Transcripts For CNBC Options Action 20170603

Cut in one big oil name. Well tell you which one. The action begins right now. That doubles every day, particularly bad. Biotech stocks posted their best in more than a month. The biotech etf, the ibb rallying more than 3 this week. It comes as the group lagged to the broader nasdaq 100. So is biotech finally playing catch up to the market . Should you buy in . Mike . Yeah, well, i definitely think so. Look, we did see some bullish activity in the biotech etf earlier this week. Looking for a 15 gain in there. Probably by about september. There are a lot of reasons why you might think there is room for a rally. For one thing, some of the political headwinds that were the talk of the town. We havent we heard as much lately. These are actually kind of rare these days, cheap stocks, if you look at them on a trailing earnings basis, a lot are trading barely in the double digits. If you look at an area that has seen consistent revenue and earnings growth, this is one of the places to look. Its a good weekend to talk about it with asco. The super bowl of biotech. Of these cancer stocks. There was evidence when hillary was leading in 2016, this group was taking it on the chin. Thats ricking. Some of the rhetoric out of the existing administration wasnt particularly friendly. There is the hope of mna, when i look at the ibb, at this point, with the s p breaking out to new alltime highs, obviously, we talked about the russell getting back up there. The nasdaq has been a oneway train. At some point, you have to expect this thing to break out. Its 25 from those 2015 highs and its been in a nice, tight consolidation for years. Because its growth that is leading a lot of the strength over the last three, four months since the giveback if not years. Yeah, what we know about biotech, it was the leading single place you should be from 2011 to 2015, then it drew down about 38 . So if it is going to catch up, this is the place do it. You are playing in particular through which name . Well, the biggest one of all, amgen. There are a couple charts. I want to talk about what mature Growth Stocks can do. And what the implications are. So i started a 30year chart, which is where data is s p 500. I told you to keep your eye out on the number here. Not so bad. Lets move on. Now lets add a stock for fun. Now, if i have mcdonalds, all of a sudden, that makes the s p gain look like a biker. You got a fourbagger compared to s p. Thats another stock and if we were to add, all of a sudden, i dont have it fun yet, look what nike does and mcdonalds, you cant see it. You got mcdonalds, keep going. These are mature Growth Stocks, now if i put in nike, it exceeds the numbers over here, home depot. And then, for fun, apple. Now, surely, nobody beats apple. Watch this. Apple is down here. Like a play thing. Then you cant even see it. Now, this is pretty impressive stuff. For fun, the issue now is hardly the single best performing equity bar none, except for petty stocks have done better. Literally bar none. Is it ready to go again. First, lets have some fun with this. If you took 10,000 and you put it in those instruments. You have a 147 grand, have you 2. 3 million if you did nike. Moving on, home depot 2. 7, 3. 5 ten grand, ten mill. No one is even close. What im thinking now after what has essentially been a twoyear consolidation. The stock made no progress. Almost three years, actually. To my eye, i think youre setting up a wedge of sorts here, and that were going to explode out the upside. I think big gains, you could draut lines that way, draw them this way, but if you were to see the arrow here shgs i think this twoyear consolidation is likely to set up for a powerful advance, arguably the number one stock ever. You have to trade, mike . I do, actually. Im looking out to september, specifically at the september 160, 175 call spread earlier. You can buy the september 165 calls for 5. 85. Sell the 1. 75s against it, a net debit of 4. 65. You know, this is a situation where the market and these stocks in particular have been low volatility. This is a less expensive way and a less risky way to make a bullish bet on this base. This stock is trading 12. 5 times earnings. This is one issue we were previously discussing. Their particular headwind has been that their two biggest drugs are coming off. They do have new drugs in the pipeline. And they have in the past about ten years ago, have similar revenue slow downs and managed to recover. The Health Care Space isnt going away. I think you have gone asymmetrical. You have a stock thats done nothing for almost three years d. Point, who would doubt this at this point . Not me. Well, you also, you guys are targeting gap to fill. So looking at that call spread, i think it makes a lot of sense, you are getting up to the mid70s. 180 would be that gap fill. I made one point. Listen, this is a sector like you said, its owning premium, with spot vix below ten on the close today is a tough way to make money. Maybe in a very slow summer, one trade i might consider is buying one dated casualties, like mike is doing in september. Then selling something shorterdated, doing a call calendar, to finance that a little bit. Ohing that premium, its a chunky call spread. One of the things you certainly could consider is selling potentially out of the money to help finance it. Look, this is an environment where the market has been doing one thing only. Volatility is incredibly compressed. It is the toughest time to buy premium. It might arguably be the best time when it has gotten as cheap as it has. Lets switch gears to apple. Its hosting the World Wide Developers conference on monday. Josh lip pon is olip pon is out San Francisco with a look on what to expect. Reporter scott, this is a Developers Conference the focus will be on software t. Expectation is apple executives will announce ios 11 our u offering new capabilities for your iphones and ipads, ios covers 60 according to ibc. That is, of course, a distant second to android, but the more than 5,000 developers at this conference are less concerned about market share and more interested in where they can make the most money. Apple just told us this week that it has now paid out more than 70 billion to developers since 2008. And that downloads have grown over 70 over the past year. Analysts will also look for any clues in that new os about the new iphone in the pipeline, for example, they will be on the lookout for new signs of ar features. Excitement about that phone and the upgrade cycle that bulls are counting on is of course a big reason why that stock is up more than 30 this year. It wont be just software, though, an update to the laptop line is expected on monday the mac represents about 10 of total company sales. Perhaps a whole new device with reports suggesting apple could unveil a new sirienabled smart speaker. Right now, amazon controls about 70 of that market. They have advantage in the space. Huge install base of ios fans, 500 stores and a Big Marketing budget. Guys, back to you. Thank you, josh lipton. I think that last bit with josh has been the most important point. The siri speaker, they need to come out with something here. They are a distant number three behind amazons alexa, googles home. They need to wow investors here a little bit. Obviously, this is a software conference. I want to make one point, quiet lit air pods, which theyve released last year, its been released in many, many years. To me, i think the expectations arent particularly high t. Options market is pricing it 1. 7 , moving either direction in apple between now and next week. I think if you have gains in the stock, its up 34 yeartodate. You have High Expectations for next weeks conference, and High Expectations about the phone that josh detailed that may or may not come out in september, you may want to consider calling. We talked about one last year, excuse me, last week in amazon. Its a strategy where you are long the stock. Are you overlaying that. You are allowing for upside up to a certain point. You are giving up a certain amount of upside or protection. I want to layout the trade, if you are long the stock. You close around 155 today. You look out to september expiration. You could buy the september 170, 140 collar for even money. You would be selling one of the i guess 100 shares of stocks, you would be selling one at 1. 75 and then buy one of the 1. 85 puts using the proceeds to buy one in september 140 putted for 1. 85 that costs you nothing. If the stock were to appreciate, can have gains up to 170. That about 10 of the stock price. On the down side, if the stock were to trade below 155 to 140, the put strike that you own, you would suffer losses, but you are protected below there. The reason i chose september expiration the company usually releases that new phone, at least they do the unveil of the new phone in the first couple weeks of september. If for any reason that stock is pushed out, this stock is going back to 140. We have the stock up 34 . To me, 140 is a very big technical level. I think there is a gap filled down to 130, 125 we low that. To your point, the innovations have been hardware oriented. Im surprised. As i was when you outlined the collar in amazon. The math is working very nicely here. As we discussed before, usually when you do these protective strategies, there the a cost for insuring it. Very often you dont get equivalent upside to downside when you put these trades on, so this actually looked really nice here the fact that you can take 15, you can flip a coin if you own the stock to gather another 15 bucks worth of profits on it. Think it makes a tremendous amount of sense. The point of view from the charges as set up. This is a stock that drew down 45 in 13, it drew down 35 on the lows, now up 100 almost on an 18thmonth basis. You trend. You take profits, you do a dance on that. Nothing goes to the sky. This is one of those things also, take a look at how the stock behaved over the last two years, generally speaking, when bad news comes out, what happens . They dont take the stairs back out. You take the elevator down. Thats why strategies like this, when the math happens to work, as it does here, happens to work. Even if the technicals to you, carter, even if the technicals are favorable you would perhaps take money off the table because of the run. There is a setup in apple still looks good. In a good chart, theyre do you good, whether its 35 of air or 70 over, you have a situation where, who is the incremental buyer. It will probably be this new phone. Its the best of both worlds. You are still long the stock. We have much more options action ahead, in fact, heres what else is coming up. Options traders see a dividend cut coming for one of these companies. Well tell you which one. And calling all options actions fans, reach into your pocket, grab your phone and tweet us a question at options action. If its nice, well answer it on air. When options action returns. Logical. Im here at the Td Ameritrade trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and 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. See options data like never before. With thinkorswim only at Td Ameritrade. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Welcome back to options action. Talk about a tough week for crude, falling nearly 4 . Jackie deangelis has more on whats driving those prices. Jackie . Thats exactly right. Were hovering near yeartodate low, the pressure is opec members may not be committed to production as they publicly stated. This comes as u. S. Production continues to rise. The u. S. Is pumping 9. 3 Million Barrels per day, thats up 7 from a year ago. That number could continue to climb. This week, 11 more oil rigs were added in the u. S. , thats 20 straight weeks of addition dating back to early january. Is it a coincidence that rates havent fallen once since opec started cutting . Well, i will leave that to you. Meantime the u. S. Also exported a record amount of crude Oil Last Week 1. 3 Million Barrels a day. The opec deal is about a cut of 1. 8 Million Barrels a day. So the u. S. Exports almost canceling out of the opec cuts. With all of this coming as the Trump Administration pulled out of the paris accord, just the latest in a series of moves to repeal regulations that would increase Domestic Energy production. Bottom line here, more supply means lower prices for oil, that helps explain why energy st. Worst performing sector in the s p this year. Scott. Jackie, thank you so much. Jackie deangelis. So, will the decline in crude put a number of Big Oil Dividends in jeopardy . Lets see if the Options Market is giving us a clue. Mike, can you break it all down . So we often thank you about to the Options Market is implying for dividends, how do we do that . We have to calculate the forward price with the put and call of the same strike and expiration, for example, of a 50 strike, i take the price of the call. I add that to the strike. I take the price of the put and i deduktd that. That gives me the forward price of the stock that options are implying. Remember, stocks pay dividends, options dont. Then im going to compare those two prices, i will take a look at the difference between the two of them. That will tell me essentially the carry cost or the Interest Rate and dividend impact. So lets take a look at some of the dividends, 77 cents for exxon, 1. 05 for chevron. I want you to Pay Attention to royal dutch shell. Schlumberger, all service based. 55 cents, the Options Market implying some pretty big cuts, about 20 cents each for former chevron and exxon. 30 cents for royal dutch, which is most of the 47 cents you already had. A warning sign that dividends might not be sustainable. Take a look at the yield. Its over 7 for royal dutch. Thats a troublesome indicator. Weve discussed this here. These companies are loathe to cut their dividends, and many dont. Many dont want that on their head. You are the one that cut the dividend. Talk to me when oil is like 20 bucks. Not 47 bucks. Heres the thing, thats what theyre thinking. First of all, sort of the nonagreement in opec. Guys are thinking, its going 20. I dont think theyre cooperating at all. But then theres this. Exxon by far is the biggest one, you have the live billion. The next close is maybe chevron, new 52week lows. Something is wrong. Its probably the cuts. One of the things you have to consider is if companies have to take on Additional Debt to basically sustain a dividend, weve had incredibly low rate environment. If rates were to rise, how sustainable would that be . They havent been replacing all of their reserves. For a long time. Thats right. So that has to come from some place. That will reach a Tipping Point at some point . Does it surprise you guys, though, last year when we saw oil at its lows, the high yield index is getting slaughtered. Its 52week highs. There seems to be a lot of disconnects right now. I think one of the important things though is also not that, just between i dont know that theres a disconnect. The high yield space, a lot of that issuance was coming from the drillers. The e p space is contributing to the supply that jackie was talking about. From the integrated wells perspective and the value of their reserves, thats measured in the price of oil. Thats going down. I think an approved rally, 18 off the low, the never stocks never moved. Now were giving it all back in the commodity. Still ahead, goldman sax is the worst this week and the charts are pointing to more pain ahead. We will tell you how bad it can get when options action returns. [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at Td Ameritrade. The opioid my doctor prescribed for my chronic back pain backed me upbig time. Before movantik, i tried to treat it myself. Spent time, money. No go. But i didnt back down. I talked to my doctor. She said one, movantik was specifically designed for opioidinduced constipationoic and can help you go more often. Number two . With my savings card, i can get movantik for about the same price as the other things i tried. Dont take movantik if you have a bowel blockage or a history of them. Movantik may cause serious side effects including symptoms of opioid withdrawal, severe stomach pain and or diarrhea, and tears in the stomach or intestine. Tell your doctor about any side effects and about medicines you take. Movantik may interact with them causing side effects. Dont back down from oic. Talk to your doctor about movantik. Remember movantik. If you cant afford your medication, astrazeneca may be able to help. Steve, other than making me move stuff, im here at the Td Ameritrade trader offices. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and 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. See options data like never before. With thinkorswim only at Td Ameritrade. Welcome back to options action. Time to look at some of our open trades from last week. Dan was banking on a big drop from goldman. Heres what he said. To me the trade is pretty simple. Look out to july expiration. We will catch that earnings event. The stock was trading at 222. 50. You could buy the july 220 195 put spread paying 5 for that. Thats your max risk. The worst performing dow this week. I think it has more to go to fill in that gap. We were all in agreement on that. The trade was a double in a week. In this situation, when you have such a sharp drop in such a short period of time, you play with the houses money at some point. Its hovering ominously. Think the adjustment is what i would do. You are now well between the strikes. You would want to roll to out of the money put spread. This is working your way. Gold last week, mike and carter said the precious metal could shine. Up and out. Im long, want to be long gld. Im looking out to august, i think you can buy 1the 121127 calls. You could sell the 127s for 85 against it. Gld was up 1 this week. What do you do now . Thats not exciting. Is it down . Thats true. I think the key is it was up very strongly. That says a lot. I think there is plenty more to go. We bought a lot of time here. Yeah, we have plenty of time. It went out to august. I think this is just the first step, we are reviewing the trade. We made the first step on our hike, but the journey has further to go still. Theres some funky stuff going on. To your point, gold up, equities up. Tnt broke out to a high. 30 year rates. Its going down. There is funky stuff going on. I expect gold, all this risk stuff, risk options stuff, it will work at some point in summer. Up next, your tweets and the final call from the options puts. Hey gary, what are you doing . Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. What . Pony neighing] hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at Td Ameritrade. Welcome back to options action. Its time to take your tweets t. If irs is from matt who asks, what do i have to do to get the tweet on air . It turns out nothing but tweet us. Congratulations, you did it, but, he wants to know, what are your thoughts on foot locker and a rebound. I was thinking about the august 60 calls. I dont know about the rebound. But, if you are going to play for a long side bet, youd have to take the august call, its 2 worth the risk versus 60. Thats a broken stock. Broken stock. You may want to see it in the mid to low 50s. They pulled it up on its quarter. Middle rebound, i would say. Any more cliches you want to break out for the world of athletics . Pulled up lame. Or just get its head cut off. Stock pulled a hammy . Next question, you talked about a possible amgen breakout. Does this bode well for cellgene and biogen, carter . We are talking a stock consolidating at an all time high. Cellgene is a weak stock trying to bottom. I like it. No, its struggling. I like celgene. It looks like a value play here. Its not just any friday, its National Doughnut day. That has marco asking which doughnuts are the favorites . Going for brand or flavor . Flavor. Glazed. You always go with the glazed. Glazed, krispy kreme. Powdered jelly. What . Powdered jelly. Thats a mess. Not surprised. Not sure about the jelly. Time for the final call. Thats the last word from the options pitch. Carter . Amgen. Do not be tempted by the high dividends in oil stocks. Apple, fantastic gains. The opportunity of buying out of the money put, protecting gains do to the down side. You have a great weekend. It looks like our time has expired, sad clown face. Well be back next friday for more options action. The following is a paid presentation, brought to you by beachbody, but filmed by me on my iphone and directly from my heart. Hold up. I want to ask you a question. How do you feel when you look at yourself in the mirror . Not so good. Like, ugh. Gross. Who is this person . Like, you know you have to do something, but its so confusing theres fad diets, extreme workouts, and its working for other people, but it is not working for you. You just want a system, a program that actually works hello that doesnt feel like punishment