Transcripts For CNBC Options Action 20161209 : vimarsana.com

Lets get right to it. Tech has finally joined the trump rally. Surging more than 3 to a record high. This as we saw big moves from tech titans, alphabet, microsoft, facebook and apple. So is tech your best bet and which stocks could go higher . Lets get in the money right now. Not a moment to spare, dan. Yeah. So we spend an awful lot of time talking about them and oddly we have not been talking a whole heck of a lot about them. Whats interesting there, when you look at amazon and facebook, they have not really participated. Theyre still down 10 from their alltime highs. Possibly a valuation thing, possibly in october. The other two, the ones that have very reasonable valuation, apple and alphabet started to join the party. This week alone, lets talk about google, up 5 . It had a really nice balance off what looks to be some support. Look at this rally. This stock has just joined the party and apple did too. This one is interesting, when you this i about it. There is a Company Expected to grow earnings next year, 19 . It trades at 19 times that expected earnings growth. To me, it seems like it sets up for valuationwise, i dont know that apple seems like the same kind of story that alphabet does. Its a hardware company. We dont really know whether, you know, their system is basically what the future holds. But for al phabet, it definitel is. This is a battle basically going on as we talked about before the show between oracle, amazon, microsoft and alphabet competing in cloud space. This is where the future is at, one of the few places you can say this is what the future holds. The issue, is the weakness or underperformance i had owe syncretic to google. Its a rotation to market. To pay more caterpillar and u. S. Steel, people have basically been trimming their amazon, facebook, their google, their microsoft. So what we know, we have had 1,100 base points of relative underperformance and now perhaps a little bit of money going back in there. There also is this, almost directly correlated to your tax rate. Those stocks are not performing, because the tax cut is not going to help. Whats going to help them, 84 billion in net cash, alphabet, okay . That is certainly going to help them. They announced a 7 billion buyback in october. And they are now going to have this cash they can go and do some stuff with we know the linkedin, microsoft deal just closed, a 26 billion deal. Alphabet never made a sizeable deal. So maybe that happens in chasing a late rally, trading exactly where it was five months ago. And also trades at 12 times next years expected earnings. Lets go through the trade. So listen, heres the thing. The stock just rallied, we had that oneweek chart here. I dont chase stocks. I want to look out and target the next identifiable catalyst, q4 earnings, either late january or early february. I think you want to look to february expiration and use a risk reversal here. Thats good to give some time to actually not be just naked long premium and kind of the stock can bang armed a little bit between now and february, the event im targeting. So today when the stock was trading 8. 05, sell one of the february 7th 60 puts at 15. And use the 850 calls for 13. 50. It doesnt cost you anything. You make money above 8. 50, that would be a new alltime high on february expiration up 5. 5 . The worstcase scenario, you put the stock down at 7. 60 w he identified as a technical. Thats also down 5. 5 . But this straight shot, if you have to get involved now, it gives you a little room to the down side, leverage to the up side. Youre not exactly chasing it here. On a mark to market basis as the stock goes down, you will have losses as it goes higher, you will have gains. But this is a value play. And if you think about it, thats really what youre interested in. This stock has underperformed the market for the better part of a year. Is the relative underperformance an opportunity or is it a trap . And thats to be determined. 7. 60 being the recent low, im assuming thats basically why you were choosing that lower strike, basically where it was just a few weeks ago. But look, the company is very cheap here. And 5 , one way or the other, doesnt really, you know doesnt really make that much of a difference. I will say that any strategy, though, that gets you long, this is one of places you want to be long. Makes sense to me. Can i make one point . One point. Really big point, though. Okay. People talk about facebook. Theyre coming at them, right . 1. 7 billion users. Bob peck told us google has seven properties that have over 1 billion users. Seven properties. When you think about the ability to monetize that and put some stuff together, i think thats a story in 2017. I have one last question for carter. That has to do with the broadening of the rally in technology. It seems like tech gain this week not necessarily the expense of the financials. What do you make thats right. Maybe to this point, its been rotation. Meaning coming out of here to go there. If its new money entering the market, you can get a real lift. The issue is this. All of the things that you have just cited about google were also in effect a month ago. And the stock has been the question is, is the underperformance at an end . Looks maybe daytoday like that. But to get new highs, i dont know. The burden of proof is on the bull. Turning to the president elect, Donald Trumps cabinet taking shape among his picks, Goldman Sachs resume. John harwood is in washington with the latest. Hi, john. Reporter hey, melissa. Its an intriguing Common Thread when you think about all of the times during the Campaign Donald trump described himself as a populist on the side of the working person in the country. Somebody who is going to take on wall street at one point in the campaign. He said that Hillary Clinton and ted cruz are both totally under the control of people at Goldman Sachs. Well, guess what . Gary cohen, the coo of Goldman Sachs, is slated to become the head of the National Economic council. Actually, becoming the third Goldman Sachs alum to hold that role. Bob rubin was the first under bill clinton. Steve friedman under george w. Bush. Now gary cohen. When you look broadly across the administration, gary cohen at the nec. Steven mnuchin, goldman alum as treasury second re, and steve bannon, also goldman alum, as the chief white house strategist. There is one cabinet post that has not been filled, still a lot of mystery around it, and that is secretary of state, Rudy Guiliani out of the running. Donald trump put out a statement this afternoon, saying that he respected Rudy Guilianis decision to stay in the private sector, he would have made a good cabinet secretary, said he would call on him for advice as appropriate. But thats got to be a big disappointment to Rudy Guiliani, who put in so much work as a surrogate for donald trump in the campaign. Just like chris christie, who did the same, Rudy Guiliani is finding he is not getting the job he wanted in this administration, guys. All right. John, thank you. John harwood in d. C. The trump rally has given Goldman Sachs more than 30 boost since the election. But the chart master over here says the stock is priced to perfection. What are you looking at . 30 a month is a heck of a thing. And not specific only to goldman. Its almost every other financial, right . In anticipation of what we know is going on at the long end of the curve. And or perspective fed activity. Lets put the current move into perspective. So a moving average, all it is just that. It tries to smooth out price. And you can use shortterm, longterm. What i found over time, as a lot of efficacy is the 150day moving average. Either way, lets just look at the sheer angle of this. So the issue is, is that sustainable . And its frankly almost so steep its going back this way and not allowed to do that. Yeah . Got to go out to the right every day. Anyway, this is a chart with 150 moving average. Let me put this in perspective. Now lets do it going back a bit further. In fact, going back to the high of 2007. Were within a hairs breath of that. How far above if we were to plot this, and plot that, and plot this and plot that and say, what is the actual percentage above or below trend right now . Well, heres a chart going back since the inception of data when they ipo ed. Goldman sachs has only been this far above its moving average, essentially 40 twice. Once was 1999. Actually, march of 2000. That was the end of that. And the second time was coming off of the financial crisis low. This was in late 09, early 2010. And here we are now, right at that thing. So the issue is, an angle like that, an angle like that, is that something if you have owned it, god bless, but do you take money off or buy more, or maybe buy more. I dont think so. All right. Now im going to do a little bit of fundamentals and then turn it over to moike. Just for fun in 07, this stock about to hit its alltime high. Its pe was 7. 2. Its pe now is twice that. Return on equity. This is really the key thing. The ability to profit. 21 times, 7 times. The whole operating business is different. Its not as robust as it was. Price to sales. 1. 7. 2. 9. The angle is steep. I think you let this go, if youve made money here, and if youve got a shortselling book, i would try it on the short side. You want to let it go, mike . I do. This has really been an extraordinary move. The problem i have, i have a hard time believing that any stock is really going to roll over between now and inauguration, right . So i think the way to play this is actually by selling an upside call spread. And the one i was looking at was the january 240, 250 call spread. At the time, goldman was just under 2. 40, so the price might be higher. Heres the thing. If the stock goes higher, the most youll risk is 6 bucks. If it stays right here or declines and i actually have a sense it could actually trade sideways through the inauguration, youre basically going to be paid in the meantime. Im not interested in laying out premium. Heres one thing. Listen, this move is extraordinary. And i was looking at a consolidated 2. 15 a couple weeks ago and i was like its going to roll over and its up another 10 . Its going to 250, going to make a high between now and inauguration. You dont come this far and not go to the profit also, its who you are in the market, right . So if one has the ability, dexterity, i. E. , implied, you can my question, if youre sitting there in a major document. Im saying this is the wrong trade. And or do you take some measures, whether its through options or something. Just to stay blindly long with an angle like that, over time mystery shows lets assume it gets lets debate the trade. If it gets to an alltime high like 250, between now and the third week of january, are youin clibd to run out and buy puts between now and christmas or christmas and new years . I dont think the answer is yes. We talked about the likelihood well see a steep selloff. You need some kind of catalyst to make that that happen. Look how traders just go for these big round numbers and go for prior alltime highs. I think its probably a certainty its going to trade 250 gotten now and january 20th. If youre going to sell that at the money its almost right there right now. Were talking about another 7 bucks, 8 bucks to go. Where do you think its going . Where do you think it could go . Its really not about whether it goes down. Its just that its the ability to go much higher is very low. Okay. Got a question out there. Send us a tweet to at options action. Check out our website, options action at cnbc. Com. We have videos and a recap of all of our trades. And while there, check out our newsletter. What are you waiting for . Heres whats next. Look, up in the sky its a bird its a plane no, just the Dow Jones Industrial average. If you missed the move, weve got names you can still buy. Well break it down. Plus heres how it feels to own bonds. But if you lost money, relax. Weve got a way to get some of it back, and well explain 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. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at td ameritrade. Welcome back to options action. As major indices continue to make record highs, more and more stocks join the rally. Dom chu is in the news room to explain. Dom. I see what you did there, melissa. Lets focus on breadth, that major of range and scope, rather than that air in and out of our lungs. Heres what were looking at. One of the more encouraging signs is not only the upward direction of prices but how many stocks are rising in the tide. So this chart shows the cumulative advanced decline line for nys etraded stocks. Its its a measure of breadth. The upward trend means that there are more net advancers than decliners and its been that case for a while now as shown by the upward trend you see in the chart. Were also getting other encouraging signs, as well. How many stocks are making new 52week highs. We had around 112 in the s p 500 yesterday, make new highs. Today 41s making new highs, including record highs for consumerrelated stocks like darden restaurants. Also transportation stocks. Like southwest airlines. Alaska airlines, and also u. P. S. , as well. So melissa, that positive breadth is whats giving bulls that breath of fresh air. Now, can it stay that way is the question. Back over to you guys. Thank you, dom. Have a great weekend. Dom chu in our news room. So out of all the stocks, whats the one name that has more room to run . Mike is at the smart board. Im looking at u. P. S. But were going to look at buying a call as a strategy. Number one, youre going to be bullish on the stock. If the stock is trading at alltime highs you might worry about down side risk. Secondly, youre hoping the fundamentals catch up with the stock price. And finally, when the options prices are actually lower than average. U. P. S. Trading close to the 52week highs, valuations looking pretty stressed here. We are trading probably at least 10 higher than we normally would. Interestingly, as all of this is going on, option prices are actually not far off the lows of the year. So very simply, what we can do, we can take a look out to april, thats four months away, we can buy the 120 calls, which are essentially at the money for 1. 95, less than 2 of the stock price. Youre breaking even, everything above that is gravy. If it falls, youre risking a very small percentage of the stock price to make that bullish bet. What do you think of u. P. S. , which hit a new 52week high . Its in the context of this concept of something that lags and then comes back to life. We know the dow was triggered with an index that piqued in late 2014. Yet still a mainly laggard relative to the s p. Its a price weighted index. U. P. S. And fedex and others are a big part of it. Im not sure there is a difference between this chart or fedex. Theyre all pretty stretched. Im a fader of this big move. Their margins are better. U. P. S. , from their fedex is their primary logistics competitor. This is a company that was a little bit caught over their skis a couple times over the course of the last couple years. 2013 was bad. 2014 they had a lot of investment to basically make up for prior mistakes. 2015 turned out okay. Will 2016 actually be the time they make it all come together . Well see. But thats why you want to use a call to make a bullish bet. Listen, its at alltime highs, up 35 from its january lows. Its up 25 on the year. Its trading above a market multiple. You know, so to me, this is a Company Growing earnings and sales. Mid single digits. Heres the best thing about this whole segment. Mike can look out to april and buy an at the money call and exposure above 1. 22 or Something Like that, 2 of the underlying stock price. Thats how you should be chasing things if you were in my camp where you think its absolute insanity here. Options are giving the opportunity to do that. You dont want to litter your portfolio with that. You make a 2 upside bet and would have otherwise bought the stock. Dont do that, first and foremost. You boo buy this call and lets say this thing falls 10 , 15 . Youve lost 2 . Now you can actually sell a put right about where the thing was previously trading at maybe 17. 5 times earnings. What are you doing . Youre basically recollecting the premium and not going to have exposure to the stock, except a 15 discount to where its currently trading. That absolutely makes sense if you have a bullish view on it. Fair enough. Still ahead, dan obviously does not. Still ahead, the bond bloodbath continuing ahead of next weeks big meeting. If you lost some money, weve got ideas on how you can get that back. Well explain when options action returns. Guyhey nicole, happening here . This is my new alert system for whenever anything happens in the market. Kids a natural. But thinkorswim already lets you create custom alerts for all the things that are important to you. Shhh. Alerts on anything at all . Not only that, you can act on that opportunity with just one tap right from the alert. Wow, i guess we dont need the kid anymore. Custom alerts on thinkorswim. Only at td ameritrade. Generosity is its oyou can handle being a mom for half an hour. Im in all the way. Is that understood . I dont know what shes up to, but its not good. Cant the world be my noodles and butter . Get your mind out of the gutter. Mornings are for coffee and contemplation. That was a really profound observation. You got a mean case of the detox blues. Dont start a war you know youre going to lose. Finally you can now find all of netflix in the same place as all your other entertainment. On xfinity x1. 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. Last week, cohen carter made a bullish bet on potash. 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. Potash, i think a rely simple way to handle this is sell the january 18 puts, collect 75 cents for that. The stock hit a 52week high today. Carter . For everybody else, maybe. Thats true. Longerterm, you stay. I dont know what you think about the options at this point. But, i mean, its a big bottoming out formation. Weve collected most of the money that we can. I think were still comfortable being short this probably for another week or so. To dans credit, he said why not buy a callin, and with this sharp move would have been a better play. Much better play. This guy was saying this stock is going to explode, dont sell a put. 10 in a week. It did explode. That was a great call. And a great call on your part part, too. Switching to the bond market. Last month dan thought the tlt could move higher. Heres the trade. Looking out to february, being a bit contrarian here, taking advantage of high option prices, i would look to sell the february 116 put. This was when the etf was trading 122 and a quarter. And using the proceeds to by the february 127 call. Now as you know, dan, there is more than a 90 chance the fed is going to hike next week. What are you going to do . This trade is a loser right now. Its about 250, thats what your loss is in this position right now. 2. 5 of the underlying stock price here. But the stock is down 5 . Thats one of the reasons why i thought the risk reversal strategy was a great way to play it if youre unsure on entry. If if you get a move back up in the tlt, a move lower in rates next week, because maybe its just a bit more of a dovish statement than people are expecting, then you probably can wiggle out of this trade for a small loss. One of the great averages of the markets, buy the rumor, sell the moves. Its possible it already priced in. Up next, tweets and the final call from the options pits. Hey gary, what are you doing . Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at td ameritrade. Guyhey nicole, happening here . This is my new alert system for whenever anything happens in the market. Kids a natural. But thinkorswim already lets you create custom alerts for all the things that are important to you. Shhh. Alerts on anything at all . Not only that, you can act on that opportunity with just one tap right from the alert. Wow, i guess we dont need the kid anymore. Custom alerts on thinkorswim. Only at td ameritrade. Time to take a tweet. You ask what your thoughts on straddling major binary events. Brexit, the election, opec meeting. This is interesting, because both brexit and the election, we saw slightly elevated options going into the events. The outcome, if you got a surprise, turned out to be much larger than you expected. Thats really what youre looking for. Paying up to get those options, so just make sure that youre doing so with an eye towards getting that surprise and how big a market moving event that will be. In this case, weve got two very large ones. All right. Time for the final call. Cart Carter Braxton worth. Take profits and or use the Options Strategy here to get short. Mike . If you think its going to go down or trade sideways, selling call spreads is a good way to play. Dan nathan. February risk reversal. Thanks for watching. Im melissa lee. Well see you back here next friday at 5 30 p. M. Eastern time. In the meantime, dont go anywhere. My mission is simple to make you money. Im here to level the Playing Field frl 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, i just want to make you some money. My job isnt just to entertain but ij kaeducate you so call me 800747cnbc or tweet me jim cramer. These are heady times on wall street, some would say giddy times when you consider our