tv Options Action CNBC February 5, 2016 5:30pm-6:01pm EST
it had no mouth, but it spoke to me. it said, "rocky mountaineer: all aboard amazing". hey there. here's something positive. stocks are closed until monday. the guys are going to try to make sense of what happened today. while they're getting ready, here's what's coming up. >> every dog has its day. ♪ freak out >> and that day might soon be coming to the oldest stock in the dow. we'll tell you how to profit. plus -- looking for a safe place to hide in retail. ♪ walmart has your back >> you bet it does. and we'll let you in on a little secret. it could be on the verge of a massive breakout. and -- >> may the force be with you. >> oh, it is, han. because disney's expected to see a huge move on earnings next week. and we've got the trade that
could make you out of this world profits. the action begins now. ♪ driving all night let's get right to it. amid the market turmoil some industrial names like du pont, caterpillar, ibm managed to eke out gains on the week. so is this a safe haven from the storm? let's get in the money and find out. dan, i'm going to guess you're going to say no. >> it's a pretty easy answer. look what the dollar did this week. and there's your answer. some of those stocks you just mentioned got absolutely creamed last year. and they started out the year very poorly. you had this move in the dollar. to me that was the thing that no one really expected. but industrial space, you know, listen, they're exposed to all the things. other than that lower input costs like the du pont from lower commodity price, that sort of thing, the true ones we're going to talk-b general electric, to me they have a ton of risk in this global economic environment we're in, especially if the dollar moves back up in my opinion in the first half of 2016. >> you know, i think if you're holding your hope on the market basically on dollar strengthening, basically finding some areas of strength, maybe
caterpillar, which has been in the doghouse for a long time contradiction see some strength here. maybe the gold miners. we talked about that earlier this week. could see some strength. but that doesn't necessarily mean that all is well, right? so i kind of think about, you know, what does this market feel like? we were talking about that before the show. it feels a little bit like a couple of the bear markets that we had in the '70s. it makes me think of -- >> you had in the '70s? >> no, no. but we studied them. and then later on maybe in the '90s we had some weakness. >> i think we know that the definition of an up trend is that you have countertrend sell-offs, which are buying the dip and opportunity. if you're in a down trend you have countertrend rallies. bear markets are characterized by sharp countertrend rallies which provide excellent shorts. a lot of industrials, material names, which had big moves off their lows earlier in the week, it's meaningless. meaning it's like freeport. that was the biggest mover. freeport mcmoran moving 16% at one point. from 26 to 3.50. it's too little too late to go
back up to 5. it's a broken stock. >> when you see these mini countertrend rallies in what could be a bear market, what these are shorting opportunities you said? >> sure. but no one actually caught the move. people say i got freeport. real money can't do that. it's all robots or machines that put in 100 shares. no one's catching moves. >> caterpillar's a great example. this is a short that worked. you shorted every rally over the last year and a half you made money brilliantly. here's one where the sentiment is so bad, short interest is so high, i think there's like one wall street analyst who has a buy rating on the stock. the price target, the average price target is below where the stock's trading. so it's had a really nice move with all this other trash. but to carter's point it's probably a great shorting opportunity until you really do see some sort of turn. that's the problem with materials and some of the industrials and stuff that moved this week. there was nothing fundamental -- >> in particular one of the places you want to fade this. we don't have anywhere near the kind of prices in oil that those businesses need to strongly
recover. a lot of these things have negative cash flow that exceeds their current cash balance and maturities coming up this year. it's really distress-based. >> let's go straight to your ge trade. >> this is one i think some of these guys may not love because it's showing some pretty decent relative strength and it's obviously a company that has a very healthy dividend yield and some may deem to be somewhat defensive but i believe we're in the sort of market where you could throw a dart at shorts and you could even throw them at knz like ge that you'd say, this may be one of the last battles fought. given the relative strength. i don't really feel that way. so to me i think given that exposure to emerging markets, given that exposure to the dollar i think it could set up as a good shorting opportunity. the stock has been basing between 28 and 29 for a few weeks. so to me i want to target their next earnings event. we've seen so many companies that have just started to give mildly cautious forward commentary about the global economic comfort and i think ge probably does that again when they report their q1 on april 22nd. today when the stock was about 28.65 i looked out to may expiration. i'm targeting their april 22nd
earnings event. and you can really simply here just buy the may 28 puts for 1.25. that is your max risk. it breaks even at 26.75. to the down side. and if the stock -- it really -- if it starts to move in your direction and you start to be in the money here i think you can look to actually sell a lower strike put and turn it into a spread. i don't think you want to do that right now. but option prices on a relative basis are kind of cheapish for something that hasn't moved a whole heck of a lot yet. i think it starts to move lower, then you're going to have an opportunity to sell something against it. >> why do you want to make a directional short on a stock that has actually been okay in the past 12 months? it's up 16 1/2%. >> of all the things that have been tested, the biggest models over and over and over, relative strength. things are tha are bad typically stay bad and things that are good. so the question is what is holding it up? meaning people have free will. 9:30 the bell goes off they can sell anything to meet their margin calls. they can derisk. and and they've been not doing it in ge. so to your point why fight
something that's holding up? i'm kind of in the camp of pick something else. but listen, if an -- ge's going to be just as good as anything. >> but if you're going to make a bearish bet the way to do it is the way he's doing it. take a look at when stocks actually have fall anne part. what do you see? a big gap. it's not like these things go down by 1%, 2% a day. when they do break they break sharply lower. and that's when you're going to have the opportunity to spread and get a much better value. >> one last thing. i think we have a chart, ten-year chart of ge. when you look at it. and carter's going to do some great work in a few minutes if you can hang out there. look at that thing. it's sitting on the up trend from the 2009 lows. i think if it breaks and it's under 28, 27 1/2 very soon i think it can go down pretty quickly into the mid 20s. >> you've got that gap to fill which i'm sure you're looking at on the daily chart. >> from august, yeah. >> the dow and s&p may have closed at the lows here of the session. but we're going to turn to carter who's going to take a look at walmart. >> talk about a loser. this thing's been going down for
the better part of two years. and that's the point of relative strength. in a tape like this here's a stock that's acting fairly well. let's look at some charts and try to figure it out. walmart up today over the past several weeks when the market's struggling. this is the setup that's the opportunity. what i've done is juxtapose on a five-year chart walmart versus its peer group meaning all s&p 500 consumer staples. of course walmart is one of the -- that's spread. and as this has sort of stalled and gone sideways, walmart is starting to outperform. the bet is that we're going to get some convergence. in fact, take a look on a ten-year chart. this is when walmart gets into all the trouble that it's been in. but what's interesting is it gets all the way back to this level of support and now we're starting to bounce there. so we like the day-to-day defensive action, the relative strength, then in terms of the daily chart, now you can draw the lines any way you want, let's draw them this way. so you can call it a trend line. it surely is that. and what it's done clearly is broken above that trend line.
or you could do one of these. people call them things like heads and shoulders, bottoms or top. here's our neck line. the presumption is we're going to move above that neckline. buy walmart. >> mike, what do you think? >> from a fundamental perspective walmart continues to face secular headwinds. amazon's going to be a bigger company than walmart is one day. it's trading actually cheaper than the market, cheaper than its own historical average. those are the good things. but obviously showing some relative strength and the valuation isn't terrible. one quick point i would make, what is expensive in waufrmt right now, nothing that they're selling probably and maybe not the stock itself but the options on walmart are actually quite expensive. they're roundabout the 99th percentile in terms of the price of options in this stock going out three months if we take a look at two years worth of history. so i think the bullish way to play this without risking too much money is simply go out to april. you can buy the 67 1/2, 72 1/2 call spread. you can spend $1.75 for that.
that's probably a little more thain normally would but that's just simply a function of the fact that options premiums are elevated. one of the things you can look at, though, in one of the few names that i might actually be willing to sell a put if it did sell off simply because it has gotten off near its valuations. if the stock does go a little lower and i'm looking to offset some of the premium i spent that would be one of the ways i could do is tlook sell the down side put around 62 1/2 or 60 if it naulz the other way. >> is there safety in a retail stock? >> no way. this week you saw kohl's down 20% yesterday. i know this is a different audience, different setup. here's my take on walmart. i don't like mike's trade. i don't like carter's technical setup. i don't like the fundamentals -- >> you don't like the head and shoulders and the break above the trend? >> i don't -- >> because those are not my opinions. those are facts. >> they are facts. >> so what's wrong with the setup? >> i think it's going to find a lot of trouble at 70. i don't really know why it's going up. >> but you can't say you don't like the technical setup. the technical setup is a bearish to bullish reversal, head and shoulders model. you can not like the trend and not like the idea but you can't not like the technicals because
i don't make the technicals. the technicalings -- >> i think i touched a nerve here. nothing but respect. what i'm saying is that listen, i just think the fundamentals don't line up, i don't think the macro environment lines up. we saw this oil spike over the last week. it's obviously moderated a little bit. but if crude oil were to go up precipitously for the wrong reasons because of a supply cut i think that hurts walmart's customers. waurmtd told us they're going to be spending a lot of money to compete with amazon this year. so whenever this little lovefest ends and i think it might end somewhere maybe around 70 or so i think it's probably going to go back and touch 60 at some point. >> it is one of the few pleases, though, where you can actually pick up a stock at a reasonable valuation where you do have some technical strength and where you can risk relatively little money to do that over the course of the next few months. >> and it's always a question, who the heck was buying it today? the market's getting pounded and the stock is up. meaning someone is expression a view that this is bad but i think i'd rather be here. refltd strength matters. >> i mean, it did better than
utilities today. >> says something. >> got a question out there send us a tweet @optionsaction. we love tweets on this show. really love them. especially the nice ones. for everything "options action" there's only one place to go. of course optionsaction.cnbc.com. we've got the hottest options news, videos throughout the week and exclusive trades. what more could you want? here's what's coming up next. >> i'm going to disney world! whoo! >> so are we. and we'll tell you what has our traders so excited heading into next week. plus -- >> bizarre rituals intended to bring about the end of the world. and now it looks like it may actually happen. >> at least according to five terrifying charts that could signal an array of carnage for one group of stocks. we'll tell you what they are when "options action" returns. i'm 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
herthey work hard.ade, wow, that was random. random? no. it's 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. there's no way to predict that.
td ameritrade. carter, you've actually got some scary charts that could spell some more trouble ahead. what are you looking at? >> i just want to look at the concept of a trend and a break in trend. when a stock like disney is trending momentum is a powerful thing, but a breaking trend is very hard to stop once it started. just as is it was hard to stop the initial trend in the first place. disney, under armour, we have a break in trend. apple, we know it broke trend quite a while ago. dow jones transportation, a break in trend. once it starts it's very hard to stop it. just as it was hard to get it to break in the first place. skyworks, a break in trend. berkshire hathaway, a break in trend. salesforce just starting to break trend. and here's one that's on the
cusp. we think there's problems here. mastercard has started to break more aggressively. visa looks like it's the next in line. trends are hard to stop, and they're hard to reverse once they break. it's been a great trend. make the bet that something's not right. >> so dan, how do you make this into a trade? >> we're actually going to agree, carter and myself. it was very tense. >> using technicals for a trade. >> i would never, ever rag on his technicals. >> you did before. >> so i'll take his technical input and agree with him 100%. then i'll add a sort of macro view, like i said at the top. i think you can throw a dart at a lot of these things. once that thing breaks the long-term up trend it's going lower. the fundamental news is the company just reported they have very good results. the stock rallied a lot. this was last week, rallied about 7% after the results. but that was when things are kind of rallying and now they're not anymore. but they did give some cautious commentary about the dollar, about some exposure overseas. a lot of revenue exposure overseas. to me i think you want to look out, target the next earnings event. i think that if they actually
miss and guide lower you're going to have a stock down very, very fast. the way we've seen some of these high valuation stocks. i just want to make one other point. since they ipoed in 2008 this company has had double-digit earnings in sales growth the whole time. this year consensus is calling for 7% eps growth. the lowest in that whole period. so to me if they do actually miss that i think you're going to have a great short opportunity breaking his technical trend. so really today when the stock was 71 1/2 i look out to june expiration. you can buy the june 70-55 put spreads, buying one of the june 70 puts for about four bucks, selling one of the june 55 puts at one. that costs you $3. that is your max risk between 67 and 70 bucks. you can lose that three. you lose the three above it. but you have this really nice relationship between what you're risking and what you can make between 67 and 55. so i like this risk-reward. i like carter's technical setup. it's a fact. and then i think the fundamentals are squishy in a really kind of uncertain market. >> that's a very nice spread you're getting right there down to that lower level strike. you were talking about the eps
growth. and a lot of that came from margin expansions that were probably around 30% five years ago and they're up near 45. when you think about what can happen, there's a couple things. you can see basically the valuation multiple drop. you can obviously see the overall market come in and you can see margins get compressed and you can see the top line growth drop. it's not like it's a really cheap stock if the growth doesn't hold up. and they're already saying it isn't. >> we know capital one's been a disaster. we know discover's been a disaster, american express. these have held up, mastercard and visa but mastercard's really under pressure. presumption is -- >> visa's eating american express's lunch. that's one of the reasons why american express is so bad. >> at some point maybe they don't have any more lunch to eat. >> what will constitute the break in this trend lower? i mean, how does that get -- >> it depends on what moving average you use. mastercard has broken the trend and this is toying with that prospect.
there's a huge gap down as low as 55. and that would be -- >> see what's going on here? his technicals, my little options stuff. we've got a little trade on here. >> trying to -- >> i felt really bad about that. >> all love. >> i'm sure. >> coming up next, one group of so-called safety stocks that consumer staples should have done well this week but they didn't. could they be signaling more trouble ahead? we'll explain when "options action" returns. i'm 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... what's up, tim. td ameritrade.
here at the td ameritrade 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 don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey? td ameritrade. welcome back. time for the up side call where we take a look back on some of our winning strads. last week dan said consumer stocks were about to run into trouble. take a listen. >> so today when the xlp was 50.75. you can buy the march 50-45 put spread. that is my max risk. one of the march 50 puts for a dollar. sell one of the march 45 puts at 20 cents. >> well, the xlp fell 2% this week. so dan, you stuck with the trade?
>> yeah, you do. i think you have this where you want it and this is the kind of technicals -- i thought it would fail, the xlp at that prior level, it was unable to break out. this week we had some fundamentals in the space. clorox down 6%, 7%. and they're talking about some of the issues we just talked about. adverse effects of the dollar. domestic uncertainty about the consumer here. so to me i think you want to stay here. don't be sucked in just because of that dividend yield. >> this is -- again, you can make money on a trade versus if you're sitting there in long-term money. this is outperforming. in a week like this it's a little bit the walmart thing. i'd call this fair money, even money. >> we were just marveling at ow some of these stocks are trading at a higher forward p/e than google. >> and i think the reason is that speaks basically to the market sentiment. people are petrified of owning anything that was a good stock. even those that are fundamentally still sound. people are afraid to own them. and these are places where they
figure they can hide out. >> fear is fear. and people were not afraid to own google three days ago and they were certainly afraid to own it the last couple days. and the same thing for facebook. the point is they're going to get around to everything. throw those darts, people. >> three weeks ago mike thought disney shares were nearing a bolt. have a listen. >> what i was looking at was simply selling the february 92 1/2 put. you could collect about $3 and a quarter when i was looking at it. basically, this is a situation where you're going to get long the stock below $90 if it is put to you. >> disney reports earnings on tuesday after the bell. so mike, what are you doing with this trade? >> i'm sticking with it. this is obviously kind of a scary-looking chart when you think about it. five years of just basically straight up and then we've had obviously a very hard time recently. the thing is, though, i think we're getting down to a level where just from a fundamental valuation perspective it looked like things are stabilizing and it might be a place to hide out. you're getting paid. and if the stock is put to you in a high volatility environment like this, you can look to sell some premium against it.
this is one of those cases i think where selling puts might seem like a counterintuitive thing to do when the market's rolling over this way but you do get paid a lot to do it. >> there's more -- that's one of the ones we use, if there's a break in trend. but this is already down 30% and look what's happened the last two weeks. killing the market. meaning you want to find those that are just starting to roll versus something that's already down 30%. it's why this trade is working. is it profitable? >> it is profitable. >> we have a lot of media stocks reporting earnings next week. dan, you know, when disney reported in august -- >> early august. that was the start. that was really the top of the market. and here was a name you that could have put up there in the top five with the apple, with the starbucks, the home depot. it was a real leader. my view is this, is that i think the sentiment has turned in disney and it's obviously very bad but i think it's probably going to get worse because what's really driving it lower are some fundamental secular shifts within the industry that are not going to wash out on this call that we get next week. >> that's a fair point. what everybody really got concerned about was suddenly with cordcutting affecting espn, which is basically the premier
property to own in the media space right now. but the thing is disney was very richly valued because of that property. it was trading at 22 times. it's trading at 16 times right now. basically the premium everybody was reporting. because of that property has been taken away. >> all right. up next, your tweets and the final call from the options pits. here at td ameritrade, they work hard. wow, that was random. random? no. it's 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. there's no way to predict that. td ameritrade.
this cit added this other level of clean to it. it just kinda like wiped everything clean. my teeth are glowing. they are so white. i actually really like the two steps. everytime i use this together it felt like leaving the dentist's office. crest hd, 6x cleaning, 6x whitening. i would switch to crest hd over what i was using before. steve, other than making i'm 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... what's up, tim. td ameritrade. time to get to some tweets. the first one up, is gdx a good buy for long calls? mike kuo, what do you see? >> if you're going to make a bullish bet in gdx calls is the only way you can do it. this was trading 12 1/2 a couple weeks ago and you you could go out to march and buy the 18 strike calls. going to khowst about 85 cents. that might seem expensive but considering how much this thing is moving and the direction it's moving i think it's a pretty good bet. >> early stage kind of thing. there's a lot of leverage, a lot of gearing, a lot of depth but
that's what makes this work when it works. go long. >> you agree. >> well, these guys have had a great call on a couple of occasions in the last year for gdx playing it to a countertrend rally. to me it's almost getting back to the level of the down trend. you'd almost want to fade it it's gone up so fast. i don't look to buy this -- >> that's why you want to buy the calls. 18's probably the 4relevel you' looking right at. >> why do you want to sell puts in this, though? >> i'm not going to sell puts in something that could also be trading 12 1/2 if this reverses. what i'm saying is if you take a look at the risk-reward when it's moving by five bucks in a couple of weeks you can spend 85 cents and maybe get many multiples of that. >> last one here from ryan sutton. how much did risk reversal tip the barber for that smooth cut? >> oh, wow. that's the second this week. >> very nice. nice look, dan. >> time for the final call. carter. >> be defensive if you have to be long at all. walmart looks to be the place to be. >> you can use call spreads for that. >> dan. >> visa. i agree with the facts that mr. carter was giving out.
i really like a short entry here playing for that breaking trend. >> all right. looks like our time has expired. i'm melissa lee. for more "options action" check out the website. we'll be back here next friday at 5:30 p.m. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer! welcome to "mad money." welcome to cramerica, and welcome to our last day out here in san francisco. and, boy, are we closing it out in a big way. other people want to make friends, i'm just glad this day's over. my job's not just to entertain,