tv Options Action CNBC July 13, 2019 6:00am-6:30am EDT
on a summer friday, the guys here getting ready behind me guy there sticking around for the big show in the meantime, here's what's coming up. a record number of people just watched "stranger things. >> it's a good thing, right? >> daniel nathan thinks so and he'll tell you how to get in on the drama. plus -- oil and energy stocks are surging. and mike ko thinks there is room to run he'll tell you what will spark a
major rally and how you can cash in and that's right, options action fans. the dream team is back they will tell you the one stock they think is about to break out. it's time to risk less and make more the action begins right now. >> let's get right to it because netflix is on deck for earnings next week. most of those gains came in january, but the stock is still 10% from its all-time high the options market has made a 6% move in either direction dan thinks new highs are in play dan? >> but not right now and i'll tell you why it's not a trade stock it's not one that has adverse effects on a strong dollar but it is a stock that has unusual sentiment into it. there are a loft of investors that have concerns in this they started out the week putting out a tweet talking about how many people in the
first four days of "stranger things" season 3, i think 40 million people watched it in the first four days. that's the six-day chart, okay, since basically this news has been out there and it closed dead in the lows of the week, which is kind of odd. almost down 2% the stock has had a big run over the last month and a half or so, kind of keeping pace with the nasdaq or so so when you think about that 6.5% after earnings next week, that's shy of the amount it's moved on average over four quarters, but the average stock has moved about 4%, so it's very, very volatile. right now investors are not expecting a lot of net ads coming out of the u.s. but starting with "stranger things," they have "orange is the new black," et cetera, they have lots of reasons why people buy this thing that chart tells you that for whatever reason since january, this thing has been range bound
from 335 i suspect it's still going to be range bound after earnings this thing could set up for a nice long trade into the fall as we get through some of the volatility i expect this summer. how do we do this? obviously this is an options show here. the price of options is pretty high in this thing into the report for me it sets up pretty nicely to do a call calendar where i'm selling a short-dated out of money call next week and i'm buying a longer date one in september, and specifically you would do this if you thought into august, into september, this stock could move back into those prior highs, about 400 so today when the stock was trading at 37.74, you could sel the 400 call at $12. that's the max risk. that's a little over 2%.
it would be up to 400 or down to 350, so that's just a one-day move if it continues to consolidate then i have the september haul that i owned for a third less than i would if i just went out and bought it. >> there is no question certainly that their programming is very popular. i don't hear it from my wife, i hear it from my kids "stranger things" are the only thing they're talking about this week this is a company that doesn't have any free cash flow. it hasn't ever had any free cash flow it's not forecast to have any free cash flow so it's not something i would reach out and buy the shares, but the options trade makes sense to me. if you look at how the stocks behaved at the beginning of the year, the options range has been a tight one. so when you're looking to sell these 400 call options, you're making a good bet in terms of probability. there isn't a high probability we haven't seen it in six
months' time i don't know if this would either way you're spending about 800 bucks on this thing. these are the kind of high quality bets you should be making using options, whether it's netflix or another stock. you don't have to love the stock to love this particular trade. >> what do you think, guy? >> within the next six months traded down to 250, that's where it bottoms out i think it was probably early december we've effectively gotten it all back i think the smart trade is to probably take some money off the table into earnings on wednesday. i'm still in the camp that this thing retest that high from last year for 11 or so. everything mike says is 100% correct in terms of balance sheet, in terms of cash, awful tho -- all of those things. however, look at the move disney had when the stock went from 114 to 143 and hasn't given anything back a lot of that is attempting to cut into netflix
netflix this week hasn't flinched so although the smart thing to do is take money off the table, i do think it's the rallies post earnings >> the shows they're going to bring back, services, pricing, et cetera, that could be a catalyst for the other ones. >> it could be a catalyst. they make new highs almost every day and think this is why this stock has consolidated the way it has but they're not going to get massive results any time soon, and that was the interesting thing about that april gap and disney they gave us long-term guidance for targets on subscribers and profitability, but in the meantime, netflix may have a bit of a runway. they just put those price increases earlier in the year. they do have a lot of original content. the way i see it, the only reason you're in netflix is because of content we know disney is in the way, a lot of stuff is going to time warner >> the other thing i'd like to see about the options trade,
buyer rights is one of the most popular things you sell calls against it and you look at that premium but if there's risk to the stock, this is a better trade to do, buying long calls against it, but you're receiving the benefits >> netflix is not the only stock on fire. energy stocks is the best performing sector in the last month as oil prices climb and tropical storm barry is set to make landfall this weekend which could drive prices even higher what do you say, mike? >> we actually highlighted a trade we saw we saw a very large call spread. someone was trading at 65 to 75 out in december. this is basically a way for them to take a look at the lower end of the range and the upper end of the range we've seen in xle besides the hurricane, there is other catalysts. a lot of energy firms will be reporting in the next several weeks. i think it's interesting when i looked at that trade, though, i
gave it some thought when you have earnings, a lot of names that are reporting, the s sl schlumbergers and others, i think they're fairly priced if you give the trade time to work itself out given energy is getting some traction, traction it hasn't had for basically a year, we've seen nothing but lower prices, whether it's oil, whether it's the hurricane, whether it's earnings, any one of those things could give some additional upside. i think you could go out in december and buy the 60% calls, and i don't think you need to complicate this by selling do downside puts to offset it this is a trend type trade if it continues you can look for ways to monetize or lock in some
of your profits, but of course, this is a heavily levered group. we are basically otherwise oversupplied with oil in the long run, and i think when you consider that, that's a downside risk this is a way you can play without risking a great deal >> if you look back to q4 last year when xle broke down, it went from 65 to 55, like a straight line in november-december and then later this year after it broke at the down side it went down 10% i think it gets back above that. what i like about the trade, he's keeping it simple but he's ricking about 4% fournir near te money participation that gives this time to play out. this is the sort of trade that if it just sits here or goes up or goes down a little bit, it's just going to be a k sitting
there. at some point you have to put a stop on it >> obviously near dated options opt out quicker than far dated options do basically three months in, you'll start to see that rate of decay accelerate considerably. there is a good chance we have the trade rowrong and that would be a good time to take your profits or losses at that point. >> are we allowed to say good energy >> only on this show >> i'll take it off in the next block. if you're looking for two names, and as you know, when i'm over where dan is sitting, we sometimes walk to the plasma and we do the power pitch. if you look in the august 6 earnings, that's actually setting up rather well
the big integrated oil name i continue to like against $60, so the risk reward here is very good, is conocophillips, the cheapest of the big three. i think that sets up with earnings, i believe, on july 30. check out our website at optionsaction.cnbc.com . twitter is taking flight this month and they want to tell you how to catch the ride for less than a buck plus, calling all options action fans. reach into your pocket, grab your phone and tweet us your question @optionsaction if it's nice we'll put it on air. when "options action" returns. >> announcer: "options action"
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eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade welcome back to "options action." snap getting a little bit of an upgrade at goldman sachs this morning at almost 3% this monday but there is another one that is about to spread its wings and fly. you know what that means >> it's the twitter tag team >> that's right, time for a little "options action" tag team guy? >> just let me be clear, by the
way. i picked that, so if you're mad about it, it's my fault, not mike's i pick the stock, mike picks the options. if it's wrong, it's on me, number one number two, this is one i think we're going to get right, and it's twitter why is that? for years i was screaming, get away from this active user stuff. don't use that metric. it's wrong google doesn't use it, twitter shouldn't use it what happened? back in february they took their medicine yes, the stock went lower, to 29 they took their medicine into february i think it works for them going forward. number two, ad sales growth. you're talking about 20% ad sales growth that's a very reasonable number, and given their valuation, i think it makes a lot of sense. and last thing, i think you're coming into an earnings release where people have under estimat estimated the power july 26. let's look at this
there was that flush back in february where it traded lower and it's effectively been off to the races ever since yes, it's tapered off, but i think it's getting set to make the next new high. but with that, i'm going to tag my man mike, and he's going to give you the options play. >> well, let's take a look here, because obviously he highlighted the fact we have earnings coming up when you have earnings coming up, we have a catalyst we obviously like to work with that, but one of the things we usually get in a situation like this is higher volatility. twitter is already a higher priced stock option to begin with, but with an earnings catalyst, it's even higher one of the things we don't talk about but we want to here, try to match the moves of the strikes you're choosing to the maturity of the trade you're looking at how long is the trade i'm looking at i was going out to september in this case i'm looking -- let's clear that out so we don't have those things -- i'm looking at the 33, 38, 43 call spread.
sell it for a buck, buy it for $2.55. yet cents you're spending 90 cents for this trade this is going to be expiring in just under 80 days and if we take look at a chart of twitter, the one he was just highlighting, let's take a look at the strikes we're selling we're selling this 33 strike and we're selling 43 strike, okay? look how long we've been within that range so basically we're saying these are the relative range of the stock even if it breaks up the chance that it violates the 33 put we sold is relatively low. that's what i mean by matching the strikes to the maturity. >> thanks, guys, for that. come on back over. >> it's risk less, make more that's the show. i'm just saying. >> come back over to the desk,
please i want to get dan's take on this whole thing. >> listen, twitter has been a stock that's been really gappy over the last few years, meaning they have massive gaps and earnings up and down it tells me they get something, like guy said in february, they took their medicine and the gap went down. now it goes back up. i don't love actually selling a put in a name like this unless you are prepared to buy this lower at mike's short put strike on bad news. so generally we like to buy stocks on good news. unless you're averaging into a story and you have a longer time horizon. but your fundamental case, fine, it's great your trade idea? fantastic. you could just buy a call spread, not have that downside risk, but to me i hate the fact that this thing has been public for five or six years and it has these massive gaps all over it they te that tells me they do a great job forecasting their business >> chances are if the thing does gap down, that's the time you want to buy it it's not a question of whether you want to buy it or whether
you wish you had or had not but the level you buy it that's the level we're going to be buying the stock. that's a pretty material discount at where it's trading right now. if you think about the incremental risk of being short that put, it's the risk of the stock at 33 that you're adding to the equation, not the risk of 760 or the close for today >> typically when dan goes on a d diatribe, he ends it by saying, "knock yourself out. he didn't do that this time. just saying. walmart pays for one of our traders. more "options action" right after this (indistinguishable muttering) that was awful. why are you so good at this? had a coach in high school. really helped me up my game.
i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade.
what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ welcome back to "options action." two months ago cohen bet walmart would see a big market knockout. >> if we're on the bottom, you make that move, that would be
four or five bucks from here then ultimately, with a little luck, some backing and filling, and then a real breakup. >> i was looking at the july 100 dau calls earlier today. they were trading at about 375 when i was looking at them >> that stock is up 16% since the trade. mike, what do you do >> the stock is up 16% or so the options trade is up about 300% we paid 375 for these, you could sell them for about 14 bucks right now. these things are now deep in the money and there's not much reason, i think, to hang onto the trade. we'll get carter back to talk about walmart going forward. >> carter, what do you make of walmart? >> what i would say is in valuation, walmart is expensive. however, it does appear to be breaking out to the upside this is similar to what costco has done in the last month, month and a half i agree, you get money on the
table. but given that walmart is important until august 16, you may be able to squeeze a little more off this trade. my sense is put half on the table. >> cramer had that thing and i had the maggot thing and cramer comes back and he has this watch thing. walmart, target, costco and home depot the big box stores, and they're all breaking out this was the first one to go because they're all pretty constructive -- >> you want sheet calls, though, on an expensive stock. you would have to roll this trade if you're staying long >> dan predicted that staples could become unstable. >> we have a weakening economy here, and if we don't have any real resolution to this trade situation, the back half of the year is not going to be great. in that scenario you'll have cyclical names continuing to go lower. but i don't believe you have stocks in consumer staples that
are up like this and anticipating whatever they're anticipating to go higher from here you can buy the august 197 half put spread, paying $2 for that >> procter & gamble up about 2%, dan, with about a month left in the trade. what do you do >> mel said the stock was about 1.12, closing at an all-time high everything i said, i agree with, i'm just wrong on direction here so the options trade was a $1.10 spread back to our earlier conversation about setting premium stops the highest probability is going to be a 100% loser if you don't get that move back this is where you have to think about taking a loss. >> i don't see what people see about procter & gamble you have 1.4% earnings, so i
don't get it they report on the 30th. again, everything dan said is right, the stock just moved higher with the broader tape i think this stock is still in play up next, your tweets and the final call i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪
hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade time to take your tweets our first fan asked, what are your thoughts on a calendar spread strategy with ba? i chose the 375 strike selling skbrul 26th and buying august 16 this >> i like the 375 you chose because that's on the upside, so good trade >> i just want to say what an honor it is to be part of the oa
group again. i look at earnings next week which is planning to derail itself, in my opinion. >> marco >> keep it simple. december 65 calls fwill work. we'll see you back here next friday stay "mad money" is up next. - [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. is all the clutter in your kitchen starting to look like an old junkyard? sick of spending hours cooking, only to serve mediocre meals lacking in flavor? wish your family would spend less time whining and more time dining? well, now they can! with the new bravo xl, the world's first digital smart oven with flavor infusion technology. it's a breakthrough in culinary creations! coming up next, you'll see how bravo's compact design cooks large family meals in record time! how, with just a touch it can bake, roast, grill,