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tv   Options Action  CNBC  August 22, 2021 6:00am-6:30am EDT

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don't want to do that, then you can take a knee and we can just call it a day. thomas: no, it would simplify my life. lemonis: alright, brother. ♪♪ hey there "options action" fans i'm leslie picker in for melissa lee. we have a big show coming your way. here's what's on tap >> going for the gold, the chart master sees a shiny new opportunity, as the dollar rallies to a nine-month high carter worth is breaking down the charts plus, may the force be with you. tony zhang is looking to the cloud as salesforce gears up for earnings, why he's betting this name could start raining profits. and later, buckle up mike khouw is putting the pedal
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to the medal will this stock get the reports next week. it's time to risk less and make more "options action" starts right now. we kick things off tonight with a big breakout for the u.s. dollar the green back hitting a nine and a half month high and the chart master says there's a golden opportunity in the rally. let's get to carter worth to chart the action carter well, leslie, let's look at the dollar again and let's look at gold so, the first chart is -- let's spend a bit of time on this. the symmetry, the analog of the prior move, it's remarkable. so, we know that you had a 60-session advance you can see it there on your screen from the january-march period and the dollar advance is 4.7% and gives it all back. and then has an identical move, which we're in right now, right, of 63 sessions, may-august, also 4.7%, meaning two distinct
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advances, the exact same duration and magnitude and the dollar reversed on the low today essentially similar to what happened three months ago we're thinking here the dollar is going to back away. does that mean gold has to advance? no but that is the thinking and let's look at some gold charts so, the first -- we'll move more quickly. this is just a one-year chart of gold, and what do we know? gold got down 20% back in march. hit $16.75 and you can see it held that low again and then again here in july, a triple bottom if you will take a look at the next chart. in fact that's what you see. very well defined levels, $16.75 and holding remarkably well, not only holding but bouncing with vigor. and next chart, where might gold be headed? i think we're going to get back to the down trend line that's been in effect over the past year and a half. we peaked in august a year ago so, i think that's closer to $18.50
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now, look at the two-panel chart that's next. this is gold again with the triple bottom, but look at gold's relative performance to copper there's a lot of work that's done on the street about the gold-copper ratio. but here's the thing gold is nowhere near its may high, you can see on the top panel. but its relative performance to copper, it's making new relative highs above where it was in may. and then the mining chart, gdx this of course -- this is the gold miners. we are now down 25% right to a prior low. you can see it there the thinking is, final chart, that we're going to hold this low and bounce does it mean it has to go on and make big new highs it's not about that. it's about trading it here having just approached a prior low. we think you can get a bounce with gdx >> bounce out of gdx thank you, carter. mike khouw, do you agree how do you trade this? >> yeah, so it's being a lot of people will say that the minors
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are levered way to play gold and we might ask ourselves with all of the talk about inflation, you know, why it is that gold and the gold miners have done so poorly of late and i think a lot of people are probably looking toward the september fomc meeting, among other things and of course if the fed does turn more hawkish at that time, that would explain one of the reasons why we've seen strength in the dollar lately, why we've seen weakness in gold and in the gold miners. but to carter's point, there are some long-term lows that are being put on in the miners and it's not just price we're talking about. we're talking about evaluation too. looking at the price of ebitda which is a back of the napkin measure, we're at 10-year lows it's only gotten down to this level of six times two prior times in the last ten years. on a price to earnings basis, it's trading around 14 times earnings
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and of course the gold miners index and the etf gdx that tracks it, it's really just the three or four biggest miner companies that are in it that actually represent a disproportionate share of this particular index so, i think we have an eye towards the september fomc meeting and looking to take a way to basically get long exposure and also try to offset some of the decay. i was looking at the october 31 calls, buying those. those were priced under a $1.40 or so. i was looking at those and selling the september 33 calls against it for 30 cents. so, a little less than a third of the premium that i'm sending for the longer dated, lower strike call and targeting bein short in september we're going to get that fomc meeting in that third week that was the idea here, basically allowing the shorter dated call to help finance the purchase of the longer dated one. >> interesting and smart with the calendar idea as well. tony, what's your take on the trade?
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>> yeah, so this one is quite speculative in nature because while i agree with the charts on gold where it's significant we have the triple bottom around $16.80, i would like to see gold get above 1,800, 1,830 to show that gold has movement to the upside i'm not as bullish on gold just yet. but the levels are, in my opinion, constructive. you are at a major support level. you are at the march lows, back at the august breakout levels from last year it is a nice play for a bounce, especially if you look at the barrett gold, newmont mining, some of the stocks mike mentioned, they're trading near those support levels but when you're trying to catch a falling knife as we're doing
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here, i think it's best to utilize an option strategy with limited risk that's what mike is doing here, he's limiting his risk to only 4% of the ets value. even if gold starts to drop and gds breaks below the levels that's where you limit the losses if we do get the bounce, the fact he's paying less than the width of the calendar spread means even if we see a rally here, it's not going to see rallies to the upside. i like this trade but i would wait for a bit of a bounce before getting long gold >> let's switch gears to a software company reporting earnings next week tony zhang says this one could be a force to be reckoned with tony, what are you watching? >> i'm looking at salesforce, which reports earnings next week and i think it's going to be likely another strong quarter here so, if we look back to the longer term chart here, after breaking out to last year's earnings at the same time q3 of last year, we saw that salesforce has consolidated for the better half of the previous year after breaking out higher here and just last quarter was the catalyst that it needed to break out above that consolidation range. and if we zoom in a little bit here, it's been basing ever since we've broken out of that consolidation range right below
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this 250 level and just over the past couple of days we started to see salesforce break higher here and i think that's the telltale sign from what we can expect going into earnings next week and looking at 2.80 all-time highs to the up side if we look at the earnings report itself right now it's only implying about a 6.2% move, which is fairly muted compared to the 7% that we typically average on salesforce over the past eight quarters. so, the trade structure that i want to use to play this upside here is by going out to october. and i'm buying the 260, 280 call spread here and i'm paying about $12 for the october 260 calls and i'm collecting about 5 and a quarter for the october 280 calls. net net i'm paying $6.80 and i'm reducing my risk to the down side, especially on a stock that's trading near all time highs so this particular trade is only risking about 2.5% of
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the stock's value to play for a breakout on earnings >> mike, what's your take? >> yeah, i mean there's a couple things obviously i like about the strategy that he's employing here for one thing, the implied move on earnings being lower than the historical average move is a situation where you typically want to purchase options on balance rather than sell them because options relatively speaking are a little bit cheaper compared to the kinds of moves you've seen around earnings in the past that said tony is making wise use of the spread because the strike of the call is near the prior highs. it's likely the stock could encounter potential resistance there. and in terms of trying to mitigate the risk, what we've seen in the earnings season so far is even some great companies that report great results don't have great price action afterwards so, this is actually the quarter where the stock really blew the doors off a year ago i think it was up 25% or 26% after they reported the same quarter last year so, there is some potential upside
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but of course if we get any kind of disappointment on price action after the results like we've seen in other stocks, including some this week, then that would make buying a call spread a lower risk way to make a bullish print than going out buying the stock of course it's going to cost you less per share significantly as well >> carter, what do the technicals tell you especially if the stock doesn't seem to be reacting to the way that at least some analysts would believe it should regarding fundamentals >> sure. i mean, there are only a few of these left let's say it that way. netflix is one this is one where you're talking about an oex type s&p 100 type name that basically has made no progress in 12 months. its peak was the second of september a year ago so, a lot of these sleeping giants have popped and come to life, and others have attempted and failed, amazon being a classic one. so, it's important to do it through options because in the event of the earnings amiss or not good enough beat, you're not
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going to get the move out of the stock that would be required to commit the capital required. >> all right thank you so much for everything "options action" our website, while you're there sign up for our newsletter here's what's coming up next up next, we're shifting into high gear. advanced auto parts reporting results next week. should you put the pedal to the metal on this trade? buckle up for that one 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 answer it on air when "options action" returns. trading isn't just a hobby. it's your future. so you don't lose sight of the big picture, even when you're focused on what's happening right now. and thinkorswim trading™ is right there with you. to help you become a smarter investor.
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♪ ♪ welcome back to "options action." we're gearing up for another slate of earnings next week. and buckle up, there's one name in the group that make khouw says could drive higher. it's time for the call to action mike, i don't know if the pun gives it away. what are you watching? >> yeah, we're taking a look at advanced auto park, ticker aap this is obviously a provider of replacement auto parts now there are of course a lot of businesses that people are likely familiar with that do this, including auto zone and o'reilly's auto parts. there's a distinction i would like to make before we get to that, let's talk a little bit about the
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setup going into earnings. one of the things we are observing right now is that options premium on advanced auto parts are slightly elevated. i will also say that i am pretty bullish on this particular name in the space and one of the reasons for that is that as we've seen massive margin expansion across the market, we haven't seen it as much here. it's actually trading right about its three-year average in terms of multiples even as the s&p has expanded quite materially and i would contrast that with the fact that earnings growth is forecast to be quite strong. full year 2022 eps of about 12.5 bucks is double what three years ago what the trailing 12-month eps was. from that perspective you're getting decent eps growth and a discounted multiple relative to the market because the options premiums are elevated going into this, it's a situation where we probably want to take advantage of that and
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sell the options so, one of the things i think i was looking at as a way to do that was i was looking at the september 200, 2.10 put spread you could sell that put spread for about $4 that was the stock closing right about 210. that was a put spread we would be selling here. collecting that $4 gives us about 40% of the distance between the strike a couple things we would expect, options premiums are probably going to come in sharply you'll notice we're only going up to september, rather than october like with the gdx trade. generally when you're buying options you want to buy air by going further out in time. when you're selling options, you want to sell them somewhat shorter dated. this is a way we can take advantage of a modestly bullish point of view on a stock that by the way derives about 60% of their sales from the professional side. and that's important because those that cater directly to do it yourself customers, that's a
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group of customers that can go online so they have more pricing pressure if you're at an autozone or something like that. the guys that are dealing with professional customers, those are people who demand faster service, faster supply chain so, that insulates them somewhat from that competitive pressure, which would be the walmarts and amazon's creeping in on that business >> speaking of professionals we've got tony as well as mike and carter tony, what do you think of mike's trade >> yeah, if you look at advanced auto part, this is a company that's strong steady growth all around if you look at the chart itself, it's a strong steady growth to the upside it has lost a bit of momentum over the past month or so. i do think earnings catalyst next week could be the catalyst that shifts momentum back to the upside and back to brand-new all-time highs if you look at the business as mike said, you've seen three years of strong revenue growth the eps growth is also strong here, about 12.5 bucks next year, which puts the stock at 17
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times next year's earnings, which is a discount not only to the market but also to its relative history of itself about 18 times so, for those reasons, while the valuations here are attractive, i'm not expecting a big move here to the upside but that's why i quite like the selling the put credits right here and the fact he's collecting 40% of the width means that even if advanced auto parts misses on earnings and we do see a decline here, you're actually only risking about a dollar and a half for every $1 you are potentially making on this credit spread. so, the risk to regard is extremely attractive, not to mention even in this challenging environment if advanced auto parts does not advance on earnings, you're going to collect the $4 on this trade so, for those reasons, that's why i quite like this particular trade. >> carter, what do the
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technicals tell you about aap right now? >> remarkably this has been a real laggard it peaked at 209 it was at 200 back in 2016 and only just in the past two or three months was it able to exceed its 2016 high that's a long slog just to get back to even well under perform the market. the question is, is this breakout the beginning of something more enduring. it's a low ebb uptrend and options is the way to do it. >> all right thank you guys up next, break out your credit card, we have a trade update on american express find out if it's time to ring the register on this one we're back in two.
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like jack. he wanted a streamlined version he could access anywhere, no download necessary. 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 to "options action." time to take a look back at a couple of our open trades. last week tony expressed some concerns with american express >> right now what i'm concerned about is the valuations around american express, which was justified based on the fast growth we've seen in the first half of the year but as we start to see consumer sentiment sour, as we start to see it slow down here, that's some of the concerns i see going out to october and on buying the 170, 155 put spread
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here, spending about $9 for the october 170s and collecting about $2.94 or just under $3 for the october 155s >> tony, anything changed? what are you doing with this trade now? >> yeah, so if you entered this trade on monday, this spread is now trading at about 8.5 bucks, which is about a 40% gain on the initiation of this trade with the spread like this we usually like to wait until about 75% gain to start taking profits or if the stock breaks below the lower strike here, we haven't hit either one of those so we're holding onto this trade for now. >> also last week, mike and tony laid out a way to play the bond market >> somebody is going out and buying upside in that march 2025 future but of course because the options are using expire in march of next year, they're expecting this move to happen sometime between now and then. and essentially what we can read
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into this is that while throughout much of this year there's been a lot of gnashing of teeth and speculation that the economy could potentially overheat as a result of a large fiscal stimulus package in addition to easing monetary policy, betting on these euro dollar futures is speculating rates could be longer for longer >> i'm going out to october 1st weekly options and selling the 148, 143 put vertical. i was able to collect about $3.05 for the 148 puts paying about $1.19 for the 143s. net net here i'm collecting $1.82 for this put spread. >> all right a lot has happened over the last week in macro. tony, how are you managing this one? >> yeah, so this is a trade that's also still open we collected about $1.82 if you did move your strikes up by about half a cent, 50 cents as i talked about last week this is now trading about $1.40
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right now. so, you've made about 22% of the max gain on this particular trade. we usually like to wait to 50% of max gain to take profits. so, this is another one we're holding on to for now. >> we'll follow up on that one then time to take some tweets our first viewer asks, alibaba, time to go long? mike >> this is a really tough one, of course, because basically what the chinese government has been doing has largely made the stocks themselves, i think, uninvestible and that's really hard because of course this company is trading around 15 times full year 2023 eps estimates. so, for a company that's growing as fast as it is, it looks very, very cheap but i think you could begin to dip your toe in the water using options. because options premiums are very high, i would probably use call spreads or call spread risk reversals, being sure to choose well out of the money puts to sell though to help finance the call spread.
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>> that's an interesting play. our next viewer asks, peloton has been sliding lately. what trade would you use to hedge an equity position heading into earnings next week? good question. tony >> yeah, so one of the things that you can do is take advantage of the implied volatility by selling some cover calls on the stock position that you own and use the proceeds of those calls to buy some puts and purchase those puts to buy some protection, collaring your equity position going into earnings >> all right our next viewer asks, recently carter has mentioned he thinks the consensus is wrong and that rates are going lower. would xlf puts be a way to play this despite the fact that it has a strong looking chart carter >> well, that's right. i mean, consensus keeps believing that rates are going higher and yet rates are not going higher consensus was 2.5, then it went to 2 now it's 1.8 we're at 1.2 and it's about to be september xlf, i think it's right to be
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shorter underweight and puts will get you done. >> good stuff. thank you, guys. that does it for us on "options action." we'll be back next friday 5:00 p.m. eastern don't go anywhere. a special bonus edition of "fast money" is next i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit ♪ we're carvana, the company visit tdawho inventedm/learn car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car. whether it's a year old or a few years old. we wanna buy your car. so go to carvana and enter your license plate
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