tv Options Action CNBC November 6, 2021 6:00am-6:30am EDT
but i don't think lizzie ever grieved. i think the only time lizzie has ever felt remorse is when she's alone at night in her little cell in federal prison. -- captions by vitac -- "options action" live in nasdaq's site in times square. tonight, lessons to navigate what could be the most fraught time to short stocks with us tonight, carter worth, michael khouw, and a special bonus appearance by guy adame. carter worth takes us on a journey into imagination carter, what do you see? >> it really does need to get its magic back
a laggard by every measure whether it's the s&p or other sort of travel related cruise related resort related stocks. let's look at a couple of statistics and then a couple charts first slide. what you see here is year-to-date performance, things like expedia up 37% or hilton or american airlines, royal caribbean, all up 20 or 30%. look at another slide, more of the same look at marriott, hyatt, and look at bookings and then disney, down three. so it needs to get its magic back earnings next week on wednesday, and the thought is it's setting up for something that can be quite good the first chart is a two-panel what we're looking at now is disney on the top and on the bottom we're looking at relative performance to the peer group, right, which is hospitality, hotel, cruise as a sector.
disney has underperformed for the better part of seven, ten months and the thinking is that we're going to get a bounce. and so, stock closed today at 175. and the bet is that we're going to get about 185 on the earnings beat >> all right so, mike, what's the tradeoff for that >> disney is an interesting case, of course. so we have a situation here where i mean, this company has obviously gone all in on streaming. and that has worked out very well there are a couple of benefits to that. a good business and they are executing well and the other nice benefit, as a shareholder and investor, that will typically trade at a higher multiple than some of disney's historical businesses. so you put those things together, and that's obviously attractive we are approaching the second anniversary of disney plus's release. so i think all of that is definitely a positive. one thing i would point out.
two things going into earnings you typically will see elevated options premiums and the other thing i would quickly point out, too, is that disney is not particularly cheap if we would go back a couple of years, this was a company that would typically trade somewhere in the neighborhood of 22 times forward earnings on average. only a hiccup in 2015 with that earnings result in the second half but right now we're actually trading around 30 times peak earning. tha that was fiscal year 2018. so on that basis it's not particularly cheap i think the way to make the play, if you are betting we are going to see a positive results is to buy longer dated calls i was looking at the february 180s looking at that earlier today, those would cost about $9, because options premiums are elevated going into earnings, i think what you want to do is sell a nearer upside call
against it you are looking at a buy-right with a downside protection i can collect about 1.25 that will help offset some of the volatility of the stock, the decay that you'll see coming out of earnings. this is a way to get hedged upside exposure, obviously playing for a bounce but mitigating the risk in case the numbers are less than hoped for. >> guy, your thought on a potential bounce >> p given it sold off from the 203 all-time high level we're at 175, as carter mentioned look, is it set up well for a bounce absolutely but to mike's point, the stock is trading at 35 times next year's numbers that's expensive for any stock not least of which is disney given their historical multiples. so i can see it bouncing and i think cbw lays out a nice case and mike gives a good
risk-reward trade in the options. but if you get something in the 185, i think you take your money and run. >> let's switch gears and usual traders as well. guy is here. and guy spies with his little eye, palantir. what do you see in this one? >> is that a squid thing, mel? i haven't seen it yet. my sense is you are trying to do nasty thing. i'll tell you what i like about palantir, the fact that nobody is talking about -- they're in the crypto world, nobody realizes that. but crypto security is something that's going to leak out in the palantir story i think when the market and street catches wind, it will be a whole new valuation. people will say at 26 times sales, thereabout, it's very expensive and they are right but into earnings people are expecting bad things i think there is a lot of negativity in the name and i think palantir can surprise people to the upside the upside their earnings, if i'm not mistaken is the 9th of november.
>> how does the chart look, carter >> well, we have a chart here, this is a pair of twos, to be fair to say bears and bulls are matched off. we know the i.p.o., stock opened at 10 september a year and a half ago and we hit a 45 that spike high on january 27 was one day before the spike high in gme, the ultimate game stop and it's basically been very unhappy ever since, down 50, 60% since then we're working in the apex of this formation which is to say you now make your bet, long or short. in this case i think it's literally wait for the news and go with it as it breaks out or breaks down from the formation so, mike we go to you to figure out a trade given carter's view, pair of twos is not a good thing as i understand it according to google and guy likes this one
what do you do >> how you play your hand depends more than just the cards you are holding. when we're using options we can limit some of the down side risks. we were talking about disney's options premiums being elevated going into earnings. they have nothing on palantir. to put things in perspective, the at the money calls that expire in january alone are nearly 10% of the current stock price when i was looking at those earlier today. so $26 stock at the money with an option that expires in basically less than three months is going to cost you $2.60 however, when you look at the wedge, you could see why the options premiums would be as high as they are we are looking at a range of 10 to $45 right there in about a year's time. this is a stock that can really move around. so i think what we want to do here is actually buy those january 26 calls if you have a bullish view, as guy does, and then sell some nearer dated
calls against it, similar to what we were doing in disney the out of the money december 31 calls is collect about 65 cents. that's a way to help offset that decay. obviously you could say to yourself, spending $1.80 in options premium seems like quite a lot, but when you see how much this stock can move, you can recognize that obviously that protection may be worth it >> on "fast money" approximately eleven months ago or ten months ago, guy put palantir in his new acronym for the year, which would be the p in hope trade guy, this is a shorter term trade, but what is your longer term outlook >> i think palantir is really interesting. obviously very tied to the government, which i get. i mentioned crypto, but once they have an offering for these mid-sized businesses, msbs, for you acronym people out there, thank you for helping me with that, mel. i think they get into the whole
new revenue strem. stream. i think that offering is coming. i think that's what the street is waiting for i don't think people realize that crypto tail winds may be there that nobody is taking into consideration. i get it it is expensive and carter brought up the fact it hasn't traded particularly well since the height of the meme-ness. but i still like it. >> still to come, a long view. could be an unpresent -- unprecedented time for stocks. you can check out our website and sign up for our newsletter 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. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform.
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♪ welcome back to "options action." when it comes to shorting a stock, we could be in a period more perilous than any other in history. that's not to discourage you on the contrary professor khouw wants you to participate safely. what's your advice >> this is an interesting time we've seen a number of short squeezes some of them frankly i've seen short squeezes in the past, executed by institutional traders but the way the retail crowd has been doing it lately is pretty unprecedented in my professional experience i have to say, we continue to see it in some of the meme stocks that obviously caught a lot of attention about a year ago and then the beginning of this year. i'm talking obviously about stocks like gamestop, amc.
and earlier this week, i think a remarkable situation in avis, ticker symbol car. an important point i would make is that both investing and speculating are decent ways to make money and both serve important economic functions investing obviously provides needed capital to growing businesses and on the short side it's a way for market participants to get involved in situations where securities don't appear to be properly valued. the issue when you are speculating, typically you are making a short-term bet on price movement when you do that, that will typically incorporate a lot more risk to give you a simple example, if -- i was just talking about how the s&p would behave if i told you how it would behave in the next 20 minutes, it's a coin flip in the next 20 days, similarly a
coin toss. but if you ask what it looks like 20 years from now, nine out of ten people will say it's going to be higher basically that reflects the fact that over the long-term we have a general sense of what equities or other security prices might do but over the short term it's really just a bet. the other issue is when you short stock, you are taking unlimited risk and when you use options, you can define that risk i think avis sets one of the best examples we could have of how unlimited that risk can be so if you are looking at the stock, going into earnings on monday, it was trading around $170 a share on monday let's just say that you thought the stock was going to fall down to 150 bucks a share you could have shorted 100 shares of stock, you would have been betting that you'd make somewhere in the neighborhood of 2,000 if it fell to your price target of 150. what happened instead? stock closed close to 300 today. that would be a loss of nearly
$130 per share $13,000 on your 100 share bet. what if instead you had executed an options trade, and bought the at the money 170 puts that expired in december and sold the 150s against it. now, in order to make $2,000 or maybe a little bit more, you would have needed to trade two of those, the 170s were tradin 18.60 is a per share price because every options contract representation 100 shares. net-net, you would have spent about $14.80 or $1,480 total, again using that multiplier and your maximum profit would have been $2,520. believe it or not, as far out of the monies those puts are, they still have a little value because volatility has exploded there are another options trades you could have done to make a bearish bet. you could have, for example, sold some upside call spreads. we looked at how those were priced on monday i was looking at the 180, 190.
that would have collected about $4.10 per contract had you sold five, you would have made the $2,000 you were targeting to make on the down side of course you can face risk if it goes higher, and indeed it did, but you still would have limited your losses. and in this case you would have, because that also still has some extrinsic premium to it, you could have lost as much as you made in that trade, too. but it demonstrates there's more than one way to speculate on a stock's direction using options you can cap the amount of risk that you take, but when you short stocks naked, as they say -- i don't mean naked by getting a share, but i mean not having some insurance on the upside, that can present som uncomfortable risk and typically not a trade i recommend. >> what are your thoughts about whether technical analysis can actually apply very well to
instances such as these? >> this is one in a million. actually, i have the uncomfortable position of having made the case to clients that car was a little too steep just before earnings and, of course, this thing went to 545 on the moment the irony is hertz did this too these are highly indebted businesses hertz went bankrupt, one of the first victims of the pandemic. this past year -- ten years ago they had $10 billion in debt and now 17 these aren't great operating businesses it, in fact, was indicated not up at all after earnings and then one little conversation about electric cars and it took a life of its own, essentially going to 545 the irony of this kind of thing, whether technical or not, there are people who make great fortunes and people who on the day in question having hit 545,
bought it at 500 thinking they were going to make, and all of a sudden lost 50% of their money all happening so fast. in just moments. the word untradable comes to mind >> even from an options perspective. because that's what we're talking about. i understand mike is not saying that one should go out and put any of these trades on guy, i'm curious what you think because i'm sure there is a little devil on your shoulder saying these are total shorts, nothing fundamental about the run ups in the stock, and yet there's the logical side of you that says i'm not going to get in the way of this, because these are trading on something other than logic, reason, or anything else? >> so this is the opine segment of "options action," which i happen to love people say short sellers are un-american. i would say quite the contrary i think people who have the temerity and the rigor to do what's required to find short plays are really important,
vital i would say to the market. now, just bear with me for a second as you know, it's just out west in utah, close by is yellowstone. i bring that up because wolves were taken out of yellowstone many years ago and something weird happened the environment got screwed up the moose and elk population grew and they were trampling trees that would not have been trampled all kinds of weird things happened because it was out of whack. they brought the wolves back and now everything is back in unison the ecosystem is working you take short sellers out of the market and ecosystem no longer works and you see weird things happening like we have seen over the last couple of weeks. so i understand why people no longer want to do it i get there's a bull's eye on their back but if you think that somehow taking that out of play is a good thing, you're mistaken. >> it sounds like you're saying short sellers have stepped aside
because of the market and that's exacerbating the crazy things in the market >> i believe so. i might be wrong, but there are no speed bumps, nothing to cull the herd, as it were, in terms of of the wolves in yellowstone. it's a fascinating conversation. for you nat geo fans, watch some of the work done on the wolves of yellowstone >> mike, i would imagine your advice would be the same for the way up, obviously. options define your risk and so that would be the better way to do this and let's give retail investors credit a lot of them have used options for a lot of these meme stocks >> i think that's true and i think that's smart i think there's also a reflexive element going on also. it's fair to say that whether people are buying the stock or options, it's going to have a similar pressure on. when they buy calls, what are the marketmakers doing
they have to buy the stock to hedge. there is always going to be some of that impact and you're going on to see that obviously if a crowd of people start buying the stock or buying options on the call, it will probably propel the stock higher but for the benefit of investors who do that and may not be able to hedge other means, at least they are defining their risk. that's the positive to it. an interesting thing, also, of course, when you have this hugely explosive moment going on, options premiums themselves can get out of whack as well if you bought the november 300 puts on tuesday at the close, in avis, even though the stock is substantially lower now at about 297 where it closed versus the 345 where it closed on tuesday, those puts haven't gone up in value that's simply because the options markets were also reacting very violently to the violent moves in the share price, too, and some of that has
come back in i think that if people are inclined to speculate and using options and defining their risk is key i am not making a judgment whether or not people should use this as an input or whether these are good ways to trade because obviously if you're making money doing it, you're doing something right. >> on the topic of meme stocks, do not forget to check out my new digital documentary, how the amc apes cracked wall street you can check it out at cnbc's youtube channel. up next, answering questions on old and new tech. we'll be right back.
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should be the play going forward especially after today's downfall of 40%? mike >> this is a brutal response to earnings which they announced yesterday. one of the things that does happen after the share price fell, of course, and the news is out, options premiums are very expensive. but the stock did rebound a little bit today usually you want to wait three days if you're trying to play for a bounce that will also take a little premium out of the options buying call options is the only way i would play for a bounce in this one given the moves we've seen >> up next, the final call when traders tell us how to make thinkorswim even better, we listen. 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.
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>> i so dig, usually i'm a viewer, i'm a participant tonight. my call, bond yields are too low. i think yields go higher next week >> that does it for us see you back here next friday at 5:30 eastern time. "mad money" with jim cramer starts right now - [narrator] the following is a paid presentation for the premium mattress topper by dormeo, one of the fastest-growing sleep companies in the world. what's captured these people's attention? - wow! - oh my god. - wow. - that's it? - wow, i'm impressed. - oh, i never would have thought, never expected that. - it feels like it's a brand new mattress. - yeah. - [narrator] it's not a new mattress that's creating this reaction, they're lying on the same old mattress they've had for years. it's time for you to discover the premium mattress topper by dormeo. we believe it's the world's most comfortable mattress topper.