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tv   Options Action  CNBC  July 27, 2019 6:00am-6:31am EDT

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hi, everybody. i'm till ler mathisen. we ran out of options. no lee, no wapner, no sullivan so they put me on "options action." we have a wild show for you ahead. here is what is coming up. apples, apples and more apples. >> apple is the last of the big tech stocks to report earnings next week. after a more than 20% run off the lows, you won't believe where dan sees it heading next he'll lay out the trade. plus -- ♪ >> the dollar is surging this
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year, and the chartmaster says it looks extra flossy ahead of the big fed meeting next week. he will tell you how to make it rain and beyond meat is up more than 800% from its may ipo. >> i'm shocked, shocked. >> so are we but if you missed out on the run, mike khouw has a way to buy it for less. he will go above and beyond on the trade. it is time to risk less and make more. the action begins now. >> and we are going to kick things off with the big kahuna apple gearing up to report next week the stock has soared 20% from its june low, and the options market expects an even bigger move after tuesday's results traders pricing in a more than 4% jolt in either direction for those keeping score at home. it is a $42 billion shift in market value with the stock down 11% from the october high. how should you trade it into the earnings
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let's get in the money dan, you put a bullish bet on apple when the stock bottomed. how are you trading it now >> it was interesting. in late may, early june we took a look at this one and i think we're all in agreement since they reported their prior quarter just a month earlier, the stock had gone down nearly 20% in a straight line. you know, one of the things that you mentioned, you know, this is one of the last of the mega cap tech stocks. you know, cramer, has his f.a.n.g. and i got my google, microsoft and amazon this one is squarely in the middle of these trade issues we were just discussing this as soon as the sentiment shifted from may to june you had the stock up in a straight line 10%. here we are now, and i will let carter speak to the charts, we are at the gap level from late april. it is hitting some technical resistance, but if you look at microsoft and you look at amazon and google, it was the tale of three cities here in a way microsoft had a good print, didn't really go anywhere. amazon had an okay print to negative, it went down a little bit. google had an unexpected good
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print and went up a lot. the one thing about google, alphabet and apple, expectations are relatively low, both off 10% or so from the all time highs. when i think about the quarter next week, the options market is implying $9 between now and next friday's close. on average, this stock moved 6% after day's earnings that's a lot for a name this big. i think expectations are low they put up a decent enough print into a weird quarter i think they have a mulligan almost with the trade stuff and i think the stock goes higher and option prices are probably pretty reasonable enough to make an at-the-money bet to get a breakout at that level the trade is simple to me. if you are bullish and you think it has the potential to outperform like google, you buy a call when the stock was trading at
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208, you could buy the august 210 call playing 4.25 for that that breaks even at 214 a quarter. that's up only 3% from the current stock price here you are risking about 2% of the stock price for the next three weeks. i want to make one point because, tyler, you just said it about ten minutes ago, we got apple next week. we have the fed. we have jobs there's a lot of stuff going on. we have trade. this is kind of an easy way if you are willing to risk 2% on a name that has a big catalyst. >> you like the call on calls? >> what you know is you are targeting where the breaks even is at the 215 level. that's where the stock faltered on earnings. on may 1st it gapped up an closed on the low and went straight down and took the market straight down that was the peak for the market and we had the sell-off of 10% a 4% move would get us back to the point where last earnings were good and faltered that's your break even do you think it will go higher than that or do you think that's sort of -- >> well, simply, i think if we have a similar dynamic to what we saw in alphabet where there's some incremental surprise an
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investors feel like, okay, this is going back to the high, then i think that's the level that you want to target. >> this actually the key reason why i think you want to use options in this particular case, because obviously we have a lot of sort of macro economic and broad market factors at work here, but because you are targeting a breakout level and because options are actually relatively cheap compared to the moves you were just identifying, and that's the story here, these options are cheaper arguably than they should be based on the way the stock has behaved. you can look at it one of two ways, but one way to think about it is if you are inclined to be long in the stock but you think the average move could be 6% to the down side, take a look at what that is it is more than you are spending on the call option, considerably more so what you are doing is risking considerably less to make that bullish bet. really, the only thing you have to worry about here is if apple happens to trade dead sideways from now until august expiration, and there's reason to think it might not happen. >> that's a great point. i want to make one last point. when we do it we are risking what you are willing to lose these are binary trades.
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if you buy the weekly, for instance, if you are long apple, though the flip side is true if you are long apple and you say, you know what, all of those catalysts, i want to protect myself to the down side, it would cost you 2% for one-week insurance. it is not a great thing to do too frequently, but my point is options are cheap enough if you are picking a direction, whether it is a hedge or looking to speculate on a greater-than-expected move, they line up well especially considering the catalysts next week. >> let's move to the dollar, making it rain and tracking for its best month since last october, and with the bi fed meeting next week, the chart master says th greenback is about to get greener. carter, you have been a bad boy. once again go over and take your punishment go over to the monitor and walk us through the dollar index. >> the dollar is obviously important, it is the greatest security of all time total value of capital trade in the equity market, the bond market is double that, the currency market is double that this, of course, is the biggest currency it is the most important security, hard stop, bar none. i think there's more to come
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here it has had a good month or two, but here is the all data chart this is the plaza cord when governments got together to agree to weaken the dollar interestingly it was in september of '85 and the dollar peaked in march, anticipating just that kind of thing, but if we were to put in the trend line, what is so important is that if you have a well-defined trend line and then you break above it, the key here is after breaking above it, it checked back and is now pivoting off the line again that confirms the major reversal that's been underway here for the past -- and there's so many ways you can draw the lines. you can call it all of this. but the reality is that the setup to my eye looks like we've got more to go let's zero in a little tighter this is the equilibrium. we have basically been stop for the past 12 months, not a lot of character, and it is about to get resolved
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let's draw some lines. this is one way to do it again, an ascending, you can call it a wedge, whatever you want to call it, but what it represents is equilibrium, and there are periods of equilibrium, but they don't last forever betting is that it will be up and out as depicted there. so now the really short term, just over the past three, four, five months. what i see is a very well-defined head and shoulders bottom you see the lines there. at a minimum, that projects to the highs and then we would have our setup here and then we put our arrow back in here, ultimately implying that the vehicle to use is the uup. it is an etf that captures that is already making slight new highs. here is your head-and-shoulders bottom we have already taken out the highs. the setup is good. the betting here from my seat is more to come, long the u.s. dollar. >> is there a better ticker symbol, carter, than uup
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i can't imagine. mike, what is the trade, man >> this is one where we have to keep it simple and the reason is that options are actually quite inexpensive in this. it is not a very high volatility instrument, so selling premium, there really isn't any premium to sell. by way of example, look at the september 26th calls these calls are in the money already. when i was looking at these earlier today, they were about 65 cents they were in the money by about 55 cents so you are essentially paying 10 cents to have insurance if the trade is wrong to the down side below 26. another way to think about it, you are spending a small amount of money to have upside leverage there's a couple of different ways to consider it but only one way to play it, and that is to buy calls here. >> i like it it really is at the money you are risking less than 2% to buy the call and have the exposure over the last or next couple of months where we know there will be macro headlines. over the last 10 or 11 years
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versus the 20-year u.s. treasury, pretty correlated, right? >> yes. >> they're telling you a story yields have gone lower, the dollar is stuck in this range and to your point it looks like it is going to break out put those two things together and i'm not so certain that's a great -- you know, scenario for stocks either. >> no, it is not. >> for whatever it is worth. >> but that's a separate -- >> that's a separate segment, yes. >> there's a correlation here called the mathisen trade. it is this whenever matheson goes to europe the euro will sink and the dollar will rise i have no plan to europe therefore the euro is sinking and the dollar is rising we have much more "options action" ahead. here is what is coming up. welcome to good burger, home of the good burger can i take your order? >> it has been a sizzling week for shares of beyond meat and mike khouw has cooked up a way to buy the hot stock for less. you'll have to see it to believe it plus --
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calling all "options action" fans reach in your pocket grab your phone and tweet us your question @optionsaction if it is nice, we'll answer it on air when "options action" returns. "options action" is sponsored by think or swim by td ameritrade ♪♪ ♪♪
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i'm not really a, i thought wall street guy.ns. what's the hesitation? 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 live welcome back to "options action". beyond belief? no, just another unbelievable week for beyond meat
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let's go to aditi roy with all of the details hey, aditi. >> hey, tyler. we will get new quarterly numbers from beyond meat this week no doubt it has had an incredible lead up to the results. this week alone the stock is up 33% and since the company's ipo beyond meat's shares are up more than 840%. making it the best performing ipo this year. its current market cap is about $14 billion. that's its biggest food giant conagra. bigger than campbell's soup and twice the size of macy's triple the size of nordstrom and foot locker. despite the stock's skyrocketing price, short interest in it is still high 16% of the float but keep in mind that number might be skewing higher since it is before the lockup expiration that is coming this fall that puts short interests in beyond meat higher than most of the big ipos this year including pintrest, uber and lyft, but below zoom beyond has been beefing up on partnerships, making deals with dunkin' donuts and carl's junior we will look out for big names
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when the results come out on number back to you, tyler. >> aditi, thank you very much. if you are looking for a way to play beyond meat's red hot rally for less, we have a tasty trade for you. mike khouw, take it away, my friend. >> all right i don't know if you should substitute beyond meat's impossible burger for the burger you would otherwise be eating, but i can tell you for sure you should substitute an options trade for this stock if you currently hold it because we are dealing with a very high-flying and exceptionally volatile stock here that high/short interest is one of the signs, and we have many others, that there's something a little fishy going on here and we are in the midst of a short squeeze. what we're definitely going to try to do if you are still inclined to be long in it is to do so at a lower cost and risk less i will tell you that the options market right now is flashing some significant warning signs if you look past october 29t when the lockup for this stock ends, it gets particularly dire. let's look at the price of options actually
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you can see right here, it is hard to put it in context because we can see it is moving around a lot that is 110% that's the implied volatility. this is essentially unheard of, we're not normally dealing with stocks that have these options prices, off the chart and so is the stock as we see here we talked about a call spread as a substitute for owning the stock. that call spread doubled a couple of months ago but remember the strike of the call we sold was 140, stock was trading almost 240 today absolutely remarkable. if i can advance the screen a little bit, take a look. no, can't do it. all right. what we were trying to do here is we were looking to sell the 150 puts, buy the 235 calls and sell the 260 calls you can do that whole trade for no money okay so what does it tell us? we will get profits from 235 up to 260, and if you end up having to buy the stock back that you replace with the trade you own it at 150. that's an $85 discount to where the stock was trading right now. so if you have seen a run like
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this and you are thinking, i still want to have some upside exposure, can you not think about taking some of it off though after we have seen a run like this? at the very least say, okay, i will take the risk, i will buy it back $85 from where it is right now, but i think if you own the stock you want to start substituting options for it. >> thank you work your way back dan, what do you think of that >> what is interesting, i mean mike is talking about a lot of technical dynamics and it is a weird situation, a $14 billion market cap for something people don't know what to do. i think what is really important is you think about all of the headlines we have had about all of the partnerships. you know, at some point that will revert the other way. you will have some of the guys dump the product because no one wants it so that's one of the reasons why all of this uncertainty is kind of causing this tremendous implied volatility the price of options, the at the money straddle, the cal and the put for next week with the stock at 235 is worth $45. that is the implied movement between now and next friday's close. that is telling you that options traders have no idea which way
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this is going to go and they're not willing to really price risk accordingly. >> take a look at the price of the straddles that go out further in the year. the novembers or even, say, the january 2020s, we're dealing with straddles over $100 here is another interesting thing. look for the strike where the calls and the puts are the same price. that essentially tells you the forward price the options market thinks right now the january 185 calls and 185 puts are priced about the same what the options market is telling you is that it think there is serious danger here and we could see it go lower, maybe considerably lower carter. >> the point you make about people having no clue, and that's the function of price discovery. when something is brand-new, there's no way to model it except extrapolating minor trends with not a lot of data, and it is all hope after that. but here is on the screen a fairly well-defined chart. this is a 60-minute char since its ipo and you can see it tracks its trend line beautifully, but you can see also it is fairly far above the trend line at this point the word trim comes to mind.
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take action, do something before, as they say, someone does it for you. >> meat substitute, stock substitute you definitely want to substitute options for stock here. >> all right mike, thank you very much. coming up, shares of tesla hitting the skids this week, down more than 11% on the earnings report, but we'll tell you why that is great news for one of our traders plus, it is friday, so you know what that means. tweet your burning questions to our twitter handle @optionsaction, and i may let them be answered on air. don't go anywhere. more "options action" right after this "options action" is sponsored by think or swim by td ameritrade h 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-
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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". time to take a look at a couple of our open trades just last week dan said tesla could be headed for a crash. >> if you are long on this thing you might want to consider some protection because if they do tweak down that full-year guidance in any way, shape or form -- maybe it is margins or maybe it's full year deliveries -- that stock is going back down, probabl on the way towards 200 stock was trading 259 today, you can look at august expiration
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and buy the 250/210 put spread paying $9. >> that was just a week ago, and that stock is off, dan, 11% since then >> you must feel smug. >> you must. >> no, i don't, because i get a lot of things wrong as our viewers now. here is the thing. we knew what the q2 deliveries were so there was scepticism on the margins. they disappointed on margins they did not take down the full-year delivery, that's another shoe to drop but here is the thing. the stock has gone down $35 or so in the last week and a half i think you take the trade off it cost $9 it is worth $21 or so. i think there's lower lows but i think it becomes a hard press as it gets some support. i will go to carter. you made the call june 3rd when it was 175 you said it was about to ricochet and i loved that call but i was looking at the level around 250, saying that i think that's a great level to put it back out. >> right so we've kind of, sort of navigated this well. now to some extent it's a pair of twos. there's not a big hand meaning a stock that goes from 175 to
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266, up 50% off the low, a stock that basically had crashed going into that and then fails dramatically with a gap on news, as it has just done, it is now at an equilibrium price where it probably spends a lot of time backing and filling, and there's no great actionable trade, meaning there are times to make big bets i would say it is a time not to have a big bet >> i would look for an opportunity when it gets frothy again in front of a catalyst where they have potential to possibly lower the full-year delivery guidance. that could set up as a good trade. let's pivot to facebook. last week mike said facebook's earnings would set the stage for more gains going forward listen. >> going into a catalyst like earnings, what you're going to see is the nearer dated options are going to seeelevated premiums, higher implied volatility we do see that the other thing i would point out is longer dated options often are not affected quite as much i was looking at the august 205, january 2020 205 call spread, buying the 205s in january, selling the ones in august
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net/net i'm going to b laying out about $10. >> so facebook spiked on the earnings and now the stock is right back where it was last friday what do you do now, mike >> i think we stick with the trade. it is actually kind of working out because what happened here is the near-dated options are in fact decaying. the trade was up slightly even though the stock is down slightly so it is working the way we want it to. when august rolls off or they get exceptionally cheap we will roll out and sell another call against it we are getting into a synthetic buy. >> carter. >> my hunch is the same thing which is to say we know that facebook, one of the big names people are counting on, it is the one with netflix that essentially did not deliver, not in terms of fundamentals but the price action was tepid but now that that is out of the way, it doesn't feel here as though there's a lot of directionality to it i would say it becomes a dormant asset for awhile >> really surprising obviously been volatile. if you book end last july when the company had the huge gap, i think the largest one day cap loss, and estimates for next
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year were destroyed. a lot of people thought it would get to the prior high, the fact it didn't and we face the headwinds of regulatory issues, forget the ftc thing that's just one thing. the other stuff, i suspect you see the stock around 200 for a bit. >> a quick break up next, your tweets and the final call "options action" is sponsored by think or swim by td ameritrade 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. ♪
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i'm not really a, i thought wall street guy.ns.
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what's the hesitation? 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". it is time now for the final call carter, what you got >> well, the dollar. i mean the invesco dollar etf uup looks poised to move higher despite already moving higher. >> we talked about that ticker symbol, the uup. i love it. >> mike. >> uup, up 26 calls. think about it this way. if you were buying 2,700 dollars
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worth of uup, would you spend $10 to ensure it -- >> sir. >> this apple one is last maga cap one, it sets up interesting. if you are inclined to think it breaks out of the option >> have a great weekend, gentlemen. >> thanks for being here. >> i had fun with each of you. that does it for us here on "options action" do not go anywhere because "mad money" with mr. cramer starts right now. - [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!
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