Transcripts For CNBC Options Action 20161202 : vimarsana.com

Okay, you must have heard that a curious move in the grains could be your signal to make some serious bread. The action begins right now. Green acres is the place to be lets get right to it. This week was all about the trump on trade with energy financials, industrials, materials. Once again outperforming the rest of the market. Whats a way to play catchup . If you missed out on these gains . Dan, what do you say . Health care stocks could be some of the names you mentioned in the sector really has to do with what people perceive to be the next administration, policy, deregulation, and how it may affect those sectors. One sector coming into this that got a huge pop right out of the gate november 9th and 10th was health care stocks, biotech and big phrma. I think that sets up pretty interestingly, because to me a lot of the reasons why those stocks have sold off since then have more to do with surging rates and the dollar. Especially when you look at some of the big phrma stocks, considering the 50 exposure that some of the big ones have overseas. Thats the dollar implication and all are good yielders, too. Some of the biggest names, pfizer, merck, 3 . Dividend yields with rates going higher. So to me, i think its not just, you know the fact they have given back has little to do with the rotation about regulation and whats going to happen under the next administration. But some of the we have talked in the past about the fact that high dividendpaying stocks, some people my belief they deserve a lower multiple in a rising rate environment, especially the longer rates. Actually, if you look at the valuations right now and compare that to basically what tenyear rates look like ten years ago in the valuations right now, a lot of the big names trading 15 times or less, they actually dont look all that expensive. You know, probably 25 discount to the s p. There is the dow principle at work here in many ways. This group, this area of the market, was a huge outperformer on a consistent basis, specifically biotech. And then two years of underperformance. This year is a disaster, last year was a disaster. At some point mean reversion kicks in. And the spread between just yeartodate, youre talking about a group thats down 5. 5 , s p up 7. At some point, that just doesnt last. All right. So lets get the trade here, dan. And then well talk more about this. Ive got some questions. Ill hold off. This is the Energy Select etf. I want to look at this in particular, because johnson johnson, merck and pfizer, the three largest component xld. What did i say . Xle. Health care. Xlv. In 25 of that etf, like i said, those three names, they all yield about 3 and a quarter percent on average. Theyre down a lot. One of the things really interesting, though, when i look at this here is that, you know, we have a chart, and, you know, hate to step on your toes there, big guy. You say that every time. But as i say back to you, youre entitled to draw lines. Heres the thing. I think there is risk nearterm, down to 66, okay . The worstperforming sector, etf, in the entire s p 500. I think we get that dog to the dow to a play carter is talking about. You want to set up before the fed meeting. I think if the fed 100 certainty theyre going to raise rates 25 basis points. If the statement is more dovish, you could see the dollar stop going up, rates stop going up. That may be enough to go back into these stocks. One of the things i want to do as we head into the Holiday Season, two extra days off and could get slow trading. I want to do a trait on the xlv on the risk reversal, selling a down side put and buy an upside call. I want to try to capture what i think is going to be the dogs trade here. So when the xlv was trading 68. 5 today, you could sell one of the january 66 puts at 80 cents, boy one of the january calls for 75 cents. Put that on for a 75cent credit. As the stock moves higher before january expiration, this position will make money. And you have profits on january expiration above 70. As the stock moves toward the short put, you will have mark to mark losses and then have losses on january below 66. What i want to do is define a range where if things do go sideways, im not buying the stock here and have that risk and i have a really wide range here. So if nothing happens, then i make 5 cents. I like these strategies, generally, and i can sort of see where youre picking that 66 level. Obviously, if you take a look, the stock hasnt traded much below 65. The counsel side risk relatively small. The only thing i would say, because this is a relatively low volatility space. What you end up finding, those strikes are pretty tight. So youre not getting a whole lot of cushion to the down side. Just real quickly, than buying a call. Think about what buying a january call over the next week and a half or two or three as we get into the Holiday Season, just going to decay. What im trying to do is avoid that decay and set up something where its leveraged to the up side. The key thing you started with, this did move initially, post election. You had a 10 move. And its this pullback that provides the entry point. The only thing i would point out, the ibb looks the same and if one wanted to get more juice, one could do that as well. But im specifically looking at the xlv for reaches i stated about the yield, about the performance and the down side is going to be relatively small. Johnson johnson, merck, pfizer. These are not names that are going to take a big header at this point between now and january expiration. All right. Well, as noted, the financials have been a standout in the trump rally. Two stocks have closely followed the group have not paramedic. Take a look, in fact, at visa and mastercard following a respective 9 and a . Its interesting. Vicea, i thought we would focus on that. Visa doesnt trade like a financial. Vrieza trades more in line with tech. Just a couple things sort of bother me about the recent action and i thought we could talk about them. So a twopanel chart. It says visa, so thats what it is. And the situation is as follows. We were able to break out, what you can see here and make slight new highs and so forth. But the relative performance of the s p, visa was never able to make a new high. In fact, it hasnt made any net progress in about seven months. Even as it was making absolute highs as recently as a couple weeks ago. And so then theres just the absolute chart itself. And, you know, i didnt make this fit. This is the absolute low. Of the last three years. Thats your intraday sort of flash crash low. And weve broken. Weve broken trend. Thats usually the beginning, not the end, of a period of weakness. Now lets look at the longterm trend and where we might be headed. To my eye, were going to come down and basically touch, be even if you wanted to say this could be moved up a little bit. But were looking at another i would say 70 bucks. This closed, you know, higher than that, and a good trade on the short side. Mike, how are you trading this . I think this is interesting. Obviously a real success story. We have some things were looking forward to in 2017 that arent quite as good. Probably looking at a little bit of margin compression. 40 of the Payment Processing space, including visa europe. They have some interest expense associated with that acquisition, number one. And also acquiring new business. Like, for example, getting the costco affiliation card from american express. Theyre basically giving up more incentive. So i think one of the areas where they have really done very well is obviously continuous growth and broadening margins. That margin probably not going to see as good growth in either of the two areas. So because the stock has actually dropped a little bit here, implied volatility, the cost of options, has actually ticked up. So we want to use a spread, specifically. Im looking out to march, the 75, 65 put spread when i was looking earlier today. You could buy for 345. Sell the 65s against it for 80 cents. That helps offset some of the decay that youre going to experience and actually dan was alluding to this. Between now and january, maybe not a whole lot is going to happen, except, you know, probably something coming out of the options. Yeah, and so its just a really difficult time to own options, especially if we get through this fed meeting and everything goes kerr plunk, does nothing. Like the market is okay with it, then you go into a period where maybe until the inauguration where people are just kind of continuing this sort of slightly upward trend. If you own puts, its going to be a hard way to make money, just to stay in the game. And one strategy i would just say in and around the Holiday Season is if youre looking out to march like mike is doing and buying the near the money put, maybe there is a way to finance it by doing the calendar. Sometimes selling the shorter dated one and buying the longerdated one. The other thing that stands in great contradiction with the behavior of certain retail names, and consumer names, which have actually come to life, even macys and tiffanys have bottomed and showing some form of accumulation. Whereas these are really retail stocks. They have the best data in the world in terms of traffic and so forth. And its heavy. Mastercard is heavy and paypal is heavy. Visa is heavy. Something is not right. Some of the data indicated the transaction volumes are strong. But it just goes back to potential future growth and potential future margins. And both of these areas are probably not going to see the kind of expansion you have seen over the last two or three years. We focus on visa, but you think that visa, master card and paypal all feel the same way. They do. Obviously, master card and visa. Even paypal, heavy and late, not keeping up. Going down for the last four, five sessions. Send us a tweet to options actions and for everything options action, check out our website, cnbc. Com. While there, check out our super duper cool newsletter. What are you waiting for . Heres whats coming up next. Soft commodities have wilted this year, but there is something in the charts that suggests now is a time to buy. Well explain. Plus pretty cheesy. But it pretty much sums up what oil did this week. If you missed the moves, there is still one more way to make money in crude. Well break it down when options action returns. 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. 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. Its been a wild couple of months for the commodities space. Seema mody is in the newsroom breaking down some of the big moves. Its been a big year for commodities, but as you know, not everything has participated in the rally. Heres what we mean. Lets start with the good. Take a look at copper and plate yum up a respective 33 in 2016. The two getting a boost from the trump rally and now sitting near 52week highs and then there is gold and silver, which have been hit hard lately but both still up double digits this year. And crude oil is also surging up 40 in 2016. On the flip side, the soft ages, things closely tied to farming are getting dragged through the mud. Corn futures down 3 this year and there is wheat, down 14 . And sitting close to a 52week low. There has been one bright spot, soybeans up 19 yeartodate. But prices are down about 15 from their recent high. The strong u. S. Dollar as well as oversupply concerns have been a headwind for many in this space. Whether or not the soft ags can firm up remains to be seen. So carter, you say this divergence could create a buying opportunity of one stock. There is a lot going on here. Lets just put it in context first. So commodities run the gamut. Youve got butter and eggs and cheese, and youve also got, of course, steel and gold. What i thought i would set up here is the current spread between what you call softs or food stuffs and obviously raw industrial commodities. Versus all commodities. So the optics are clear. The blue line is raw industrials. The laggard, the green line, food stuffs. And in the middle, orange, is all commodities. Of which these two are subsets. So this is the chart absolute. If i were to freeze all commodities and hold them as a constant across the screen, theres the orange line done a different way. Instead of all three absolute, im going to expose the spread between the laggards and the leaders. Lets do it on a longerterm. There they are absolute, five years. Raw industrials up here, food stuffs down here. Heres the spread. Lets do it even longerterm. This is since all data begins. Heres the spread. Now this has only happened about five times in history, going back to 1980 where youve got 3,500 bases points a spread. 15 in either direction, its actually beyond that now. And what happens Going Forward . In this fairly rare circumstance where everyone loves one thing and hates the other . Usually right to take the road less traveled. So these are the data points. What happens . Two weeks later, three weeks later, one month, three months. This is the relative performance of the food to materials. And what you see is, outperformance, outperformance, outperformance in every time frame. Whether its the median or the mean. And what we are so far in the cycle now, two weeks later, this is already starting to outperform. Its already starting to outperform. And we would bet its going to continue to play in line with history. So a rare circumstance only happened five times. The spread is extreme and everyone loves this. And everyone hates this. I think im going to take the other side. Make, whats the trade off of this . I think potash a really simple way to handle this is so tell the january 18 puts, collect 75 cents for that. Thats playing off the dynamic, basically trading sideways through january. And bottoming out here. I think thats really the play that youre making. If you do have put to you, its at a very favorable level. 17, 25, effectively, if you have the stock put to you. The other thing, if you believe what carter is selling here, you want to look out a bit further. Skepticism is embedded in that. Im selling i dont mean it like that. But what im saying is, yours is a great onemonth trade for some of the dynamics we talked about. If you think this thing this stock has been cut in half or more so since the mid 2015. You want to set yourself up with more time over time. If we look they chart and i was remiss. A chart of potash is a gradual orderly bottoming out rotation. A rounding bottom, you can see it there on the screen. And so i would say even if this is wrong not necessarily that commodity thing. Thats going to play out. But even if potash is not the right vehicle, i dont think you have a lot of down side. You have asymmetrical trade. A huge move but your down side as it muddles along. And 75 cents on an 18 stock over the course of just a month is a pretty decent rate of return and you can buy this again and again. Say the word, asymmetric when youre selling a put. You can only take 75 cents. That doesnt speak to the opportunity of a chart. And talked about a gradual reversal and not something that will be taken out tomorrow. You dont like this at all. It sounds like you dont like this. Thats all right. No, but i think were talking about two different strategies. Two different time periods and buying what youre selling. Still ahead, oil just posted its best week since 2011, great news for all of our traders. Well tell you why when options action returns. [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. It blew right through the strike and in fact earlier this week you doubled your money. No shame in taking some profits and thats whats happened here. This thing is probably worth 80, 85 cents. So you definitely would want to take profits even if you wanted to express a bullish bet in oil. Dan made a bullish bet on energy a couple weeks ago. The xle was 70, 77 call spread. It costs about two bucks. You could be selling that for 4. 35 with xle at 75. And i guess my in agreement with these guys. Its moved so far, so fast. I think you could see some consolidation in these gains. Happened on opec. No one trusted opec before. I dont know why they start now. So you have a good winner here. I would like to see the xle consolidate and set up for a move to 80 and ill look to get back in the new year. Its wait and see, right . We have to start seeing inventory data. Thats really going to be dealt of whether or not the big agreement was, we should cut. But it should be you, not me. And, you know this is what has led to cheating in the past. Returned us to where we were a month ago. And you wouldnt just go up two, three, four barrels. You would get to where people who are bulls believe it should be, which is 60. Didnt do that. And the question is, once it goes to a certain point, when does production come back online in the united states. A lot of the industry in the united states, west texas, these places, a lot of these companies have been recap tallized, lifting costs have gone down. When you recapitalize a business, you basically flush out the old and now whats the new cost of producing. People used to say it was 65. And its substantially lower. If we get over 50 for any length of time, expect production in the u. S. To increase. Next, your tweets and the final call from the options pits. 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 what . Pony neighing] 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. Ask and you shall receive. Time for some tweets. First question for mike. January 1120 calls for facebook. Incredible setup over fake news going right back to 125. You agree . Okay. So my view is that facebook valuation looks fairly decent. But it doesnt lets talk about the chart. That doesnt look so great. So if i was going to make a bullish bet, i think the january 120 calls are probably not a bad way to play. I might look further out. The chart doesnt look great and its not just facebook, amazon, google, people who dont pay a lot of taxes. Has to do with prospective moves in the trump administration. There is a gap at 125, and were it to go up, thats a pretty good place to make your decisions. What do you think, dan . I suspect it sees 110 soon. Hmmm. Hmmm. Okay. Very direct. Our next tweet from brett ferguson, asks any trades on gld or gdx, fourth year in a row. Huge option build out till march in both. Carter. Everybody has been trumped, right . Gold plunging and the bonds sinking and youve got industrials and banks surging and so forth. I mean, i think you either sell puts, like i can let you pick a strategy or do a risk reversal. Gld has gone down quite a bit. The ball has not gone down that much. Big buyers of the calls yesterday. We actually highlighted it on fast. And i think thats probably a decent way. Give yourself at least 90, 100 days, to make a bullish bet. Quite inexpensive, actually. I guess whats the fundamental reason to do it right now . Fundamental reason, there isnt a fundamental reason for gold. I mean, gold is not an investment. Well, no. Not a safe haven in any way . Not something you have to have in your portfolio . Thats a bunch of gibberish. All right. Thats nonsense. Okay. Last but not least. Too late to buy puts into the fed hike, dan. I think so. This is a pretty epic shortterm move, caught a lot of people off guard. A lot of people calling for a bond crash for a very long time. I just think there is a good chance the fed is not going to make the same mistake they made last december. The move is telegraphed, theyre going to raise 25 bips. I dont think theyre going to do another 100 basis points over the next short period of time and i think you probably see bonds moderate a little bit. And is short under the curve is not going to swing under the carve. Tlt is a long term rate. Very aggressive move. 17 to 25. Final call time. Carter. I want to play the commodity track. I think thats the best way you can do it. Visa also. But put spreads, visa. Xlv. Our time has expired. Im melissa lee, thank you forw. See you back here next friday. Meantime, mad money 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 save 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. Every night i come out here for two big reasons. The first is obviously i like the attention. But the second and more important reason is that i want to help you build and