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tv   Options Action  CNBC  November 19, 2021 5:30pm-6:00pm EST

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welcome to friday and "options action. i am courtney reagan in for melissa lee. >> run away train? carter worth said the economy may keep chugging along on a straight track and go back to work, stay home, go back to work, stay at
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home flip-flop. finally, guy adame is back so we should check in on his favorite play from last time. it's time to risk less to make more option os action starts now. >> there are wildly wildly divet shots. carter, what have you got for us i don't think we have carter's mic so we will hold on a second and get that settled out let me ask mike what you think about the action from today as we talk about the economic destiny and why the markets were so fixated on what was happening with the covid cases overseas in
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austria. >> one of the thesis we have seen for a strong market recovery is that we are going to come out of the back side of this we had that in conjunction with strong consumer data, very strong consumer checkbook and all of that has been supportive of the rising market when you start seeing concerns like that, that things could begin to shut down again, that takes a leg out of that. that's going to create concerns. you can combine that with high valuations that puts us in a precarious position i am not sure we need to extrapolate too much from that i think he would need more data first. >> fair enough >> let's get back to carter. i think we have the audio issue worked out what is your play for us when we talk about looking at the middle >> this is similar to what was
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examined with small cap stocks what we know is there was a lot of euphoria in the cyclical trades if you look how the dow jones did from the low of covid, 23 of march, 2020 to its peak of 2021. and look at the second slide this is the same circumstance as the market enthusiasm. the iyt is down versus the spy, up 11. iyt has stalled it a great run-up and then a stall.
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many believe it's the pause that refreshes. some think it's the stall before the storm. but i think it stays where it is at look at the next slide this has been well-defined it has been persisting for about six months this next slide shows precisely the ranges in effect in the mid point is 262. the final chart is bringing it together what we know is you are talking about 3.5% to get to the high, 4% to get to the mid point i think we will be there between now and the end of the year. vacillating, gyrating, but making no progress and we want to profit from a sideways period.
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>> mike, help us make some money on what carter just laid out >> first we ought to talk fundamentally about iyt, what the transportation sector really is 34% of this is the rails we are all well aware there have been significant challenges with the supply chain that will affect everyone involved in transportation one way or another. the next includes fedex and ups. and rising oil costs that presents a headwind we have seen material labor challenges and shortages especially on the trucking side. so all of those things combined with the fact it is not that far off its all time highs suggests to me you wouldn't see a whole lot more to the upside
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carter often favors selling strangles. he sees this range between now and december between 2.55 and 2.85 if you were going to sell a strangle, those would be the strikes you would be inclined to sell two things about selling premiums that are important to me one, generally, i'm looking to collect about 1% of the risk i am taking in premium that strangle right now would collect about 2.25 that is under the 1% i would look at. the other thing is that generally speaking i don't like to sell naked upside, a naked upside call. so i think you could sell an upside spread and downside put
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you limit that upside risk, but you will be collecting -- when i was looking at this, i was looking at 2.60, 2.80, 2.85. you collect more than $3 it doesn't have unlimited risk to the upside in case it breaks out. >> guy, what is your take on the iyt? >> interesting this is cbw's world, but he said you had a huge double top, huge move in the spring subsequent sell-off. traded back up i am not saying we failed, but it looks like we are rolling over it. union pacific and cfx is 27% of this index in between the two of them is
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ups. i mention that because the ups chart and iyt chart are virtually identical. how do i play that i say the stock is completely underperformed valuation alone becomes compelling you put a 15 multiple on the $22 you are going to earn and you are talking about a $330 stock i am not saying it will get there tomorrow, but i don't think it should be 245 either. i think ups can break down, but i think fedex can get off the mat. >> so you are looking at iyt but also at fedex and ups. carter, when you are thinking about the transport group, what do you make of some of guys thoughts on the technical side >> they diverge. ups is a bigger business and better performer
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yet the spread is wide enough that betting on the underperformer which often is betting on poor relative strength can be treacherous. i think it's a good move >> mike, what about you? >> what is interesting you can use a structure in both ups and fedex that plate on carter's thesis and guy's too which i would suggest indicate selling an upside call spread and maybe puts on fedex. this is a way to collect on compression between the two. >> interesting and names we will be focused on in the next few months for everything opti"options act, check out our website.
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here is what is coming up next >> 'tis the season for emergency backup power, bad weather, covid, whatever it may be. mike is looking for a way to hopefully generate returns on a sometimes forgotten stay at home play plus calling all "options action" fan. grab your phone and tweet us your question. if it's nice, we will answer it on air 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. because we take trading as seriously as you do. thinkorswim trading™ from td ameritrade.
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welcome back 'tis the season for power failure. mike has a way to keep the lights on. >> we are looking at generac it's a popular pick on the street and hedge fund committee. it is about 20% higher a good reason. it has seen top line growth. this season maybe 48% top line growth close to 30 last year. full year 2022, probably looking at growth. this name may fly under the radar. you may look at alphabet, amazon, microsofts and the like. we have used some structures
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consistently on the show recently because of implied volatility i am talking about call spread/risk reversal i think it's a good name to use in this as well. why not just go ahead and buy the upside call spread in this name, if we are going to buy an upside call spread, what has to happen is the stock has to go above the call strike by at least the amount of money you pay. before you see profits, you will see losses at any number below that if you sell a downside put, particularly if you can get it to pay for all or the premium of the call spread, essentially you will see profits if it rises or not see losses unless it falls below that put strike. i think i was looking at the
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3.80, 4.50, if you just bought that call spread, about a 31% probability of profit out to february if instead you sold the downside put, you could put that trade on for just about even. that downside put is nearly 13% lower than the current stock price. so for one thing you will see profits on a lower level than if you bought the call spread because you don't have to offset the premium spend. and also you won't see losses if it falls more than 13% from its current price. also, you are risking less money than if you purchased the stock. there must be a tradeoff there is because you are owning a call spread rather than the put, your
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upside is limited. it is possible that implied volatility sucks a little out of those options and we could take profit a little bit sooner this is a way to tackle a name i don't think we have discussed on the show before that has excellent top line growth. but if you are concerned about a pullback this gives you a material buffer. >> carter, what does your charts tell you >> this is a beast, double the performance of microsoft what we know, and you will see this on the first chart, this, in the past year, has had four draw downs greater than 15%. you see them on the screen down 20, down 16, down 15 down
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to 20. this seems to my eyes to be a normal draw down, sell-off, whatever you want to call it and looks to be a place to initiate longs. this is the second one, the trend line in effect the past two years. third of four charts this one just shows the trend line while we are not quite down to the trend line, the final chart which is a one-year chart shows we are on the trend line for the past 12 months generac had a high earlier this month. we like it on the longside for a bounce >> guy, what is your take? >> i love that this was brought up carter nailed it in terms of the chart. you have seen pullbacks.
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i go back to earnings release november 2 when they came out with a slight miss on eps, on revenue and the sotock sold off. people had concern about numbers. you talk about revenue growth approaching 50%, eps at 22 or 23%. you have seen this sell-off before two analysts downgraded the stock, but both still have $500 on the stock this sell-off to me -- and i hate using the word. i typically don't, but i think this is an opportunity i think mike and carter did a great job with generac. >> people talk about valuation they look at companies and say
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it looks awfully expensive at 30 or 40-times earnings what matters is that multiple to growth trading at big multiples, they deserve des deserve to do so because their earnings growth justifies them up next, palantier
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to the upside. >> i think you want to buy those january 26 calls if you have a b bullish view as guy does when i was looking at it, it is a material portion you are paying for the january options that is a way to diooffset the decay. you could say it seems like quite a lot, but when you see how much the stock can move, the protection can well be worth it. >> since then, a small problem what do we do from here, mike? >> that protection was well warranted, because it got slayed after the numbers came out and we were risking less than two bucks. there isn't a lot left to do the short options are worthless.
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probably cover them for a penny. if you want to hang on to them, you are welcome to do that at this point there is little additional risk in doing so, but we were wise to use options rather than buying the stock outright >> guy, what has changed >> the price good for mike for having the protection embedded in that. i still like it. i think i have seen $19 on decelerating government and commercial contracts i get it but their operating margins came in at close to 29% there is a lot to like adjusted ebida i think people are concerned about the potential slowdown people are missing they have a couple of aces up their sleeve i think one in the form of this
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bitcoin security which is not being talked about enough in my opinion. my bad totally i think it was around a $26 stock. 21 now i still think palantir is a name you want to be in. >> up next, we will have your tweets and final call. nload nec. 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.
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♪♪ welcome back to "options action." time for your tweets -- >> guy, tackle this one for us what is your take on amazon? >> apparently her favorite tv show is "options action. happens to be mine as well we talked about it on "fast money. the stock was on fire.
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the price action concerns me we had it high before and similarly it failed. the price action concerns me you heard some of the bigger hedge funds trimming their position i think the rivian news helped and i think people were looking for stocks that had underperformed and they found amazon but look at today's price action and i think you will find it concerning >> up about 4.5% today one more tweet - what are your thoughts carter >> coin base general i would be long you can buy the jams for around 31 and sell at 17. you could get a gain in your position i think you want to be long
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here >> carter, final call. >> generac >> mike? >> generac >> guy >> tlt i think goe 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 our final west coast edition of "mad money" coming to you from san francisco welcome to cramerica my job is not just to entertain

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