 to 10 of the value, yeah, you want to take the money. Otherwise, if its just a little bit of a profit, no. Our next fan asks selling snap november 15 puts for 2, good idea . If you can get them for 2 i see them at 1. 50. Its a good idea if youre willing to buy the stock at 13. 50. Final call time carter important stock amgen very important level mike ko. Reasonable valuation and reasonable options premiums. I would by the 185, 200 call spreads. Dan. Define your risk over the next several weeks. It looks like our time has expired. Im melissa lee. Check us out at optionsaction. Cnbc. Com mad moen with jim cramer starts right now. [announcer] the following is a paid advertisement for the shark ionflex 2x freestanding cordfree with hasslefree runtime and duo clean technology, presented by shark ninja. Shark wanted to know, whats holding you back from purchasing a cordless vacuum . When i think of a cordless vacuum, i tend to think of not good suction. A cordless vacuum would not work for my messes. I feel like it might not be getting everything up off the floor. You can never trust if the batterys going to last long. Im afraid that ill start cleaning and then itll burn out. [announcer] shark heard your concerns, and set out to solve those problems
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