tv Options Action CNBC October 13, 2013 6:00am-6:31am EDT
things. now you stay safe. bye-bye. this is options action. tonight. >> i love gold. >> well, you might be the only one. that's because investors dumped gold at a furious pace. according to some traders, it's about to get worse. we'll tell you why. which one of these three companies is about to release an earnings bombshell? >> i could tell you but then i would have to kill stkpwhraou no worries, maverick. we have the answer. is netflix about to become a
nightmare. it had its worst week in months, but is the pain about to get worse? these are the traders here at the desk. washington plays russian roulette it is you that options action is watching tonight. troubling signs are emerging from very large retail names. let's get in the money and find out right now. dan, i know you've been worried for some time. data from the gap. which really makes the picture worse. >> yeah. just this week. this has been going on for a couple weeks. it's low end to high end. back in august we had disappointments from macy's and nordstrom. we had target and walmart. and in between, panera. it has continued into this week. we saw limited, gap, costco miss their comp. it shows there is a consumer out
there, regardless of the s&p is back to 1%. underlying the consumer here in the states, it seems tapped. >> october the weakest in nine months. this is what we saw the last time we had this debt ceiling issue. >> so we have all the headline news. that's obviously not going to improve. one of the other things that could improve sentiment, rising participation, falling unemployment. other signs of real economic strength. consumers really need to see that. they need to see incomes rising, make sure government is working. they don't have either. i don't see any reason why people should expect consumers to be out there spending like crazy. the only thing they are spending on is they think they are taking advantage of a discount right now. i run out and buy a car. section 1, 79.
>> only mike khouw. >> the only thing doing well is nike. nordstrom has been wallowing side ways all year. or abercrombie and fitch has been horrible. gap lower. nike is the only one doing well. they are doing it because people are buying more expensive shoes. the question was, are you terrified of the shutdown? no. you should be terrified of the debt ceiling. everything will get killed. materials, names, financials. everything. >> don't think for a second the longer the shutdown goes there is a whole slice for the consumer in the united states. i think there's a tremendous potential for disruption on the consumer front in the next few weeks. we're getting the reports in the next week. we just got some this week that are backward looking. that's in the tank. if it looks really murky, that's why i'm a little worried about the stocks right now.
>> one of the things we haven't talked about is margins. it's one of the things costco did talk about. we have seen earnings growth, financial engineering, buybacks and epic margin growth. we are not going to see that. what can propel stocks higher at this point would be rising multiples. we're not seeing any top line growth. >> dan, you're taking a look at home depot on the cross-section of the housing trade and retail. >> it has been a monster. it is up 23% on the year. it's been a massive beneficiary of this housing trade. to me rates hit 3%. 10-year last month. this thing has stalled out. did not make a new high with the s&p. technicals look strained. momentum is deteriorating. this is not exactly -- if you look at that chart it's forming a bit of a triangle. i don't think you should go out and short this stock. i want to lay out a trade that
gets me long puts but i can finance it in the meantime. >> dan is clearly bearish. he is using a put calendar. in this strategy you will use that money to buy the same describe. you want the stock to be above the strike by the first expiration. walk us through the trade. >> i think the stock is going to trade in the mid 70s the next couple of months. i want to set up, like i had, to own puts in december. when it was 7654 i bought november, december, 75. so i sold one of the november at 1.0. i bought one of the puts for 2.30. i paid 1.20. that's my next risk. what i would like is for the stock to be at or above $75.
then i own those december puts for cheaper. then i have some options there. i can basically spread it. i'm trying to help finance owning puts. i'm not risking this whole 1.20 unless it blows out on the up side. >> you're talking about the consumer being strapped. the consumer feeling not so optimistic because of what's going on in washington. at least if it's temporary and it's the next three months, six weeks, whatever it is, doesn't the bearish case go away even if it's for this time period. >> for the short period of time it could. it helps favor calendar trades such as this. one of the reasons is the decay and that near dated option is going to essentially accelerate. essentially that put is going to go to zero. you're going to take advantage of that dynamic. >> two points for every call in
home depot today. five biggest all puts. >> the debt threat after options action tonight at 6:00 p.m. eastern. the the other big story today, the terrible plight of gold. >> hey, melissa. gold prices took another hit in today's trade. gold futures finished by around 2% today. around 12.70 in terms of gold futures. a year ago they were hovering $1800. the gold chart looks rather interesting. some technicians or analysts that look for trading patterns are seeing more down side to come. the price is broken below a key level, head and shoulders pattern. it is a sell signal for gold. head of commodities research said when the budget and debt issues in washington get
resolved, gold will be a slam dunk sell. remember it has a price target of 10.50 in terms of that price. >> that's 10.50 for next year, we should note. mike, what's your trade here? >> i would say very quickly, i have never been a gold bug. history may not repeat exactly but it does tend to rhyme. the last gold bubble from '76 to 1980, up 600%. a rise similar to the one we have experienced up to the highs in 2011. it fell back 34% or so. had a little bit of a bounce. and went straight down. it ended up falling 70%. if you think it has fallen a lot, you better prepare yourself for what can-can happen when a commodity turns against you. when the debt crisis essentially is eviscerated and tapering comes into play and interest
rates rise, the dollar will strengthen and you will see the final washout. i'm also inclined to take advantage is of the volatility we will see. today's behavior is a big part of that. i will try to put on a put spread like dan did for home depot. buy the march puts for $6 and sell them for 2.60. that's net debt of 3.40. near data options are extremely highly priced because of what we have been seeing. >> gld, gold in general got ahead of itself because of qe. somebody asked how to be bullish in gold. i don't like that. it is showing lower highs and lower lows. >> i say that very first part. it's lower. but what are you going to do --
>> there are times people want to do things and you cannot talk to them. you say, well, if you're going to do it, do it safely. put on a helmet before you jump off a cliff. >> i shorted yesterday afternoon. to me this thing in washington does get cleared up and we go back to this complacent environment, when it broke 1500 in june, went straight to 1200. we will probably see that off this pattern that just broke 1300. >> stocks versus options. the down side limits risks to $340. a question out there? send us a tweet. we'll answer it in our one on one web extra tonight. scott has an alternative on gld. he will lay that out for you. greater blogs and education material. you want to take a look. here's what's coming up next.
didn't net any profits. the stock stayed flat. why is he doubling down on his bearish bet? plus, king kong verse is us godzilla. that's because it is d.c. dysfunction. >> this isn't some damn game. >> this ain't no game, flash. >> the biggest week for corporate earnings. who will win? we'll explain when we come right back. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.
welcome back to options action. now, close to 70 companies in the s&p 500 are going to report their earnings next week. so we are getting into the heart of earnings season. there are a couple big names on tap. you have citigroup posting results on tuesday before the open. b of a on wednesday before the open. then there's gold man sacks. they report on thursday. yes, before the open. big tech names, intel, ibm, google. all of these guys are reporting. according to s&p capital iq senior analyst, third quart wither earnings per share are expected to post another record, but, and this is a big but, sales may not be as robust. that's why there is still cause for concern. despite the upbeat estimates, one name feels could have some sickly earnings.
dan nathan, you're taking a look at johnson & johnson. >> yeah. this plasma is getting a little lonely so i thought i would come up here. johnson & johnson has been a massive performer, 27% on the year. massive beneficiary earlier in the year when rates were low and investors were looking for high yield end stocks. it is expected to grow high single digits. what my issue here with johnson & johnson as we look at q 3 earnings, it isn't they are going to miss so dramatically. expectations are high. stocks acted very well. and the technicals set up weak in this one. they only lose 1.25%. i'm going to take advantage of the volatility for the earnings week in october. but first i want to look at this chart here. back on september 20th here, i bought some october puts.
and i was looking at this, exactly this. this is the chart september 20th. this is head and shoulders formation. this is the neckline. that's the left shoulder. that's the head. that was the right shoulder. and i bought the october '90 puts. if i go like this, here's the chart today, here's the same pattern right lear. there's that shoulder. there's the head. here's the other shoulder. it went down to the neckline at 85 bucks. that was interesting to me. the stock rallies 4% in a straight line. what i want to do here is take advantage of this trend line. the stock is continually, since making all-time highs in the summer, it is making lower highs here. and i think we have an opportunity actually to get this back to the $85 neckline. so i don't exactly want to go in and buy outright puts. it could have a little room to run as we get things cooling down next week in washington. but i want to set up for a
bearish trade and use that volatility in the earnings expiration next week to do it. >> dan, what's the trade at this point? >> it's going to be a calendar. we have been talking about them all show. when the stock today was about 87 -- well, no, it was 89.25. i bought the october/november put calendar. so i sold one of the october 87.50 puts and bought one of the novembers for 87.50 puts for 1.10. it cost me 70 cents. that's my maximum risk. i really think the stock has the opportunity to go back to the $85 level that it almost got to within the last couple weeks. >> you follow johnson & johnson. >> fundamentally johnson & johnson, it is tried and true bond problems y. it does not have substantial top of the line growth.
it trades at two or three turns richer than the s&p here. like a lot of stocks that have basically substituted as an income source, this is one of the ones that will become vulnerable to rising rates. this is a stock i would not be interesting in owning here. it has had quite a rally. it is still a little bit elevated. i'm not interested in owning it here. >> scott? >> i think this is interesting because johnson & johnson really volatility. dan is getting the math. doesn't work out quite as well with low implied volatility names. but it woks like it does on all cal tars. >> dan, carter would be proud of you. you did a fine job at the smart board. nice drawing. coming up next, could netflix become a nightmare? we'll reveal why the pain could get even worse.
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a complicated derivatives trade that has not worked out. dan made a bearish trade on netflix. it has not quite worked out. but here's why he hasn't lost that much money. on options action it's how we make money like movie stars. risk less so we can make more. that's just what dan tried to do with his bearish bet on netflix. he thought shares were going south. >> the stock will pull back 10%, 20% maybe. >> just shorting this momentum stock you get the picture. so to make a bearish bet, he bought for $6.85. now he needs shares to fall below 2.80 or below 273.15 by october expiration. does that come with a bucket of
popcorn? dan, let's do this for less. >> i saw two of the october puts. >> now we're talking. he sold not one but two of the 255 strike puts for $4.60. that makes it easier to make money and here's why. between the $6.85 he spent and the $4.60 he collected he cut his trade. instead of needing them to fall below $273.15 to make money, by more than $2.25. or below $277.75 by october expiration. >> oh, yeah, this is it. >> well, not quite. because there is a tradeoff and by selling more puts than he bought, dan could be forced to buy netflix at that low quick strike price or in this case for
255. so to protect himself against the nightmare scenario, he bought the october strike put for 75 cents and completed his line for a total of $3. now he is protected below the 255 level. because he spent more, he will need netflix to fall more to make money. he needs shares to fall below the 280 strike put by more than the $3 he spent on the trade or below 2.77 by october expiration. since the time of the trade netflix has dropped 5%. not quite enough to make this trade a winner. and now movie lovers all across america. >> quit telling your stupid story about the stupid desert and just die already. die! >> sshhh! >> just want to know one more thing. what will dan do now? >> all right. want to take a look at this. the timing is pretty interesting.
the trade was sort of working. then the stock rallied. expiration is next week. dan, what are you planning on doing now? >> this was tough one. this was a pretty decent winner. a made a decision to stick with it. i had seven and a half trading days. the stock was acting so weak. it came down so hard, so fast. this was send it and forget it. i'm going to stick with this one. >> now, you i think said before that you thought if there's a debt ceiling agreement over the weekend that it would be a sell the news event. so you're setting up pretty nicely. >> i think so. i think the markets are position said for that. >> right. >> if we open up we're going to come back at stocks. >> well, i think everybody knows i'm not a big fan of netflix here. i'm more inclined to go longer. you do need to sell things against it. that's why you would do something like a butterfly or
calendar put spread or even risk. there's a lot of things you could do. i like bearish bets. >> that's right. you don't just want to buy options. >> all right. of course a quick programming note. for the latest news out of washington, d.c., watch the debt threat after options action at 6:00 p.m. eastern. coming up next, the final call from the options pits. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. next week a chance to be greedy with your constitutions. >> i just want a leg into these. home depot and johnson & johnson. >> weren't you wearing a tie earlier? calendar puts in gld. >> looks like our time has expired. for more options action, check out optionsaction.cnbc.com.
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