Transcripts For CNBC Options Action 20161016 : vimarsana.com

On. Were going to bring you the power. Well tell you how to profit. The action begins right now. So lets get right to it because as we head into the earnings season, lets get in the money right now and we have a preview from some sectors. We had intel a few weeks ago. Better than expected. Honeywell last week and overall i think theres a lot of stuff cancelling each other out. I dont expect a huge move into or out of the morkt as a whole based on earnings and i would also expect the things that have been working, im not expecting a shoe to drop. At some point you always wonder whether valuation is going to start to matter. Theyve got a compelling story but at some point fundamentals are going to start to matter so i think earnings are going to tell whether that kind of data is flowing. If its a disappointment you get murdered and if its a beat you get happy assuming its on the right side. If its good we can chase it even if its a miss and you also get murdered. I think this is going to be more misses than beats coming up. So youre looking at ge specifically so why do that if you think you can can get murdered. We talk about using options, when your long premium, you have to get a lot of things right. You have to get magnitude of the move right and if you dont do that properly then you get murdered but heres the thing, every so often you arrive on a situation where you dont think its pricing a situation clearly and it looks like a really good risk reward. But first i want to take a look back to honeywell when they look like they had guided lower than july. So im looking at ge. They report on friday morning before the opening and theyre applying a 2 move in either direction. Thats nothing. And one of the things thats interesting to me is the stock is down on the year, its down 52 from its highs. That chart is not giving me a whole heck of a lot. It really needs no hold at around 29 so heres the thick. Theres probably a lot of bad news in the stock. The stock probably goes up a buck here and im looking next friday expiration, 29 strike calls are offered at 39 cents. When i listed off those things that i have to get right, so if they are able to come in, guide up a little bit, thats three times what im risking. If this stock moves less than 30 then you might have been less, but if it moves 30 cents one way or the other youre risking very little and what is the chances that this will be trading would be week from today and i think the chances are actually pretty low. I think there are two burdens of proof. One, 13 weeks ago, the Quarterly Results theres a gap from the last earnings and the second is theyre out of performance meaning post labor day, this stock has been trailing down. It just seems heavy. Listen, to use your expression, its kind of a choose your own adventure, if they are to guide down, this is going down. Its going to be down 6, 7, 8 . The thing is trading almost 27 times the estimated earnings. So if you have a situation like that it doesnt justify 30 handled on the stock price. And they buy back a whole heck of a lot of stock here but i think honeywell showed us. Does this mean youre optimistic about industrials in general . No. If you were coming into it saying i could use 30 cents using the put or the call i would rather have the call. The u. S. Tenure yield paying its highest level since june and that is creating an opportunity. Were going to look at utilities and in principal, almost theres no precedence. If the market is in trouble even as bad as these have been theyre offered to offer outperformance. So long tomorrow chart, this is back since the data begins in late 89. How do we draw the lines . The first thing i see is this. Well defined tops and you have that breakouts and were checked back to the point at which the line comes into play. You could also draw it this way. Were ascending a nice line, put them together, were back at the point which youre going to get them together. Now, these by definition cannot perform. This is the absolute low in 09. Market starts 09 all the way to here and they understood perform but they broke above their relative downfriend. Ive lost may charts. That happens. Heres the longterm story. And then finally rates which have, maybe were going to get a little bit of help. Rates have now backed up. Lets go back to this chart. So thats important, but take a look at this. This is the part that i think is interesting. If you take your low the last two years and you guys that get into the exact numbers 63. 46 points, that is exactly a 50 retracement and it bounced to the mpenny off that line. Utilities have moved down, but really are rates moving that much higher. And i think ultimately its this and were going to go to new lows. I want to be buying utilities as a defense ifr thing here. I think we need to mach an important distinction here. Theyre not a fixed income trade. Bonds are a fixed income trade. That doesnt necessarily mean that rates are going to go down. Talk a look at how utilities did. If you think because stocks are rising, take a look. We have another chart that shows the a and p, but it was over the same timeframe. What was interesting there is that longterm rates did not rise. In september of 05, yield curve actually inverted so it is possible for yield trades to rise even as short term rates are also rising. And options are relatively cheap. So spend 1. 55, look for opportuni opportuni opportunityties to spread though. Do you like this trade. I do. I tried this using december ex pir rations. I think the fed is going to raise in december but i think theyre going to be sitting on their hands for a while. Im not sure pressing a trade thinking that the tenyear treasure is going to make a new low. But they have this selloff in utilities where priced in. The other thing is va valuations like in many other places are not cheap here. The southern companies, the next er eras, these are looking like the trail end, not the beginning of it. Options are relatively inpex s pensive. And check out our super cool newsletter. It is a must read. In the meantime, heres what else is coming up next. Frp. But investors arent loving mcdonalds. Relax because weve got a way to buy protection. Plus, Michael Phelps shares are resurging today. Well tell you just how high the options could go when we return. [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 action. Stocks are trying their best to find their path to the upside. We took a look at s p 500 stocks and turns out around po of them are within 5 of those mork marks. The stocks been trending lower but analysts still think they have 23 upside from current levels. Another big name here, nike, also hovering near its lowest from the brexit vote in june. But they still think theres an average 22 upside. And milan hit a 52 low last week, but analysts say theres a 47 upside and those are just a handful of those on the notable list. Mcdonalds, analysts think theres 30 upside from here. So are there some traders who think theyve had some notable investors . Dans over at the smart board with our call to action. What are you looking at . So i want to look at mcdonalds but i want to use about using a collar and this is a strategy that i youre looking for protection. You dont want to sell the stock but you dont want to be long premium against that stock. Thats going to whittle away at your performance. Lets talk about what a collar s. Its essentially against a long stock position. And using the provides to buy an out of the money put, creating what we would call a collar. Why would you want to do that . In the face of mcdonalds youre going to pay a 94 dividend. The Options Market expecting it to move a half a percent in either direction. The other reason is that you you just dont want to buy puts all the time. Youre selling out of the money call youre overriding your stock and youre using those proceeds for yield but youre using that to buy protection to the downside. The last point that i would make is that youre willing to sacrifice some of the upside by selling that call because its going to get that downside protection. I just want to look at mcdonalds. The report next week, the stock has been banging around here at near 2016 lows. Carter always says you want to sell weakness here. Look at this air pocket. Thats this big gap that the stock had last year when they swro deuced the all day breakfast. The stock moved almost 30 from that and hers over a longterm situation. The stock spent years consolidating. Heres that gap. Now were at 115. All i see is an air pocket if i own that stock for a whole host of reasons. We know that competition is red hot for mcdonalds and theyre going to come up with competition to tallday breakfast. You can celebrate the january call at 1. 45. You can use the proceed to buy the january 1. 05 credit. You can make money in the stock up to that credit and then you have losses down to 1. 05. I want to go back to this chart. Im thinking about this air porkt and that may be would be reason why youre looking for the downside protection. Im not trying to get taken out of the position. At any point i can cover that call and not be taken out of that position. The air pocket is everything. It was associated with earnings contactually a year eago. It was when they all started to really have trarction. The risk is that this one will be filled. I mean, the last couple of years you had a revenue decline of 2. 5 . Next year probably 6. 5 . They are losing the burger battle. They really have to theyre going to have to pull another rabbit out of the hat. We saw another example of rabbit trades a week ago. And restaurants in general, paneras heavy, or Buffalo Wild Wings and whether its consumer in jeb, its topping out formation. This view towards other con somer stocks what would you look at . So here oothe thing. You dont want to do this strategy too much in amazon and facebook, but i think the fundamentals have changed in donalds. Investors were caught offsides. They had a restructuring and they changed it was like a p perfe perfect storm. If you own it for your kids that is something that makes sense. They have been trying to put out these upscale burgers. If youre hanging on to your stock, thats what youre waiting to find out. Microsoft surging nearly 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. Time for total recall where we take a look back at some of our open trade. Shares in microsoft were about to rally. Heres the trade. You look out to october expiration. The companys going to report a day before that, the october 57 and a half calls are offered at 1. 45. Stock is flat since then but the company does report earnings next week. I dont think you want to be along the oneweek option there. Theyre worth 1 po. 45 a few wee ago. Otherwi otherwise, if the stock goes down a couple cents from here, i think youre looking for a wipeout. Theres a little gap below so thats at risk. This stock has held up remarkably well especially in the last few weeks. Lets move book to verizon. Weve had something of a pull back. Rebound potential is high. We have a 10 correction. I think this is a good time to take the correction. Stock the down about 3 on that. So obviously the rate kickup and we just talked about utilities. If you look at the correlation, i think we want to stick with this one. We only spent about a dollar to get that call. We do have earnings coming up. Typically this stock moves about 5 . That would take us right back into the money if this thing rallies and im not going to sell it on a 30 stock at this point. Ill just say this. You didnt mention fundamentals. These are the guys that didnt say anything about the iphone 7 update. So this is going to be a very important quarter. It may get them interested in fundamentals again. Maybeless. Yeah. May be less. Up next, final call from the options. [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. Happy birthday to our friends over at the noon show. They have an incredible lineup with some of the best. All starting monday at noon eastern time so you wont want to miss it. Happy anniversary. Lets get to some twitter questions. Weve got the professor here and ive got my so you know. No pocket square action. Next one, any ideas on option strategies for a and d . Its been a great performer and the longterm base is legitimate. Stay on the long side but the options are pricey so you want to do an upside counter spread. Last word. I like utilities. Its a defensive play. Im going to play High Pressure pi birthday to my dad who turned 79 today. Happy birthday, dr. Ko. If you have a conviction in either drerks, the direction. For more options actions dont go anywhere. Mad money 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. And the versatility for abovefloor cleaning, too