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tv   Options Action  CNBC  August 1, 2021 6:00am-6:30am EDT

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and we're gonna make this a successful business. hey there, i am melissa lee, a big show on task >> trading the china crack down. beijing putting big tech in its cross hairs as alibaba gears up for earnings if baba fails to deliver >> plus, is there a doctor in the house? this healthcare stock is looking a little sick getting into earnings how you can protect yourself from catching a cold
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>> later, tony zang says it is not hip to be squared. it is time to risk less and make more "options action" starts now. let's get right to it. monday kicks off the second biggest week of earnings name like general motor and more. carter, kick it off. >> big week for healthcare and moderna. let's look at a few tables and some charts. the first table, one week performance, we know healthcare beats the market and amgen is well below the market and the sector the next table, again, leading
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the way is the healthcare sector, above the s&p and there is amgen next table, three months, same picture, you got the healthcare sector up over the past few months, 8%, the market is 5.5. amgen is down. amgen is launching up some 24% or 25% one or two charts. on tom, amgen. on the bottom, relative p perfo performance. we are breaking down to a new two or four year lows. we are hovering ominously if you will and now having under cut the up trend line in effect since the march low. the presumption here is this week for shadows something not right of the earnings announcement we want underway and going short into the report. >> mike, what's the trade here
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>> so amgen is an interesting case here, carter was pointing out that the healthcare sector overall has been out performing it quite significantly, we take a look at the past six reported quarters if you had simply shorted amgen and gone long biontech etf you would guarder a 12 point not very good performance. as we take a look at the fundamentals here, they may have a relatively high hurdle going into earnings. the company announced they were hindered by the pandemic in the first quarter. right now the consensus revenue estimate by analysts by about $6.5 million is the upper end of the company's own guidance, similarly if we look at op ex,
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which is a situation where the consensus view is for about a 12% increase where the company itself gotten in the mid teens, they have to deliver some good numbers for them to basicall basically outperform the consensus view i was thinking considering the fact that the stock is trading at a low key, about 4 right now. it is risky considering shorting a stock at that valuation. it is acting relatively i was looking at october that $20 costs about $6.35 less than the amount that the option market is implying the stock could move next week and about indeed as much as the stock moves as high from last week until the close today this is a way you can risk relatively a small amount of
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stock price, give yourself some time of the october without taking unlimited risk to the upside would obviously indicate you are doing. that's the way you want to play it going into earnings if you are incline to, agree with carter here. >> tony, what's your take on the trade? >> yes, if you look at the technical chart here, amgen is trading into an apex on multiple time frame you are looking for the stock to break out one way or another the important chart that carter showed you is the relative strength chart to its sector you are seeing the under performance. that's pointing to downside going to earnings. the important thing is fundamentals you see three quarters of eps and revenue decline. you are likely to see another weak quarters going into earnings that's the one thing going for this particular stock. expectations are relative lly lw
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here that's why i like mike's trade because the debit spread that he's using here is the most capital efficient way that you can take it going into earnings risking about 2.5% of the stock's value at risk on this particular trade and i like the short strike that he's using, 220 short strike that reflects the support level for amgen that's a target to the downside if they do miss on earnings >> let's stick with healthcare here we have an update on the moderna trade we laid out earlier this month. you can chynoeck it out on our option feed. square is on deck after the bem on thursday and tony is expecting a tough take, tony, take it away >> yeah, so i want to take a look at square here which is currently trading at 123 times next year's earnings
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i think the expectations are a little too high going in let's take a look at some charts if you look at the charts over the last six months or so. the stock had been trading between 200 and 270, just bounced off the top edge of that range. especially when you consider the fact that relative to its sector, the technology sector starting to under perform the sector since the february high this suggests further downside going into earnings and the business itself right now at 123 times earnings, i think this stock needs to continue to sustain 30% to 40% revenue growth here in the next three or four years showing some margin expansion which it has not done so far i think stock is headed back to the $200 level if you look at the earnings itself, it is implying about a
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7% move while the average the last eight quarters --the trade structure that i want to use is similar to mike. i am going out to september and i am buying the 240 and 210 foot spread here. and collecting about $3.80 for that september 210 point here i am collecting 30% of the premium long leg by selling the 210 putting against it which produces my overall risk on this particular trade to just $8.60 for the debit part which is about 3.5% of the stock's value trying to limit my losses if this is stock does happen to break out higher because it is a strong stock at the moment >> yeah, we had a little bit of what square can report we have paypal last night which was not a good report. what's your take on the stock and the trade here
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>> yeah, obviously, we want to take a look at comps to get some sense of the kind of numbers we are anticipating seeing. one of the reasons ewe are looking at earnings, why do we everyone care and we don't know what's going to happen a year out, earnings tend to move stock. we need to take a look at this and consider how we move stocks. we have not seen stocks taken off. when we got disappointing numbers, maybe amazon would be a number there are they looking up or down for the market we have some sense by looking at the constant that's not that great. you have a really high bar to get over to see big upside move. oo i rather like the trade structure and i understand why he's setting it up this way going into earnings. >> carter, your thoughts
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>> what we do know is in terms of run-up, this is one of the most epidemic move off the pan pandemic's lows. it is 32 you can bes this side way grinding option foreshadows more of that what we want to do is eliminate the third scenario and i think you can. up seems to be out >> for everything "option action," you can check out our website on cnbc.com. here is what's coming up next. up next, trading china crack down beijing butting big tech in its cross hairs as one of china's biggest titans get ready to report how you can play alibaba heading into next week's earnings. >> plus, calling all "options fan," tweet us your question @option action. if it is nice we'll answer it on
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get started today. ♪ ♪ ♪ ♪ ♪ welcome back to "options
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action." how are you taking a look at this space now and what are you making of this action that we saw? >> sure. talk about why that call is made and sometimes you can make a one day call it did not articulate that and let's look at that the top panel is the chinese internet etf the bottom panel is looking at how far above or below the etf is trading in relation to its average. at the peak we were exactly 39% above 150 days on the low we were hitting around $45 we were exactly 39% below 100. we got about 11% or 12% bounce we given back something today tc my hunch is following through. >> thanks carter the question i guess is if you have china exposure that you are looking to manage, how do you do that you are in luck.
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mike, show us. >> yes, so we are taking a look at alibaba here. obviously what has been pressuring this company all of the chinese companies really is probably familiar to most bureaus, we should go over it one more time to be sure we are talking about china's security and regulatory scrutiny a lot of these companies bidding them on taking on users and the possibility of antitrust penalties and something that's brought into the rise and we have potential further restrictions that we could see in addition to those financial penalties. in the case of alibaba, they have been investing and trying to grow their user base and one of the downside of that is you could see ibita or eps decline a little bit year on year. those are some of the risks we face when we look at alibaba, this is a company of 40% margins that's obviously tremendous. we have high anticipated revenue
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and eps growth of 29%-ish, year on year on the top line and more on the bottom line and certainly for a company that's growing as quickly as this one is , is remarkably cheap. this is with double digit eps and top line growth. this is a company that you do want to own. the option market is implying and moving over 5% which means now and the end of next week, that's slightly more than the company averaging more than the last eight quarters, slightly less than 4% understanding those risk could emerge any time or grow worse and wanting to belong. the trade i was looking at buying essentially at the money some what longer than october. the october 205. that would cost $10. it is a $10 widespread bare in mind the option we are
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selling will expire well before the one we are owning. the idea is own longer dated upside exposure on a limited risk basis rather than going out to buy the stocks. earnings could provide a needed catalyst for this company and arguably for the space >> tony, what do you think of this trade >> yes, alibaba is one of those stocks that we have stayed away from i do think now is the time where things are so bad that it may look quite good. i do think three things going for this stock one is the statistical side carter brought uout. technical, quite a capitulation here it now looks like it could be forming the bottom more importantly as it continues to make lower lows in price, we no longer see momentum
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confirming those new lows. if you look at the fundamentals, it is back to where it is trading to 2018, we see eps revenue doubled since 2018 and the revenue growth that we are expecting here from a valuation perspective, you have a constructive opportunity here i think the trickiest part of the trade is the timing, whether or not this is the actual bottom and it starts the rally from here that's why i like mike's trade he's using this diagonal spread where everyone if alibaba simply stays where it is and it is able to collect premiums to offset the cause of those long calls. he's able to do so after the august call expires. that's the compelling part where he's continuing to lower the cost of buying the option side premiums as alibaba starts to rally the next few months. >> does baba looks any different
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than k web >> exactly what you just said. so you will get the same bounce and candle or sort of key reversal day in the etf as you do in baba as it goes so will etf >> up next, that trade went south for pinterest. it went down to 18%. a big update on what to do next when "options action" returns. "options action" sponsored by think or swim. markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style.
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and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim web. because platforms this innovative, aren't just made for traders - they're made by them. thinkorswim trading. from td ameritrade. welcome back, time to take a look back at some of our open trade. pinterest. >> the stock rallied for about $10. that's roughly also 800% return. what i am expecting going into earnings next week, pinterest will see a similar follow through for snap chat. i am going to sell the credit here collecting $6
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net here i am collecting $4.10 on this. >> well, you know what happens next pinterest tanks on the back of the results, the stock falling more than 18% today. tony, what do you do now >> so trading earnings is volatile that's specifically why we use options to play these earnings plays. what we want to do is protect ourselves and control the amount of risk that we take if the trade does not go the direction we expected to it is down 18%, we lost about 8% of the stock's value by using the foot spread. when you have a trade like this, buy back the foot spread and remove the potential risk of early assignment here, take the loss and move onto the next trade. >> carter, was there any damage done to this pinterest chart >> just as much damage is done
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take your loss and move on >> we have a trade update on coca-cola. mike laid out a strategy on how to play coke >> what i was doing is taking a look at the january's call those were about $2.14 i was looking at selling the august 57.5 call against that to help finance that. those i can collect about 70 cents for it 70 cents on a stock that's closing on $60 may not seem like a lot of premiums to collect in one month. think about it in the context of the $2.14 cents you are spending that's a third of the premium. that's about 190 days to those long days called the idea is to continue to own those long data calls. >> well, the stat is up about 1% since that trade
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mike, how are you managing that one? >> coke is not a fast-moving stock. it is migrating. we stay with it. if we start to see those short calls declining to value, maybe down a quarter i would say cover those and look to roll out. we have some time to take a few of your tweets let's take to it the amazon broken wing butterfly is not going well. mike, what's your thoughts on this >> yes, so there are two things here the amazon broken wing fly, we were looking for a rally in the stock. the stock did start to get close to our price objective some people may cover the trade and taking some profits there. if you are looking through
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earnings and decide to hold at that time, that had not indeed gone well. my suggestion is cover the trade and move on. moving your strikes around a little bit so you can convert trades into a credit spread is a structure and trading strategy that's some what sophisticated i would suggest that deep end of the pool stuff so i am comfortable with that trade if you are. >> our next tweet. how does an 80/85 c spread for 8/20 looks >> our snap, 80/85 is too short term i would go out to about september or october and look at 75 75/80s as a strike prices i would use. >> tony, mike, carter good to
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