Transcripts For CNBC Options Action 20161014 : vimarsana.com

Were gonna turn it on were gonna bring in the power well tell you how to profit. The action begins right now. So lets get right to t. As we head into the heart of earnings season, what names present the biggest buying opportunities. Lets get in the money right now. Dan, we have a preview from some sectors from the earnings weve had so far. We had intel a few weeks ago, better than expected. The stock rally. Honeywell last week was important, as it relates to industrials. And the swath of financials we got today. Overall, i think there is a lot of stuff cancelling each other out, for all intents and purposes. I dont expect a huge move into or out of just based on earnings here and i also expect the things working, the stuff like amazon and stuff, will probably continue to work. Im not expecting a shoe to drop in those names, just yet. Thats a 2017 thing. We have seen Short Interest in names like amazon creeping up. At some point, you always wonder whether valuation is going to matter. And good i object dada, but at some point they start to matter. I think earnings are going to basically tell you whether that kind of data is flowing to the bottom line. One of the things about earnings is its your youre taking a lot of chances. We know stocks have violent moves. If its a disappointment, you get murdered and a beat you get rewarded. A lot of very astute professional people actually wait for the earnings to pass. And then they go after it. Meaning if its good, okay, we can chase it. Even if its missed. Because you take a huge risk, and were doing some of that. On the show, from time to time. And thats how you get paid. You also get murdered. I think this is going to be more misses than beats coming up. So youre looking at ge specifically. Why do that if the down side is that you can get murdered . Heres a great example. This is something that i think mike and i make to people, investors all of the time when we talk about uses options. When youre long premium, directional into events, you have to get a lot of things right. Timing right, magnitude of the move right. And most possible, you have to get the direction right. If you dont do that properly, then you get murdered like carter is talking about. But heres the thing. Every so often, sometimes you arrive in a situation where you dont think the Options Market is maybe pricing the situation clearly, and it looks like a really good risk reward. Thats why i want to look at ge. But first a step back to honeywell last week when they surprised the market and guided lower than they had geuided in july. The stock down 7. 5 on october 7th. Im looking at ge, they report on friday morning, before the opening. And the Options Market is implying a 2 move in either direction. Thats nothing. And you know, one of the things interesting to me about ge is the stock is also down on the year, down 12 from its 52week highs. The honeywell news is in the stock for all intents and purposes. That chart is not giving me carter, ill get to it. A whole heck of a lot. Needs to hold around 29. Heres the thing. I think theres probably a lot of bad news in the stock. If they dont guide down, i think the stock probably goes up a buck here. And im looking out october 21st, next friday, expiration, 29 strike calls offered at 30 cents. Thats basically 1 of the stock price. When i listed off those three things, all of the things i have to get right, it makes it a lot easier if youre only risking 1 . If theyre able to come in line, guide up a little bit, i think the stock is at 30, three times what im risking. Heres the way to think about it. If this stock moves less than 30 , you might have been better off trading the stock 30 cents, im saying f. It moves more than 30 cents, thats indicative of why you want to trade options in a case like this. Youre risking very little. What are the chances this thing is going to be trading within 29, 30, and 28. 70, one week from today after we have the Earnings Data point . I think the chances are actually pretty low. I think theyre two burdens proof on bull in this case. One, 13 weeks ago, coming up, the quarterly results, good or bad, theyre actually big beat, stock gap down. Comes in twos or threes. The second is the relative performance. Meaning post labor day, the market rallied back to a high. Trailing down, trailing down. It just seems heavy. Listen, to use your expression, you use it all of the time in print. Its kind of a choose your own adventure. Heres the thing. If they are to guide down, this stock is going down to 27 bucks. Quickly. And honeywell and then youre im just telling you, its going to be down. 6, 7, 8 . Of. The reason that would be the case, the thing trading almost 20 times next 12 months estimated earnings. Not exactly cheap for a company that hasnt been growing at all. So if you have a situation like that, and it is a little disappointing, it doesnt justify it 30 3. 2 dividend yield. Which is wellcovered. Right. And they buy back a whole heck of a lot of stock here. Listen, i think honeywell showed us, there is gap risk, and you want to be contrarian, youre risking into an event. Does this mean youre optimistic about industrials in general, or just no, not at all. I just dont think its a good press on the short side. If you were coming in as an options trader and said i could use 30 cents to buy the put or the call, i would rather buy the call than press short. Moving on, the other big story this week was a selloff in bonds. The u. S. Ten year yield at its highest level since june. That is creating an opportunity in one group of ratesensitive stocks. So carter. Reits, utilities. Were going to look at utilities. And in principle, almost there is no precedent. If the market is in trouble, even as bad as these have been, theyre likely to offer alpha and outperformance. So im going to make the bet the utility is a bit oversold here, overdone and going alongside. All right. Longterm chart. This is back since all data begins in late 89. Now, how do we draw the lines . Lets see. First thing i see is this. Yes, you have welldefined tops. And you have that breakout. Its a little bit were checking back to the point at which the line comes into play. You can also draw it this way. We have ascending a nice line, put them together. Weve back into the point at which i think youre going to get some support. Lets keep going. Okay. Now, these by definition cant outperform during a bull market. This is the absolute low in 09. Bull market starts all the way to here. We know they underperform, all the way, of course, because theyre bonds. Whats important is they broke above their down trend. Their relative down trend. Ive lost my charts. Okay. Well, that happens. Here is the longterm story. Utilities having underperformed are now outperforming and breaking above a longterm down trend and finally rates, which have were going to get a little help. Thank you. Rates which have now backed up, lets lets go back to this chart. Thank you very much. So thats important. But now take a look at this. This is the part that i think is interesting. If you take your low over the last two years, and you those who get into replacement levels, these are the exact numbers. 63. 46 points, pull back 31. 64. Exactly a 50 replacement and bounced to the penny off the line. I think that bounce continues. We know that, of course, the bonds have moved up in terms of yield, and utilities move down. But really, are rates moving that much higher . This is the longterm pick you are of rates. And i think ultimately, its this, and were going to go to new lows. I want to be buying utilities as a defensive thing here. All right. So mike i think we need to make an important distinction here. Utilities are a yield trade, but not a fixed income trade. Okay. Bonds are a fixed income trade. So when rates go up, that doesnt necessarily mean that utilities are going to go down. Take a look at the last tightening cycle we had, started in june of 2004 to 2006. I think we have a chart. Take a look at how utilities did. Up 36 over that time frame. Now if you think its because stocks were rising, take a look. Yes, stocks were rising. We have another chart that shows the s p. But the s p was only up about 14. 5 over the same time frame. What was interesting there is that even the shortterm rates were rising, significantly. Longterm rates did not rise. In fact, in september of 05, yield curve actually inverted. It is absolutely possible for yield trades to rise, even as shortterm rates are also rising. And kind of like what dan was talking about right now. Options are actually relatively cheap. I think the very simple thing to do here is buy the january and 48 call, spend 1. 55, look for opportunities to spread. This is one of those situations where if you get a little mommy, you want to start to monetize it. Do you like this trade . I do. Some may remember last month i tried this using december expiration, similar entry around 48 bucks here. These guys have a better run here. I like it. And i actually think because i think the fed is going to raise in december. But i think theyre going to be i think theyre going to be sitting on their hands for a while. And i think im not sure pressing a trade, thinking that the tenyear treasury is going to make a new low is a great trade. Thats a longerterm thing. This selloff in utilities already priced in some sort of 25 base point bump. The other thing also to Pay Attention to is that valuations like in many other places are not cheap here. In fact, utilities the top five names like the southern companies, the next eras, all these. These are actually trading at valuations that look a lot like the tail end of the last rate hike. Not the beginning of it. So evaluations are not cheap. But if youre going to play it directionally, options actually are relatively inexpensive and you can make your bets that way. Got a question . Send us a tweet to options actions and check out our website, options actions. Cnbc. Com and while there, check out our super cool newsletter. It is a mustread. In the meantime, heres what else is come up next. Im lovin it why investors arent loving mcdonalds. If youre worried about earnings next week, relax. Weve got a way to buy protection. Plus microsoft shares surging today, but these guys want werent the only ones celebrating. How high it could go when options actions returns. [pony neighing] what . Hey gary. Oh. Whats with th returns. E . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. We only do it for everyone gary. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Welcome back to fast money i mean, options action. Im dominic chu. A number of notable large cap stocks are weighing things down. So we took a look at s p 500 stocks in search for those near their 52week lows. Turns out around 30 are within 5 of those marks. And some are big familiar brand names. So youve got like coffee companies, starbucks, just a percent away from its lows that hit back in early february. The stock has been trending lower, but analysts still think they have 23 upside from creme levels, according to data from fact set. Another big name, nike. The Athletic Apparel giant just after the brexit vote in june. Analysts price targets getting lower but they still think there is an average 22 up side. And then the embattled epipen make e mylan, just hit a 52week low last week. Analysts say there is still 47 upside. One thats not on the list but still has been hovering near its lows of 2016, and thats mcdonalds. Analysts still think there is 13 up side from here. Melissa, are there some traders who think these big brand names have gotten low enough to become compelling value plays. Back to you at the nasdaq. Thanks,dom. And get your shows right. Have a good weekend. So whats a good way to protect yourself from more losses as we head into earnings season . We have our call to action. What are you looking at . I want to look at mcdonalds but first talk about using a collar. This is a strategy you use against a stock you are long, that youre looking for protection. You dont want to sell the stock, but you dont want to also just be long premium against that stock. If you do that too frequently, thats just going to whittle away at your performance. So lets go to the playbook, lets talk about what a collar is. Its essentially against a long stock position, selling out of the money call and using the proceeds to buy an out of the money put. Creating what we would call a collar. Why do you want to do that . Well, youre cautious, nearterm. You dont want to sell your stock. In the case of mcdonalds, for instance, going to pay a 94cent dividend on november 29th, e next week. 2. 5 in either direction. The stock has been kind of gappy. The other reason is that you just dont want to buy puts all of the time, like i said. You want to finance the protections. Youre selling out of the money call, essentially overwriting your stock and using proceeds rather for yield but to use that to buy puts and give yourself protection to the down side. The last point i would make, youre willing to sacrifice some of the up side by selling that call, because your gains in the stock are going to be capped there to get that down side protection. Is youre leaning a little bit more to the down side here. I just want to look at mcdonalds. The stock, as dom just said, banging around here, near its 2016 lows, doesnt act well. Carter always says you want to sell weakness here. Look at the air pocket, the big gap the stock had last year when they introduced the allday breakfast. That was a big thing. The stock moved. Almost 30 from that. And here is over a longerterm situation. The stock spent years consolidating. Here was that gap, kept on going to above 130. Now were at 115, all i see is an air pocket, if i own that stock, for a whole host of reasons. I may be worried in earnings next week that 55 of the sales come from overseas. We know that competition is redhot for mcdonalds and we know theyre going to come up against the anniversary of the allday breakfast. Whats the date trade for mcdonalds . If you look out to january expiration, you can sell. The january 120 call at 1. 45, use the proceeds to buy the january 105 put for 1. 30, resulting in a 15cent credit. You can make money in the stock up to 1. 20, plus the 15kept credit and then you have losses in the stock down to 1. 05, but protected below that. I want to go back to this chart. Im thinking about the air pocket, one reason why you may be looking for some down side disaster protection that doesnt cost you anything. Thats the point of the collar here. Im not trying to get taken out of the position. If the stock is above 1. 20, i can cover that call and not be taken out of the position. Dan knows it. It was associated with earnings. Exactly a year ago. It was october 22 nd, and they beat big. Consensus was 1. 28. It came in 1. 40 when the allday breakfast started to have traction. While not all gaps are filled, the risk is this one will be filled. And the stock acts poorly, its a a held and shoulders top if you want to draw lines differently. Last year a revenue decline of 2. 5 , 7. 5 , probably 3. 5 this year. Next year, 6. 5 . They are losing the burger battle. They really have to other than allbreakfast, have to pull another rabbit out of a hat. I like collars in general. We saw a lot of trading this week in pfg. This is a really good strategy if you want to hold on to your stock. In mcdonalds case, i dont know why you would want to. And restaurants in general, panera is heavy, buffalo wild wings. If you look at the s p 500, restaurants sub industry group, big topping out formation. In terms of extrapolating this strategy in this view towards other consumer stocks, as carter mentioned, what would you look at . Yeah, so heres the thing. You dont want to do this strategy too much in stocks like amazon and facebook. One of the things, ill just say, i think the fundamentals have changed in mcdonalds. Investors were caught offsides. They had new management, they had a restructuring and dramatically changed. It was like a dramatically changed their menu. It was the perfect storm. What has the stock been doing since july . Lower highs and lows. If you own it for your kids, this is a strategy that around a potentially volatile event makes sense. They have been trying to put out the more upscale burgers and not getting a tremendous amount of traction. Well find out. Thats the story youre waiting for and if youre hanging on to your stock, what youre waiting to find out. Microsoft surging 1 today as the company gets ready to report earnings next week. We will explain. [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. We only do it for everyone gary. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Welcome back to options actions. Time for total recall where we look back at some of our open trades. Two weeks ago, dan said shares of microsoft were about to rally. Take a listen. So listen, heres the trade. Very simply. You look out to october expiration, the company is going to report a day before that, okay . The october 57. 5 calls when the stock is trading at 57. 5 today, are offered at 1. 45. The stock is flat since then, but the company does report earnings next week. Dan, what do you do . This is a great exactly what we were talking about before. I dont think you want to be long one week option into this event. They are now worth 1. 25, worth 1. 45 a few weeks ago. I think you want to roll this view out if you remain bullish and want to play for the breakout. Because otherwise its a very binary event. If the stock just goes down, a couple cents from here, its a total wipeout. I think if youre still bullish, you roll it out. There is a gap below so thats a risk. What you have to say, this stock has held up remarkably well. In a dodgey tape here. Especially over the last three weeks. I would say youre respective on the long side. Now to verizon. Poised to break out . So weve had something of a a pullback to a level where rebound potential is high. We have a down to a trend line. Maybe a 10 correction. I think this is a good time to take advantage. You could buy the november 52. 5 calls and spend just over 1 for that. Stock is down about 3 since then. So carter . Got murdered on this one, obviously the right kickup. What is important, we just talked about utilities. If you look at the correlation, verizon and xlu, it runs 85, 90 . I think we want to stake with this one. The nice thing, we only spend about 1 to get the call. Only worth 30 cents now. We have e coming up. This stock actually moves about 5 . That would take us right back into the money if this thing rallies. And im not going to sell the call at 30 cents on a 50 stock at this point. We knew how much we were risking. Letting it ride at this point. These are the only guys that didnt say anything about the iphone 7 uptick. I think this is going to be a very important quarter for at t and verizon. It may get investors focused on fundamentals again. Especially when we know verizon is out there buying 5 billion yahoo 5 billion aol. Maybe less. Fundamentals may be something to keep an eye on. Up next, final call from the options pits. [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Wont replace the full value of your totaled new car. The guy says you picked the wrong insurance plan. No, i picked the wrong insurance company. With Liberty Mutual new car replacement™, you wont have to worry about replacing your car because youll get the full value back including depreciation. And if you have more than one Liberty Mutual policy, you qualify for a multipolicy discount, saving you money on your car and home coverage. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. We only do it for everyone gary. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Happy birthday at our friends Halftime Report kicking off the twoweek show in style. Some of the biggest names with david tepper, carl icahn on monday. After that, nelson peltz, jamie dimon, and bob kraft, all starting monday at noon eastern time. So you wont want to miss it. Happy fiveyear anniversary, guys. Lets get some tweets. This one from a millennial. How come dan is so casual for fast money and on fleak for options action . Hash tag pinky up. Pretty simple. They have the professor here and my so, you know. You havent gone a pocket square yet. Saving it. Next from bryce. Any ideas on options strategies . This is one of the most aggressive stocks. 2 1 2 times the market, a great performer. Be the long side. Yeah, but the options are pricey so probably want to do an upside calendar spread. All right. Time for the final call. Carter, what do you say . I like utilities. Its a contrarian and defensive play. Michael coe. Happy birthday to my dad, 79 today. Happy birthday, dr. Coe. If you have a conviction in either direction, the calls or puts attract. Looks like our time has expired. Im melissa lee. See you back here next friday for more options action. Dont go meantime, dont go anywhere. Mad money with jim cramer starts right now. My mission is simple, to make you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere, and 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 some money. My job is not just to entertain but to educate and teach you. So call me at 1800743cnbc or tweet me jimcramer. My wife is going to hate me next week. In fact, shell hate me for the next three weeks because well be in the thick of earnings season, and the work is so overwhelming during this period that i dont feel like doing