tv Options Action CNBC April 30, 2021 5:30pm-6:01pm EDT
. it is friday, the last day of april, it is time to literally and metaphorically look ahead to brighter skies and time for "options action." looking at a set up to help you make up for lost time. and looking at the clouds playing forecaster and finally, we're pausing to reflect on the bigger picture let's get to it. beauty stocks having a strong start to the year despite the pandemic largely keeping consumers inside with the reopening on the horizon could be more beautiful turns ahead. carter, break it down for us
>> sure, before we get to the charts there are recent patterns emerging of purchases whether in apparel buying dresses wanting to get out of sweat pants, make up and things that make you feel good also you might need as you start to get out of the house. look at estee lauder, this is a two year chart versus lvmh while they are different businesses look how incredibly tight they are lvmh is biggest stock in europe $380 billion in cap. biggest energy total 120 it is a major thing, a big thing and estee lauder is a juneor version of it. this is a ten year comparative chart with estee lauder and lvmh, a very reliable business
interestings there a thought during recessions people buy lipstick to feel good. heads you win. tails you win. so some estee lauder charts on their own. here's one-year chart, the definition of an uptrend, 45 degree angle next chart look at the channel, math mathematically parallel lines, i think we worked the top of the channel, we're not extended and i think the weigh is higher. last two charts, first it's a two-panel, a five-year chart of estee lauder and on the bottom is relative performance to the s&p. last chart same exact chart, two-panel, estee lauder and now look at the relative performance basically estee lauder is just now breaking out above relative tops. been in effect for almost three years. we think it's excellent and we want to be long. >> charts look great for el, mike, what's the trade >> yeah, so i think the fundamentals for the business look pretty strong as well so right now we're seeing them
recover much more quickly, i think, than the company expected, than a lot of observers expected as carter mentioned they sell premium products offering significant pricing power, we anticipate to see a margin expansion and return to that 6 to 8% top line growth, double digit bottom line eps growth, and of course, their second largest market right now is china. and that is an enormous market right now the average chinese consumer is spending one-tenth what an american consumer is spending on the same products, one- tenth what a south korean is spending on the same products enormous growth opportunity. it's priced for that, very much like a growth toing seeing the price to earnings rasche yo at all-time highs and price to sell similarly at all-time highs. a lot of growth is priced in good operating business. relatively high valuations on the promise of what the future
might bring. the way to play earnings they've done historically well out of earnings out of 1 eleven years of 44 reported quarters the stock is higher three weeks later two-thirds of the time and higher close to 8% than when it declined one-third of the time down 1.64% i'm comfortable making a bullish bet but want the to do so using options because i feel like the market is extended an the valuation on a lot of stocks including this one are pricing in a lot of the good news that the future may bring i was looking at the july 3/10 call, buying those, around mid day today those were $18 and selling the may 3.30 against it those were 4.25 so spend $13 for that spread. the stock was higher when i looked at this it was around $3.15 so i was looking at the in the money calls.
the stock priced lower at the close so could get in at $11 will have to see how it opens on monday idea as always try to take advantage of the fact the short dated options are slightly elevated in terms of the volatility relative to the long dated ones we're looking to buy. >> sot chart in the fundamental lineup, tony, do you like mike's trade? >> i do. this is one of those stocks that is loved all around. if you look at the technicals, as carter showed, it's extremely strong. there's sign of exhaustion on the chart more of a concern for a pause rather than a pull back. the relative strength is what to look at from the chart's perspective. whether you look at relative to staples or consumer discretionary, estee lauder continues to print all-time highs but trading at rich valuations of 40 times next year's earnings is the concern here the margin expansion speaks to
the shift they've recently had success in shifting more towards a e commerce strategy and restructuring their brick and mortar those elevate the valuations, for those reasons, i like the trade specifically regarding the fact it's over-extended and using a diagonal like this, especially a diagonal that's lightly in the money, the long haul that's in the money helps to reduce the extrinsic value that mike pays on the long call and shorting the call apgs further reduces the time decay on this or even if the stock a stays where it is on earnings or moves low erbuys him bullish outlook for estee lauder. >> carter, did you see signs of exhaustion in the charts? >> well, it's all about your time frame what tony cited is probably rsi might be looking at i don't know
what indicator he's talking about, but in terms of the relevant performance to the s&p it is very firm and that is either the opportunity or the problem. mean, if you have not made progress to a benchmark in two years and are just starting to move above i relative high, do you break out or don't you that is both the situation, the opportunity, or one would say the defect at that point it's a judgment. >> well, much like beauty gazing up at the sky and seeing pictures in the sky is subjective, same to be said about some cloud stocks and tony seeing something he doesn't like in one name. tony a lot of people see things they don't like in a lot of these names, what are you looking at >> yeah, so the theme this particular quarter for earnings is really strong performance for many stocks in terms of earnings but poor stock performance after the fact and i think vastly is one of those stock that's may under
perform on earnings last week, fastly did break out to new all-time highs this year but earnings last quarter started to break below major support level around $75 and struggling to get above that and now acting as resistance more importantly relative to its sector technology sector fastly continues to print new lows against its sector, some of the telltale signs you see poor relative strength going into earnings suggest for earnings that's what i saw at netflix and intel over the past couple weeks. if you look at the business itself it's fairly interesting business but one thing i can't get my head around is the fact quarter over quarter revenue growth has slowed to single digits and losses continue to widen in a stock that's trading in these type of rich valuations that's not something that's going to work well going into earnings next week so if we look at earnings itself it's implying now 13.4% move versus the average over the last
seven quarters was actually a fairly sizable 15.7% but the implied volatility here is extremely elevated going into the event so the trade structure i'm using as i'm going out to may the 28th, weekly options, i'm selling the 65 by 70 call vertical here about $2.10 that's going to collect more than 40% of the whip that means i'm redeucing my risk on this call spread down to 59% of the width that is the type of risk reward i like to see selling a call spread going into aerngs. >> mike, what do you think of fastly >> yeah, fastly obviously occupies the same space many companies do, it's hard to get your arms around the valuation, talking about a company trading double digits times their revenues and they're not actually making any money. course whether that valuation makes sense is largely in the eye of the beholder so want to
leave it to technical analysis will leave it to the others for that to the options trade selling like that very attractive for people looking at ways to get into options, to do so this is, only three things can happen it can stay where it is, it can decline, it can go higher. if you shorted the stock if it stays you wouldn't make or lose money. if it declines you profit but unlimited risk to the upside -- if you stays where it is you will also see profits. the stock see evaluations expand more than it has and takes off as some stocks have you are limiting risk distance between the strikes less the premium you collected lower risk to the upside three things could happen, two are good, one is less bad than shorting the stock for that reason i like the stock. >> carter, what's your take on
fastly? >> well, one of the things about having had such a run, things are dreamy and to be in the last year 20 to a high of 126 dream that's good can turn into nightmares that's what has happened to plunge as it has from high of 136 to 58 and bouncing around in the low 60's consider this if you look at all stocks in the russell 3,000 that stock is down 10% on a one-month basis. that performance alone, talking about poor relative strength puts you in the bottom decile of all listed securities. >> wow, the bottom de c ile. still to come there's a scene in the movie rat a tuy which the chef serves up a perspective did you know chef khouw is also chef khouw he's serving up next we got a website "options action" the sh wl rhtowilbeig back
♪ ♪ ♪ welcome back to "options action", individual stocks and trade aside if one backs up and looks the at the bigger picture earnings from biggest companies in the market, the markets have been flat so carter, what's the story with this? >> that's right. it's an interesting circumstance where in principle, the results, if you will, corporate profits, earnings results have been great, banks put up great numbers, the top six stocks, names we know microsoft, amazon, google, facebook, tesla, you're talking about 24% of the s&p and
they were all quote blow out numbers. but the market didn't really move and a lot of those stocks at the end of the day didn't move, that begs the question, were they blow-out numbers, end of the day there's no such thing as good or bad news, there's only news, and it's how the stock reacts you could have a stock that beats, guides higher, talks about the biggest buy back ever, says gross margins are going to be better but if it's down one percent than the news can't be anything but outright boring or bad, despite what the beat was, that's the circumstance i think we have in the market, which begs the question, what's the follow on act from here? after all these things that have been revealed, and they -- from the leading financial institutions and leading tech names and so forth, what do we get to move the market higher? and so, there a thoughtful case
to be made that we are making an intermediate top, two, three, five months, that kind of thing, that's the way to look at the market at this point. >> so mike, these insights of ka carter leads us to the call for action of the week what is mike it had. >> yeah so we're looking at using zero cost putt spread callers. hedging one's portfolio depending how you do it can cost a lot of money so in addition to wanting to mitigate the down side risk which is obviously one of the objectives of putting on a hedge and preserving a little bit of upside otherwise we'd unwind our positions we're looking to put on a hedge and little options premium that's what we're trying to do when we put on a zero cost put spread caller so i will use an example spy etf, if you have
a portfolio that behaves like it, many do, it's essentially just the s&p 500, that you can look to a trade like this to give yourself a buffer to the down side without spending premium, i was looking at 3.75 400. 435 put spread column in july. you sell july 3 buy puts, buying the 400 andselling 435 strike call by selling the outer put wing and upside call you are financing the purchase of a closer to at the money put in this way you still have some upside exposure to the short call strike in this case spy 435. you see protection below the long put strike below 400. the idea is this is not a disaster insurance, this isn't an enormous tail head, it's just a situation we're starting to see some stocks, big stocks, that have been behaving like they're running out of energy, despite the fact they're putting
up very good numbers we're essentially looking at the potential for perhaps a little bit of a correction. you will notice that the short put strike i've selected is down about 10% from where spy was trading. bare in mind if you don't happen to own spy you can use q's as a prommy for -- proxy for your portfolio -- the key is buy a put spread by selling against upside call against stocks you known. >> tony. your thoughts on the markets given the price action this week. >> first of all i completely agree with the price action in the markets, it's one of the reasons i've been taking a lot of short positions going into earnings events because we're seeing stocks out performing on the earnings event under perform on the stock afterwards and mike's trade speaks to why we call mike the profess your, it's one of the most creative ways to
utilize options where you shift away upside exposure in exchange to buy down side protection at zero cost. the most difficult part about buying portfolio protechnotion m s down to how expensive is this is creative way to purchase that put spread. for those who find this structure too complex i hope it illuminates how creative you can shift different profiles to suit your outlook. >> coming up big gains for one trade, stay with us, "options action" back after this. i have an idea for a trade. oh yeah, you going to place it? not until i'm sure. why don't you call td ameritrade for a strategy gut check? what's that? you run it by an expert, you talk about the risk and potential profit and loss. could've used that before i hired my interior decorator.
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a way to play intel into earnings. >> this stock continues to under perform since june last year and despite this year's strong performance failed to perm form and that relative strength i see go to earnings a factor for fading this strength i'm selling the 65 70 call spread collecting $1.68 in terms of credit which is 33% of the width. this is the type of trade structure to allow me to profit as long as intel stays below $65 at expiration. >> so tony, how are you managing this one >> so this is one of the trades where the trade went exactly the way we expected to we sold for $1.68 can buy back for roughly 5 cents. my suggest is to buy it back, move the obligations and free up the margin for the next trade. >> all right back in march, mike laid out a way to play ups.
>> this is a name that actually is trading at a relative discount to the market, trading about 17.6 types forward earnings when you look at this you might say well there could be some valid reasons for that, among those, of course we did see that big uptick in e commerce as a result of the pandemic but the problem for transportation like ups margins aren't the same for the b 2 b and people looking beyond the pandemic -- look out to june 165 calls and selling near dated april 170 against it. it would cost a little over $5 to put on that trade 165 were 7 and quarter and collecting less than two to sell those 170's in april against it. the idea, as always, is to try to collect premium in the fast ear decaying near-dated upside options. >> the stock has gone up quite a bit since then
mike, what are you doing with this trade >> yeah so the only part of the trade that still exist is the longer june 165 calls. you would have covered the april calls at skpir asia on the 16th. calls on expiration on the 16th i would roll them out so you're into at the money or slightly out of the call option but either way take your money off the table. >> what do you think of ups carter >> if you recall the set up. we looked at fedex fedex breaks outlets bet ups will it has i think you take the money and run. >> all right tony, tiebreaker, mike laid out two options, what would you do >> i think that i would roll it out and keep holding on to further gains. i do think this is a strong stock. >> all right up next we got the final call. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed
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welcome back to "options action", time for a tweet. jonathan bradley asks on cnbc with earnings this week i was looking at may 7, $78.50 call -- less than one share, mike what do you think. >> the stock is average move 3% and implying the move 3%, it's fair money bet, considering the stock hasn't performed well around earnings i like it as a bullish bet. >> carter what do you make of the chart for cvs. >> cvs is bottoming for quite some time and i think it's time to get out of the bottom and up and out. and much better than walgreens i like cvs. >> tony? >> i like cvs it's fun for a break out. >> all right, time for the final call now, already that time. carter what do you say >> estee lauder. long >> tony zhang. >> fastly slowing down selling
of call vertical. >> mike khouw. >> for hedging consider put/spread callers. >> that does it for us on "options action", we'll be back next friday at 5:30 eastern. don't go anywhere though "mad money" with jim cramer starts right now have a great weekend 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 other people want to make friends, i'm just trying to make you money. my job is not just to entertain but educate and do teaching so-call me at 1-800-743-cnbc or tweet me @jimcramer. why not?