Transcripts For CNBC Options Action 20240622

Well explain. Im afraid. All right . You want to hear me say it . And you have good ranz to be, rocky, because the vix is doing something funky and it could spell trouble for stocks. The action starts right now. She drives me crazy ill get right to it because theres with one area of the market that struck fear in the hearts of traders today and that would be energy. The sector just had a recordbreaking 13 straight weeks of losses. Exxon hitting a oneyear low on earnings. Question now, are the big dividends of Big Oil Still safe . Lets get in the money and find out. Brian kelly is make a rare appearance on options action. So rare in fact you that forgot to take off your tie. I know. Well start with you. I didnt have time. Well, i do think the dftds are in danger here particularly with the big oil, exxon, chevron, those types of things. Over the next 18 months there will be a time to buy these. Its not right now. We saw rig counts today actually increase. That means Oil Production is increasing. I dont think saudi arabias going to cut. So i see oil probably in the 30s easily. Increase in production is around 2 Million Barrels a day. Okay . So that is obviously a huge problem. You pointed out the rig count issue. Theres a couple things that could impact the dividend here, not the least of which is these Oil Companies are making much less money. What im surprised by is how surprised people are by this fact, though. Look at the crude futures basically from six months ago and what youre going to see is were down from over 70 on fiveyear crude to below 65 right now. I dont know how people could be all that surprised by this. Turning a big enterprise like exxon or chevron around in a short period of time is like trying to turn around a large crude carrier and if you take a look at the Options Market youll see the implied dividends are distinctly lower. Two reasons for that one is if you have less cash flow ewe going to be looking not to return it to shareholders that way and theyve reduced their buyback. The accretive effects there are going to go down. Exxon could reduce their buybacks by 90 . Even for Conoco Phillips showing there, jpmorgan was out today saying Conoco Phillips could end up cutting its sacrosanct dividend. All these players obviously want to defend that dividend for as long as humanly possible in order to keep those investors in the stock. Yeah, to keep the investors in is exactly right here. When youre looking at advisers out there or people that are in retirement, they use some of these dividend plays, they use Oil Companies and mlps and whatnot. Theyre in real danger with oil this low. Certainly you saw some of those implied moves in the dividend. A 10 cut. Most likely my experience has been when youre Trading Options they start making some implied moves on dividend cuts. It usually comes down the road. You have to be aware of that. If youre playing these for dividend yields, be careful here. Certainly oil trading 234940s. At least were getting a little more comfortable here. At least oil is starting to price things in a lot lower. Well see if some of these big conglomerates can adjust to the new loer price in oil. And oil goes higher because the underlying stock goes lower. Thats exactly right. One of the things certainly the stocks ray lot cheaper. They can get cheaper still. I think if i was going to be long anything and look for yield in the energy space it probably would be on the debt side. But i think the simple thing to do if you have these things in your book, youre concerned about future declines, you can just look at it the xle and buy the september 7065 put spread, pay 220 for those 70 puts, sell the other against for 70. Its a net debit of a dollar and a half. Basically thats going to give you a hedge. But it has already had so much bad news baked in right now that i actually at some point im going to start thinking about taking a counter trend trade and getting long in this space i think. A lot of bad news baked in but whats the good news thats going to come thats going to get these stocks out from where they are right now . Refining . Refining. The problem you have with Something Like an exxon or some of these bigger names so many other things theres so many moving parts to it. The midcontinent refiners like tesoro, valero, those are going to continue to do decently well in this environment. I think its way too early to buy that was a bright spot for chevron certainly was their refining business. The other thing that could help support Natural Gas Prices, eventually were going to have a mechanism to try to normalize Natural Gas Prices between north america and other parts of the world. That could help stabilize things as well. The reasony like a put spread here is because we have seen prices get knocked down so hard so fast. If youre going to press to the short side you have to be long options. Weve seen volatility actually compress a little bit now, even though oil is trading near lows. And thats a time when you do want to buy put spreads and whatnot to press the short size because i do feel like when you look at the price of oil i think 40, 45 is that bottom point. Were really at a critical point here, folks, in the price of oil. Another leg down, then that put spread will pay off. Otherwise that put spread will grind along, might be tough to play to the short side. We might have a longterm bottoming process. To b. K. s point id be waiting a year before i buy these things but still there could be zblsh the nice thing about that put spread, though, that lower strike options going to decay way its going to mitigate of t effect of trying to hold on. If it doesnt work out in the next couple weeks well probably look to adjust and press it out a little. You put on a trade that would be directionally bearish. Im short oil directionally. In nrt case i like the put spread. Its hard to be outright short exxon with the move thats down here. So the put spreads kind of nice because you do have a defined risk and you have to take advantage of some of that decay. Reports of the death of the movie industry have been greatly exaggerated. Cnbcs Julia Boorstin joins me with what to expect at the box office this weekend. Zblelsa, the u. S. Box office is up 8 1 2 so far this year. According to rent track. And this weekend is off to a strong start. I paramounts Mission Impossible rogue nation grossed 4 million at overnight showings putting it on track for 40 million at the u. S. Box office this weekend. Fandango reporting its outselling all previous Mission Impossible films. And vacation, which is Warner Brothers attempt to reboot the National Lampoon vacation franchise, has grossed 4 million since its open wednesday. The comedy starring ed helms is projected to bring in 30 million at the box office this weekend. But it could benefit from strong word of mouth. This has been a year of successful reboots with universal jurassic world, the biggest movie of the world grossing a billion and a half dollars worldwide. And a new star wars in december could make in the Biggest Box Office year ever. Melissa, back to you. Thank you, Julia Boorstin. We do have a slew of media earnings kick off next week. Take a look at this. Disney, viacom, dreamworks, 21st century fox, lionsgate just to name a few. Brian sut lnd, which one stands out to you . To me i like disney. This stock has been unbelievable over the last five years. Year over year its up 40 . It continues to show growth in the p e trading at 25 is not totally ridiculous. So heres a stock that i think is poised to do well. Look at this. When you talk about the movie lineup that weve had for business, it started the year basically strange magic, mcfarland, okay, whatever on those movies, but as the years progressed weve seen lots of things. Inside out. Age of ultron. Tomorrowland. It just keeps growing. And to end the year star wars, right . Here we have a great lineup that disneys been putting out. I think theyre really poised to do well. It seems like a tale two of cities. We talked about oil before. Those oil stocks having declines benefits from this. Companies like disney, who benefit from lower price oils, more pockets in the consumer, and the consumer doing okay. Low Interest Rate environment and thats perfect for disney. Whats your trade for disney . Taking a look at disney im looking at a call spread. The stock has had a nice runup. Its re difficult to play the stock to the long side. The best way to buy a stock is down at its 100day moving average. Ill use a call spread instead to define my risk and look at the august expiry i want to buy the 120 strike call for 2. 70. At the same time i can buy the 125 strike call. So net net ive only paid 1. 90 here. My break even being 121. 90. Thats up a buck or so, almost two bucks in the stock. Im basically risking 2 to try to make 3 if the call spread goes to its full value and the stock gaps higher after earnings. Otherwise all i risk at 2 here, the stock maybe goes down and i get an opportunity to actually purchase the stock and wait for a lower point. But playing a call spreads a definite way to play to the up side from this point. Disney shares in todays session hit a new high. I feel like were in the kind of market when stocks have big runups going into earnings it really has to deliver on every single metric. Are you concerned at all when disney reports . Certainly one of the things about disney is obviously the valuation is up toward the upper end and obviously the stocks performed very well. But one of the things i think is interesting here right now, pointing out that youve got the star wars movie coming out on the back end of the year, thats something where they really shine, when they can find the consumer angle as well as the movie angle. The other thing is right now options premiums are relatively cheap. Usually in the month following earn thz stock moves about 5 . Notice that the call spread that he was talking about, whats the targeting . Up about 5 . The move implied right now is 2 1 2 . To me if youre going to play it i dont know how you can bet against it. How do you bet against the winners in this market . You dont. I think youre exactly right. You cant bet against disney. But what you can do is take profits and use this call spread as a stock replacement strategy. That seems like a logical thing to do because disney has had such a big run. You i shernl wouldnt short disney going into earnings. Would you consider that . When you think about it, melissa, youve made a great point about stocks that have run into highs before earnings. Apple, facebook, those things sold off a little bit after earnings. Theyve got to blow it out. Theyve got to guide stronger Going Forward in the next quarter for the stock to move significantly higher. But the momentum is so hard to the up side on this stock that if im going to keep playing to the long side and press that i buy a call spreed. Got a question out there . Theres only one way to express yourself in todays world. Accepted us a twee tweet optionsaction. For everything options action theres only one place to go, optionsaction. Cnbc. Com. Its like you died and went to options heaven. Can you imagine . Heres what else is coming up. Confused about stocks . Which way did they go . One chart can hold the clues and well tell what you it is. Plus take these broken wings and learn to fly again, learn to live so free well, mister mister, thats exactly what kuo and carter did with twitters tanking earnings. And they have a way to make even more. Theyll explain when options action returns. Here at td ameritrade, they work hard. Wow, that was random. Random . No its all about understanding patterns like the mail guy at 3 12 every day or jerry, getting dumped every third tuesday. This happens every third tuesday. We have Pattern Recognition Technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. For all the confidence you need. Td ameritrade. You got this. Ahh. Steve, other than making me move stuff, ces. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place that lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim . For all the confidence you need. Td ameritrade. You got this. All the way starts from the bond market. That triggers down to stocks. And as soon as you see stock volatility that shows risk. And so what we like to do is take a look at the vix and see where its gone from, where its at now to determine if things are too complacent. What typically happens when youre looking at the vix is you see these little cup formations. When things get nasty or volatile it usually doesnt happen off of a big selloff in the vix and all of a sudden right back up. What we get is this resting heartbeat period here instead of just that big spike. And so you get this cup formation where the market sits around at new alltime highs or 52week highs and you start to see higher lows in the vix. Thats typically an indication of when you should be selling stocks and taking some profits because the market is getting complacent and we saw that over the last five years. Now, when you look at the next basically last year or so january 15, all of 2015 we got this cup formation already. Right . So this is a period where we had a spike at the end of december, beginning of january, volatility came back off in the springtime and you saw this long resting heartbeat period. All of a sudden we started making new highs in the market and the vix started climbing a little bit higher. And right in here where the vix is making higher lows that was an indication when you needed to get out. We had the greece issues. We had china. Certain issues that caused the market to spike and vol to spike. Now were in a period where vix has basically trailed off and made basically a down trending formation here which to me is actually a bullish indication for stocks. Were not in that resting heartbeat quite yet. To me im not ready to sell this market just yet. When i take tay look at it the one thing i look at is how is volatility behaving in all kinds of other areas . Certainly treasury volatility trading higher. Gold volatility higher than stocks. You would think that volatility in the stock market would start to bleed in as everything moves together, fear and greed moving together, that some of that would move back up. But certainly im looking for the vix for that sort of resting heartbeat to occur maybe around 10 or 11 on the vix on the down side. Thats when i would start to look to sell stocks. And then of course we get a spike back up in vix. I like seeing 50 , 75 moves up in the vix as a time when you would go back in and bite the markets. Right now were in an in between stage and i think the market continues to press higher until we reach the resting heartbeat in the vix. Hold the markets . I think we do hold the markets. I said last week you should probably if you want to as a substitute for stocks think about buying calls in the spy for example. Take advantage of that low premium. The only thing that sort of spells any kind of trouble to me is when i start seeing things like credit spreads widening out a little bit. Things in the credit market oftentimes they see the ice cracking beneath your feet even though its summer a little sooner than the equity markets do and there we havent seen credit spreads coming in that much. So i think theres a little bit of anxiety there. Thats what i would be keeping an eye on. The credit spreads are interesting because the lack of liquidity in the credit market right now and what people are doing is using spy puts to hedge their credit, their bond market portfolio. So theres a linkage there between those which then goes into your vix trade. So when you start to see the credit marketu take a look at hyg, if you start to see that come in then and you see the vix at a low point, thats the time you probably want to be buying some vix calls. I think youll start to see that its institutional money that will come in and start buying s p puts. The vix is tied to s p puts. As soon as you start to see that, thats when you get the resting heartbeat. The vix starts going down. It starts sitting here in this resting heartbeat, flattens out. You almost start to see higher lows in the vix. To me thats when the hedgers are starting to push all in and expecting a selloff in the market. I wait for, that look for a vix around 11. Thats probably the sign of complacency. Thats when i start to sell portfolios or take profit. Until then i think the market is going to be in a trending area and maybe to the up side. All right. Coming up next kuo and carter flying high on their bearish bet on twitter. Theyll tell you what they see for the stock right after this. Jerry, getting dumped every third tuesday. This happens every third tuesday. We have Pattern Recognition Technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. For all the confidence you need. Td ameritrade. You got this. Ahh. Steve, other than making me move stuff, ces. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place that lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim . For all the confidence you need. Td ameritrade. You got this. Time for the up side call. Twitter shares fell more than 12 this week and thats great news for kuo and carter and heres why. On options action its how we make trades trend. Risk less so we can make more. And thats just what kuo and carter did with their bearish bet on twitter. Carter thought twitter could tank on earnings. Literally 5050 kind of thing. Im going to take the 5050 down side on this. But just shorting the stock could lead to social destruction. So to define his risk mike bought the put for 2. 10. Now mike needs shares of twitter to fall below 34 by more than the cost of the trade or in this case below 31. 90 by august expiration. But spending 2. 10 just to bet against twitter its not even a question im considering now. So to cut his costs mike sold not one but two of the august 30 puts. Collecting a total of 1. 60. But he did something even jack dorsey cant do. He made making money easier, and heres how. Between the 2. 10 he spent on that higher strike put and the 1. 60 he collected on those lower strike puts, mike cut the total cost of his trade down to just 50 cents. And because he spent less, mike now needs shares of twitter to fall below 34 by more than the total cost of the trade. Or below 33. 50 by august expiration. People cant be measured by what they look like. Thats right. Because there is a tradeoff. And by selling more puts than he bought mike could be forced to buy twitter stock at that low put strike price, or in this case for 30. Even if it falls below that level. With the profits on the way down acting aa buff sxwrer mike wont see losses until shares of twitter fall below 26. 50 by august expiration. Since the time of the trade twitter shares have fallen more than 12 , making this trade a quick winner. Now, options action fans all over the world have taken to twitter. They just want to know one thing. What will kuo and carter do now . Dance to the music in case didnt notice carters not on the desk tonight but he did drop us a postcard. Hey gang, he writes, have a great show. Ive been on the road all week marketing in chicago, milwaukee, and madison and im looking forward to the weekend. Twitter went down. Could have gone up. Was a 50 50 coin toss as discussed last friday p came up heads. How nice. From carter. Is he actually telling us what to do next . Ill tell you what i cant do, is grow a beard like jack dorsey but what i can do is stay in this trade. And the reason i want to do that is because we were basically targeting that 30 strike price. Those options still have some significant decay left in them. Weve got 1. 6 0ds in premium we can continue to collect to press this short bet. Thats what im inclined to do. This thing just looks like grim death right here. It hit 30. 85 in todays session. This is a company thats absolutely wilting on the vine. Pun intended on that one. They need a new ceo. They need somebody coming from outside the company that can revamp it. I dont think hipster beards or jumping jacks is i nominate b. K. I think hes got some good suggestions for this company. Twitter i like the levels, the 30 strike, selling the two puts. I think it will find some support there. Thats an area that basically from a while ago sort of bounced there and moved all the way up into the 50s and now its coming back. I think youll find some support around this 30 level, let those puts decay out and thats a level id be willing to get long the stock. At what point would you be inclined to maybe say time to go long via options . Im going to risk im going to limit my risk . Well, actually this trade actually does that. Right . Because we were long the 34 puts, were short a couple of these 30s. Effectively youre going to get long the stock. Down around the 26 1 2 level. If you stay in this trade. Thats my level. That would be a new alltime low. A new alltime low. And thats not usually the price to reach out and try to catch the falling knife. Youll revisit the trade. Well revisit the trade. But were going to be revisiting management because theyre looking for somebody new and that could be the catalyst that propels it higher. Kuo and carter arent the only ones profiting from being antisocial. Two weeks ago someone made a bullish buck on facebook. Those july called expired today. But brian is long the august calls. The trade worked out great because basically it was a long bet to the up side but yet facebook actually fell a little bit post earnings and the trade say winner because those july calls that i sold were not worthless. Theres still some value left in the august. Im more inclined at this point, melissa, to roll those calls down because 100, thats quite a big move with nothing really on the horizon for facebook to compel it significantly higher unless the stock market moves higher. Im compelled to roll those calls. Get long that way, take advantage of low volatility in this marketplace and still play to the up side but roll them down. I agree with that. Thats definitely the way to go because now the premiums come out out of earnings. Thats the way to make the bullish play there. Coming up next dont forget we are on twitter and well be taking your questions right after this. So tweet us and be nice. Here at td ameritrade, they work hard. Wow, that was random. Random . No its all about understanding patterns like the mail guy at 3 12 every day or jerry, getting dumped every third tuesday. This happens every third tuesday. We have Pattern Recognition Technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. For all the confidence you need. Td ameritrade. You got this. Ahh. Steve, other than making me move stuff, ces. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place that lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim . For all the confidence you need. Td ameritrade. You got this. Take a tweet here. Down huge on how can i offset my losses quick . This is a common one. Stock recovery trades. If youre in a stock you want to stay in it and you want to try to figure out to make some of your money back. Its going to be very hard for the stock to break through those previous highs. Theres going to be tons of resistance there. You need to find a way to make some money on the way back up. The way to do that is to take your core position and do a one by two call spread overlying it. This stocks down about 80 bucks plus. The thing youre probably going to need to do, look out to october and do Something Like a 40 one by two call spread for maybe 5 or 6 and a net debit. That will give you a lot of extra juice, up 40 and then give a way to recover. All right. Time now for the final call. The last word from the options pit. Mr. Beakers. You know what, i actually like brian. The other brians call on disney going into earnings as a stock replacement. So you do a call spread, you sell out your long stock, you do the call spread into earnings. How collegial. Mike kuo. Bifurcated market, low premiums. I still think you can stay long the s p. And the way to do it is the same call i made last week, which is spy calls. Brian sutland. B. K. , thanks for being on tit facebo facebook. My mission is simple to make you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere and i promise to help you find it. Mad money starts now. Hey, im cramer welcome to mad money. Im just trying to make you a little money. My job is not just to entertain you but educate and teach you. Call me or tweet me jimcramer. How much do i wish we were finished with earnings season . After todays action how much i would love to sit back, you know somewhat what . Do the show sitting d