Transcripts For CNBC Options Action 20160116 : vimarsana.com

Walmart stock, which continues to tumble after the retailer announced massive closings. And it could have major implications for the economy. The action starts right now. So lets get right to it. Tough day if youre long. S p hitting its lowest level since 2014 on chaotic friday. Touched 31. Too late to buy protection . Lets find out. Dan, what if viewers are long, what should they do . Today i thought the selloff was fairly orderly. I know it looked really bad, feels bad looking at statements, s p down 9 , maybe owned stuff last year down more than that. The point is we know from the last five years that we get countertrend rallies, right . For the last five years we had a handful of 10 selloffs, but we knew they would come back. Now the sentiment has just turned and youre going to get an opportunity to, a, take some profits on stuff you owned for a while, probably next couple of weeks or so, if you want to reduce exposure and protection. A lot of people looking at spot, looking at whats going on in the futures theres a little more panic there and probably mike can speak to that. Ill let you go first. Lets hear from the technician. Well, i mean, i think the key is what you do after this kind of thing happens. Do you sit there and try to say ill play for a bounce today, try to catch it off the bottom again. That implies two things, basically not real money, Perfect Timing and dexterity. The real message is is it time to be careful. Its time to be careful with news, prices going down. Presumably its not going to fix itself and go up. What was keeping the index up was a handful of strong stocks. For a long time included names like disney, starbucks, apple. All these things are essentially supporting, a lot of weakness underneath. Now were seeing theres concern about stories. Individual stories are turning bad and thats bringing the rest of the market with it. Some people can they hold up when the market is acting weak. I would say one of the reason the market is weak, those strong names are places they have identified risk. I want to take a listen to what carter said back in september and then on fast money. Lets play this. Generally decline prices with no sectors, were in a bear market. Presumption minimum 1800 and i think lower from there. So much worse could it get . It can get worse lets look at charts and try to figure this out. Look, either youre prepared for it or not. Even now its not too late to take some measures. Here is the real thing i think is important. If you take the russell 3,000, 90 of the investable capital in the United States and not so much the index down some 11, 12 but look at the internals. 70 are down and more. It goes on from here. Basically this had been unfolding for the better part of 18 months. Here, 25 . Half the stocks in the in deck, 1600, are down or more. Its not about just the index weakness now unfolding for the better part of two years. Now were at the index level. Lets look at another way to look at this. The column here is the number of stocks that have made, look at, this down over two years. So youve made no progress. S p 500, 400, whatever you want. Look at these numbers. This didnt just happen in the last two weeks. This has been going on for months. Its now coming out at the index level. Lets figure out, it goes on and on. They are repeating themselves. Unchanged or worse over two years. It didnt just happen in the last 10 sessions. Theres a chart. You can draw a lot of lines a lot of different ways. One of the things you can say, that has a fairly classic head and shoulders top, a big neckline. Again, you want to play for that bounce, six, seven sessions. This bounce, doesnt matter. The critical thing is we have all the elements at the top. Whether you call it head and shoulders top or you say its a break in trend. This is a welldefined trend and a welldefined break. Where might we be headed . 1800 i think is the minimum. This is the channel the market has been in the entire bull phase since march of 09. Just to get down to the bottom that perfectly normal would be high 1700s, 1800 plus minus. Then whats more likely, thats only 16 , peak to trough, whats more likely i think is this. This is your entire bull market sense Ronald Reagan took office. We literally touched this in the recession, 1987 crash, financial crisis lull. Even if we just stay in the top quadrant, we were to get there, were only just here now, just getting back into reality if you will. Just to come into the bottom on still the top quadrant youre talking a move back to these prior peaks, which is a very reasonable thing, that would be about 1575. We remain sellers. That is pretty scary. Dan, do you think stocks can go that low . I do. I think you have to be tactical about using hedges, we know what happens to volatility option, up on the selloff this year you want to be careful pressing a low. To me i try to look around and look for some other ways to play it. If you think equities are going down, if you think the Global Economy is going in a recession, the only safe haven trade that existed especially during the last 10 years has been u. S. Treasuries for all intents and purposes. We have a chart for the last eight years. Look at the tlt, 20 year bond did during the financial crisis. Look what it did during 2011, 2012 sovereign debt crisis, a series of higher highs and higher lows. That is uptrend. It is my belief the fed will not be raising rates again any time soon. So i think you could use tlt options in particular as a tactical head against long portfolio of large cap stocks you own. Theres a big reason for this. If you did get one of those spikes, to me you have the opportunity to stay in some of your stocks but have exposure to something people will flock to. The trade, today, etf was 125, look out to april expiration, just so you know theres a fed meeting after exploration. Its been clobbered over the last few weeks. You can look to sell put april 120 put, that was etf was 125 and use proceeds to buy april 130 call for 1. 70. That costs you nothing, between 1. 20 and 1. 30 on april exploration you dont make more lose. You have sort of asymmetric playout on the upside. I want to make one really quick point. Tlt is not going to crash lower in this environment. Thats the thing you dont have idiosyncratic risk. Thats why a risk reversal rather than simply buying an outright call, which would be a natural inclination. You would think treasuries would be safe, volatility higher raises options risk, sharply higher riskfree rates in this environment is essentially zero, which is the reason selling 120 put in particular no chance well drop below that level now and that april meeting and expire before that. This is definitely i think an intelligent way to take a hedge position and take advantage of the fact some of those downside puts will be good. Some of the catalysts for next week. All the market turmoil headed into the heart of earning season. Traders see stocks with big move. Seema modi back at headquarters with what we can expect next week. Earnings will be a big part of discussion next week. Well hear from Morgan Stanley, ibm, netflix tuesday, gold manslaughters wednesday, verizon, starbucks and american express, General Electric close out the week on friday. Options market expecting huge moves out of some of these stocks. Lets start with financials, bank of america, Goldman Sachs and Morgan Stanley a move in either direction. Real volatility could come when two of the hottest stocks report, netflix, a big mover on earnings, expected to see a 13 move when it reports tuesday afternoon. Then theres starbucks pricing at an expected 4 move. How it all plays out remains to be seen. Michelle, back to you. Yes, it does. Thank you, seema. Names of reported earnings so far have gotten off to a rough start. Shares of intel down 7 since they reported on thursday. Citigroup and jpmorgan also falling despite earning beats. All this begs the question, are earnings going to be able to save stocks. Does it even matter now, dan . Is sentiment so bad. It definitely matters. The earnings that are going to be reported dont matter. Thats in the stocks right here. What matters is the forward guidance. Really matters about the Visibility Companies have. What matters most importantly is how Honest Management are going to be about those factors. We know they stink, okay. If they are trying to put lipstick on a pig, dont buy it. Dont buy those, thats my personal opinion. Dollar strength obviously for the multinationals, if you have combining that with weaker economies abroad, its hard to see how can you be optimistic. That was the guidance that hurt intel obviously, thats whats doing to hurt other names. I take a look at this and see a lot of names at high valuations. One of the names mentioned starbucks. Trading that. Name im looking at imply 4 . Right now trading 30 times earnings, above its historical average. Thats a relatively expensive stock because it has continued to deliver. What is the risk to the upside, though . What are we really expect instagram they are going to come out and blow the doors out. 13. 3 last quarter came from china. We could get a really great number from them in that area. Honestly upside risk. Whats the trade there . Very simply looking at february. You can look at 55, stock around 57, might be a little less now when lou at this on monday. You can spend 1 for that 5 spread. Really youre going to get the opportunity to number one, play earnings next week. Number two, if we continue to see weakness. Dan alluded to the fact we could see a lift in the market but then see it lower. Managed there perfectly. Last 12 quarters matched or beat. Literally theres not going to be a big surprise. The question is how does the stock reachblgt the stock is a winner. The question is this is where theres risk in the market, these high flyers that havent had an adjustment to their multiple. The putback is minor just as disney and nike got worse. You havent mentioned this. This is a mania stock up 50 last year. When they reported last quarter late october they talked about weak margins in china and the stock was down a few percent and then we bought it. Were not in that market environment anymore. Thats why i give it to you, mike. Theres your trade. Thats exactly right. Were going to capture that possibility. Very little news that could cause a sharp move to the upside. A sharper move to the downside is more likely but captures market weakness. All right. If youve got a question, send us a tweet optionsaction. If its nice, we might read it later on the show. The nasty ones will not be read. For everything options action, theres one place to go, optionsaction. Com, weve got articles and trade. Its like you died and went to options heaven. Check it out. In the meantime, heres whats coming up next. The force is with you, young skywalker. Disney may have the force, but concerns about espn are weighing on the stock. But some traders think a bottom is in. Well tell you what they are looking at. Plus walmart just did something that could signal a major slowdown in the economy. Well tell you what that is and how it could impact your portfolio when options action returns. 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. Its gotten squarer. Over the years. Brighter. Bigger. Its gotten thinner. Even curvier. But whats next . For all binge watchers. Movie geeks. Sports freaks. X1 from xfinity will change the way you experience tv. Herthey work hard. Ade, wow, that was random. Random . No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Welcome back to options action. Despite record breaking numbers at the box office, the force of Disney Star Wars hasnt been enough to boost the stock which got downgraded by barclays today and trading near august flash crash lows. Julia boorstin has the details. Julia. Were having trouble with julias mic. Well see if we can get that fixed. Can i tell you what she was going to say . I actually last weekend saw the star wars movie for the third time. You liked it that much. Your kids. I have seen it. One of my sons and wife have seen it twice. They loved it. Its that sort of thing purchase has it moved the stock. Its an absolute blockbuster. The fact is weakness youre seeing indexes is unrelated to one particular hit. What it is related to is espn. Concerns about cable did we get her back. Keep going until were sure. Basically the story is it was the most stable portion of their business. People thought this was going to grow exponentially. Sports isthmus see television. Overall market not selling off, disney would be debt, would disney be down less . Its a third of their business. This is the marquis media property in cable is espn other than cnbc. Right. In july, initial drop with espnews. What do you do . Whats the trade then . This is one of those situations we are getting right down to a level which the stock bounced, 18, this was sort of the level. Were getting to a point this is trading at a discount. One of the best names thats been around trading at a discount to the broad market and were seeing what looks to be a shortterm washout. At the same time thats happening options premiums are going through the roof. What i was looking at is simply selling, collect 3. 25 when i was looking at it. Basically a situation long stock below 90 if it is put to you. If it doesnt, stays here, drifts lower or goes higher, youll make about 3 1 2 in one month. To me that seems like an attractive return. Thats sort of the thing here. If the s p itself, a major component down 11 , this is down twice that, 22, plus youre getting at a cheaper price, youd much rather put your money here than something yet to have the beating. The only problem we could make the argument stocks like this, home depot, starbucks, overshot on upside stories so well, sentiment so good and kept going higher and higher. Every bit of news dismissed. Until now its just a pile on. To me i think, affirm, definitely going to 90, 52week low, flash crash low. Broken that longterm uptrend. The next real massive support is 80, low 80s. Right now, the only thing id say trim lines. What im saying is, though, sentiment should if you could let it ride a bit. Ill agree with you for the moment. If it blows through and you get stock just over 90 bucks. Probably 11, 12 risk to the downside from there. At the same time thats going on, were going to see continued to sell those puts on a day when the market is blowing up to the downside, really pay for that risk. Youre going to get paid because you sell against stock anyway looking at 80 for low. Youre price of 87, 28 . Versus s p down 11. That is a decent price, feels a little bit large, start to take some action on disney. If youre going to start tipping your toe in the water, this is wait to do it and get paid. I want to dip, see it, how is that . Another big name. Neck, walmart shares tum pleng after they announced they would close 250 stores. That could spell more trouble to the broader economy. Well explain why after the break. 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. Sd sded. No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Action. Time for the upside call when we look back on some of our winning trades. Last week dan made a bearish bet on walmart. Take a listen. So today i priced it up. The stock fell out at the end of the day as the market did. When the stock was 64 pounlt 60 look out to february exploration, the day they report earnings in the morning and you could have bought 65 put in february for about 2. 20. Your break even is at 62. 80. Shares of the company fell 2 today after announced going to close more than 250 of its stores. Good call, dan. Not really. What do you do now . To be fair, you could have thrown a dart at any stock last friday. Im giving you this pat on the back. What do you do now of this here is the thing. What i did today, i paid 220 for february 65 put. They were worth almost 4 when the stock was at its low. Rolled it down, this is an important concept, were talking about hedges. A lot of the activity we saw in the Options Market was rolling out prior positions, taking some money off the table, monday advertising hedges and staying in the game. Thats what i did. Closed 65 puts in february and bought 60, 57 1 2 spread for a frac of the earnings and now i cant lose and i still have that bearish exposure. Last week co and carter said shares of caterpillar could continue to tumble as well. What are you guys doing with that stock now . I dont see any reason to think its doing to bounce back now. Were talking about multiples, the multiple on this stock is cheap. Its cheap for a reason. Basically the market is telling you the trouble actually lies ahead not behind for this company. With that in mind the put spread is up money but we stayed with it. All right. Anything you want to add there . Okay. Got it. Coming up next, your tweets and 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. Td ameritrade. Lets take a tweet here on options action. If you want to buy a strangle on the spy, how far out of the money would you choose . Would you choose, mike . This is what i want to tell you, i dont want to buy a strangle on the spy. This is what you dont want to do. After a spike in volatility, after sharp moves, people need reac, run out and buy puts, capture a strangle, youre going to pay up for that. The break evens higher, come out of the market youll get punished. The best thing you can lo, put spreads if youre thinking on the downside or call spreads to the upside. You also want to wait for countercyclical move. I would say turn it upside down. Google kids, sell it. The best trade on the board now if things settle down a little bit, be careful with directional long premium trades that will benefit after balls already moved like this. Id rather sell, buy it. Expect a lot of this. Its reverting. Thats one thing you really need to remember about volatility, reverts to the mean. Were way above the mean right now. Dont buy. All right. A quick programming note. Cnbc is going to be live on monday from 6 00 a. M. To noon eastern time for a markets in turmoil special coverage. You dont want to miss it. Time now for final call. The last word from the options pit. Carter. How about tread with caution. Tread with caution. Ill take it. Im going to try to sell some of the elevated premium so looking at 92 1 2 puts. I think you wan to be tactical with hedges. We talk all the time dont want to do them too frequently. I think theres a lot of ways to win with tlt risk reversal looking to april and a good portfolio. Guys, its been great to be with you on this really, really crazy day. Lets see what markets bring to us next week. Remember, u. S. Markets closed on monday. Well be here anyway to cover whats going on overseas. Options action, our time expired. Go to website optionsaction cnbc. Com. See you next friday 5 30. Announcer the following is a paid presentation for the fatburning fusion of pilates and yoga called piyo, brought to you by beachbody. Hey, everybody, im maria menounos, and im about to reveal the latest breakthrough in fitness that wont kill your joints. Its an allnew way you can get that long, lean yoga and pilates body youve always wanted without having to stand still and meditate for hours or do microscopic mini moves. Dont believe it . Well, keep watching and you will. Announcer now theres a breakthrough new way you can completely transform your body without weights or highimpact moves, and the results are incredible. You see those results so quickly. You see the fat melting away