Transcripts For CNBC Options Action 20160129 : vimarsana.com

Market cap facebook has added this week and it could be just the beginning. The action begins right now. All right. Lets get right to t. Stocks werent the only thing up today. Check out the dollar after the bank of japan decided to chuck its currency under the bus. Dan, the strong dollar, really been a headwind. Lets think about what the dollar started to real, the second half of 2014 when the fed intricated they would end qe and one of the first groups that were hit was Consumer Staples because largely 50 to 60 of the biggest names in the group have a ton of exposure overseas and Global Growth is weak. In a lot of emerging markets. When you think about whats happened real since the end of qe, the end of zirp, a huge dollar move and Consumer Staples were first hit. Procter gamble was trading at 90 to start the year. It went down 30 at one point. Something interesting happened has we went into the end of zirp, last year. Staples caught a bit and largely because of that yield that hey lost them have. Coke, procter have a 3 , 3. 25 dividend yield and deemed to be defensive so i think what happened this week is the dollar is going higher and i think stateles are ready to turn. Short term it definitely strengthens the dollar. Obviously as other countries try to debase their currencies on a relative basis fanned we do see another rate hike here the dollar has to strengthen. Thats a necessary byproduct. Im not sure they will and increasingly they wont and that shows us the rate curve, if they are going to be low here then they might actually see some people. The biggest thing is if youre saying theres a lonely manager and you cant hold cash and cant get out. The playbook says, and its happening this time, you rotate defensively so on the week as of the close just at 4 00 p. M. Three of the Top Performing sectors were utilities and if the whole thing is going to come apart, it is, it has been. Eventually these are in trouble and these have the underlying bid of people who have to commit capital. I guess the question is do the fears of the strengthening dollar in a weakening Global Economy kind of outweigh the yield these things have. The yield cuts higher as the stocks go lower. Looking at the xlp, consumer staple etp. Aside from the summer it really traded between 48 and 51 bucks. Really unable to kind of break out there, and i think its going to fail again, too, especially as we get into further into q1 and as people really digest what happened in japan. I think the dollar is going higher. I think you can actually fade this move up to what has been technical resistance here. I want to make one point. The xlp, consumer staple epf, three of the top holdings make up 25 of the weight and all companies trade 22 times earning. Two of them, coke and peps, will actually decline in 2016 so to me what are you buying here if youre just buying that 3 yield . Thats the crazy thing. Who is buying it and its being bought because its the best place to be. Carter, youre putting out a fundamental sort of reason why theres an underpinning for this sector. Im looking at the chart and what the charts are made up of are people making fundamental judgments. If a chart is good its because the biggest mutual funds and ebb doumts are acting and they know that history tells us when things get bad. The chart is good. What im arguing against is the chart is going to be better regardless of what happens. If were in trouble this holds up well. And from a fundamental standpoint if you see long dated rates falling, what does that tell you . Thats basically telling you were not anticipating either inflation or growth, that youre basically baking boast those in the cake which is more appealing for staples than for growth. Yeah. Im going to be one of those people make hag fundamental assessment here. I think they are too expensive. I think options prize and implied volatility in the xlp is pretty reasonable and thats why i want to define my risk and buy a put spread and today when the put spread was 50, 75, buy the march 50, 45 put spread and paying 80 cents for that and thats my max risk and by a march put for 1. Between 49. 20 and 45 on the downside i make up the 4 to, a really nice rirk reward relationship. Im defining my risk and if the xlp breaks out wrong fundamental and technically i defy my risk to less than 2 of the stock price. Do you like the trade itself in and of itself . I do like the trade. Number one, as you pointed out looking back we are close to the highs in the space. Were also close to the highs in terms of implied volatility and that usually doesnt happen. When prices are higher, options prices are lower and in xlp, so much concerned in the market, option prices have gone up. Two things are possible and one its possible things will bounce around a little bit more and the other is you should use a spread. If look, its a bad tape, we know ricochets happen. Ultimately they will get around to coke and pepsi. Everyone gets dinged at some point so time is ultimately on your side. Here now money is desperately clinging on to these and that holds them up. Does that concern you . Not really. Its gone up top 451 bucks three times in the last seven months and has failed and actually come in about 70 . My trade doesnt need a whole heck of a lot to happen on the downside for there to be a quick double. Moving on to big earnings reports. Well hear from alpha fet, yahoo ups, gopro just to name a few and some with biggism kagsz on the Global Economy. What would those be, carter . The charts dont speak to those but lets look at general motors. The issue is we know weve had peak auto sales reaching back to the 07 highs and as a setup we could look at began motors versus all auto and versus the s p. S p, of course, is leading and then have you a global index, everything from renault to puget, toyota, honda, gm, ford and began motors, of course, bringing up the rear. Its been an underperformer to equities in general and to its own peers, if you will. Heres a daily chart and whats i think is important is this. This stock has basically made no progress. You can say thats okay but what has the market done . The market has been ripping for four, five, six days, and what we know is that, therefore, on a relative basis, this is making new relative lows. No one is buying this as opposed to staples, for instance, and thats a tell or a problem. Long term lows, draw the chart if you want. One could say thats a triple bottom. Do anything you want but heres what my eye sees, this. We after this big ricochet we have responded to this megaphone, call it whatever you want this. Projects to my eye down towards the bottom. Guess what the bottom is . Its exactly these lows. I think youre going to go as low as 20 on general motors. Im a seller. Wow, 20. Mike, how you trading this . This is a situation where fundamentally its pretty hard to short it because this is something thats trading at Single Digits in terms of the forecast earnings. That said, volatility is a little bit high. Im actually going to look for a way to stay neutral to bearish. Looking to just sell the 29, 31 call spread. The call spread was 29 bucks, maybe higher now and maybe the 30, 32 will work. Selling the 29 per 1. 40 and buying 391 for 55 cents and collecting 85 cents which is a little bit more of the percent of the difference between the strike, heres the thing. This is a strayed that will make money if the stock trades right here and drifts a little bit lower and even if it rallies upwards it wont basically go to the full value. Distance of the strikes if it happens at expiration. Two things that can happen if its good and one is if you short the sthok at basically one of the cheaper valuations of anything in the market right now. Mike makes a really good point about the options trade. Actually a really good options trade because if things settle out, you dont want to make money. Dont need for it to go down. Im a little cautious and had a discussion in the prior half hour and thats why you have rallies like we had today. People got bared up and sentiment was really bad. Seems like if you get a dollar and you agree with carters technical take and mikes fundamental take and you can short it when it makes a move back up, thats a great entry because we know fundamentally things wont move. Carter, quickly, what was your take on todays rally and what does it mean for the charts . You mean for the s p in general . We know that good steady robust uptrends are punctuated or characterized by counterer trend selloffs and downtrends are characterized by sharp countertrend rallies, fade ralies. So fade this. Sure. Got a question out there. Lets be honest. We all do. Send it to us and tweet it at options action and well answer it and also check out our website, optionsaction. Cnbc. Com, articles and tutorials, almost as good as star wars. Maybe not that good. Meantime, here what sells coming up. Like sands through the hour glass, so are the days of our lives. In a historic anomaly could be pointed to morphing for stocks and well explain. Plus i like it a lot. Whats that traders are saying about facebook, and well tell you why they might like it even more when options action returns. Make that move, right now 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. Are you ready. Ill get you prepared with my game plan and stocks are literally soaring. Mad money is next. E trader, rated 1 trading app on the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of other competitors do on desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivatives pricing model, honey . Td ameritrade. Welcome back to options action. Im seema mody. Despite todays rally still an ugly month for u. S. Markets, the worst january for the dow, s p 500 since 2009, and the worst month for the nasdaq since 2008. The stocks faring the worst on the nasdaq are interestingly enough all biotech, vertex and pharmaceuticals all down 20 in 2016 and keep an eye on the smallcap stocks as we enter the second month of the year. The russell 2000 witnessing its worst month since september 2011. With all that red though there was some green and six dow components close the month in a positive territories, verizon, mcdonalds, p g, j j and walmart which interestingly enough was the worst performing stock in 2015. Well have to see if that trend continues. Lastly in currency, the dollar index ended up almost 1 helping by the dollars almost 2 gain against the japanese yen thanks to that surprise move from the boj last night. Seema, thank you. What should we expect for the rest of the year . Carter is taking a look at what happened to stocks the last few times the s p lost ground in january. What happened . The premise of the january barometer is if you start out the year weak you wont do that. Not just the market, if a Political Campaign starts out poorly, sport school year, youre struggling most season. 70 of the time they go up, more gillette razors and more oreo cookies consumed and gdp expands so unconditional the odds of a down year are only a third. Time, going back to 1927. But if january is negative, this gets, the odds jump to almost 58 . Thats what were dealing with now. Now, then the issue is how much of the damage is done in january . Maybe all of the january is accounted for in january. I have a table here of the ten worst januarys on record, and and it descends obviously 09 we know this one. This is 39 after the bounce off the low and so forth and what i want to show you is the final table. Were now down this year 5. 07 so were going to be within the top ten and matching 1977 by the two columns are whats important. The rest of year and full year meaning after the damage done in january, february to december returns. So the key is this. Rest of year doesnt necessarily mean that youre down. The full year youre down but it turns out if you look at this youve done a lot of damage in the month of january, so then you can say so whats the point of the whole thing . Because this is still a below average return. Markets on average 7 to 8 . Regardless of whether weve seen all the damage done i dont think we have. Regardless were still not set up for a good year for those who are thinking that we are. Basically it stinks. Mike, how are you trading the s p right now . You know, this is interesting because i think its up very well. I actually like this kind of market because when options premiums rell slated and things are range bound its an opportunity to get into some. Trades that typically outperform. Weve had a period with a roaring bull market where better strategies have underperformed because its hard to outperform a market that does nothing but go straight up and i think the way to take advantage is sell some and lean on this at possibly slightly lower levels. If you look up to march and you sold 185 strike put, you can collect about 3. 5 bucks for that. What will that do for you . A couple of things. One thing is youll be collecting more than 1 a month to do that, all right. 12 annualized and something else. If the market does come in a little bit it will be put to you at 185. Youll be getting right around 16. 5 times earning and long term historical average going back 15 years for the s p. I dont know when i look at u. S. Treasury rates what its telling us. I dont think its telling us anything good. Hard to figure out why they would rocket from here because it will tell us were not having astronomical Economic Growth but you cant live in your accounts in cash all the time. Generally want to invest and be on long side and this is the way to do it and get paid even if the market goes sideways. I dont love this trade. The market is kind of crash, and i dont mean well crash but well have bouts of volatility. 194 today or the s p, 185 a week ago, and to me i think that you get paid to sell options when theres a lot of fear in the market, not on a day where we bounce over the last week or so, you know, 3 to 5 . To me theres better ways that is a fair point. Yeah. Hand what does spell fear, so if youre looking at the market saying is this enough that i should start selling puts or not quite enough . When the vix gets over 20, actually over 27, pretty much a sweet spot, that generally indicates a short term oversold condition. Looking ahead 30 days, the outperformance, if you take long bets in the s p, dramatically outperformed. Youll make money 63 of the time and average 100 basis points so right here were kind of in a danger zone and lingering between 20 and 25, and thats where we see the big bets being made. Talked about it earlier in the week when we saw the big v ho l seller in the vix saying, looks, it wont get a whole lot better but wont get a whole lot worse and i think thats where were going to live. We got down to the august low, september, and everybody is thinking i lost money. On any further real i want to exit. Theres dead bodies above. Interested sellers who want to, if given the chance, recoup losses. Take a listen to what our very own Courter Wirth had to say about microsoft last week. This is going to ricochet, did a little bit and kind of started to right here and go on for more. Nice call. Microsoft now just inches away from multiyear highs so where does carter see it going next . Well tell you when we return. Here at Td Ameritrade, they work hard. 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. Steve, other than making im here atme move stuff,rade 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. Td ameritrade. Welcome back to options action. A winner and a loser sums up last weeks show. First the winner. Getting bullish ahead of microsoft earnings. Listen. Were going to make a run for the alltime high. Microsoft here on the long side, defensive offensive name. Im looking out to april. Thats going to give us a decent amount of time before this plays out. The 52. 5, 57. 5 call spread, make 235 or so for the 52. 5s when i was looking as though. The whole thing is going to cost you 1. 65 stock was up nearly 6 today so first carter, do you still like it . Take it off or do something. If youre still wanting to be a low turnover, hole the high quality or safe name, you stay, yeah. But what do you want to do . Yeah, in the money were splitting the difference between the strikes. I think you could roll up if you wanted to bet a bullish press. One thing about microsoft, they are migrating their business to infrastructure, more like a utility so they are facing a very different set of challenges. They seem to be doing it version very well in terms of execution and you see that in top line growth so, you know, overhaul i think they are really doing a job transferring their business and i think you still probably want to roll and take some of the money off the table. A great call and all the pieces came together. Heres the thing people are forgetting about microsoft. If its a utility its trading well above a market multiple. So expensive. They are doing a lot of things well here, burks again, where they are getting some of this growth. You know, you used to get gosh to the best buy and buy Microsoft Office and now you can download it and thats the thing. Theres a cloud in microsoft. Major staff. And this and that. Got it. On the multiple and the utilities and staples. These things are all trading 22 times earning. Traded high multiples. In fact, youre shorting them. Saying, you know, fine, get back to the 2000 high. Have a ball. Last week dan made a bearish bet, no surprise on facebook and their earnings. Take a listen today ill use a trade structure called a butter fly and i want to use a put butterfly and today when the stock was around 98 you couldify the february 95, 85, 15 put butterfly for 1. 70. That one hasnt exactly worked out. Facebook shares hitting an alltime high in todays session and what do you do now, dan . Obviously a very contrarian trade and very bad call and ive been very bad on facebook and when i looked at this trade idea and thought about the potential for the stock to move lower on a disappointment, it had the potential to maybe go down 15 if they disappointed. To me to define your risk to less than 2 of the stock price, to have a range between 95 and 75 where you could actually get a bunch of protection, i think that that doesnt excuse the fact that i was wrong about it and i think its really important to remember that this is a 320 billion Market Cap Company trading at 17 times trailing sales and on a gap basis trading 53 times earnings. I know they are really executing well here, but fact of the matter is trees dont grow. Getting the trade wrong is not the same thing as making a bad bet. I dont think this was a bad bet because you only risk 2 . Everything else was horrible. Right. Wait, wait, wait. It wasnt all bad for dan, we should note. Phew. Two weeks ago dan thought it might be time to seek safety in the bond market and it has rallied 30 since then. So, dan, what do you do . One to look for the opportunity as the tlt continues to grind out. Cover that put and sell higher. Some of the profits you made on this thing and reduce the downsize risk here. All right. Coming up next, the 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. You thought this week was fun. The single most important fact for the stock market is getting dropped on wall street next week. Are you ready . Ill get you prepared with my game plan. Plus, stocks that are literally soaring. Mad money is next. Here at the Td Ameritrade trader group, they work all the time. Sup jj, working hard . Working 24 7 on mobile trader, rated 1 trading app on the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of other competitors do on desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivatives pricing model, honey . Td ameritrade. Welcome back. We have some break news. Ceo elon musk has increased his investment in tesla exercising options and holding on to the stock, that according to a tesla spokesperson. He has exercised and held 532,000 Stock Options which is approximately 100 million in current value. Melissa . Thank you, seema mody. Certainly has not been an easy hasnt been an easy january for most stocks but for tesla as well here and actually we were trading below 190 for a while. Looked like we were going to break to that low. We came right to welldefined level support at 180. Prior tops and prior lows. Kind of looks like what i call a pair of 2s, no character. Fair money dolomite. That doesnt necessarily mean hes a buyer of the stock, could be exercises his options which he could sell it hand maybe he needs to raise some cash. All about the 2016 deliveries and here and i think they will probably my mission is simple. To make you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere. I promise to help you find it. Mad money starts now. Hey, im cramer. Welcome to mad money. Welcome to cramerica. Other people want to make friends. Im just trying to make you money. My job is not just to entertain but to teach and coach. Call me at 1800743cnbc. Or tweet me jimcramer. A week ago this very friday you couldnt give stocks away. We left here dazed and confused and glad the miserable five days