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tv   Options Action  CNBC  November 2, 2019 6:00am-6:31am EDT

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well it's 5:30 on a friday here at the nasdaq market site that can only mean one thing it's time for "options action. here is what's on tap. >> coming up on the big show. >> vegas. >> vegas, baby. >> vegas. >> we're headed to sin city. and the chart master's feeling lucky. he'll tell us the one name he is rolling the dice on. plus -- >> a whole new world. ♪ >> that's right. it's a whole new world for disney as the company gets ready to launch the new streaming service. but dan nathan says there is something else that could take investors on a magic carpet ride he'll tell us what it is
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and later mike khouw has a five-star uber rating. but how will he rate uber stock heading into next week's earnings buckle up, because it's time to risk less and make more. "options action" begins right now. and let's get right to it earnings season in full force. but will the force be with disney when it reports next week the media giant trailing the broader market this year but dan says the stock could conjure up magic when it releases earnings on thursday. let's get in the money dan take it away. >> back in july the stock was massively outperforming the market it had a lot of momentum, we had a five-year chart. starting with this this thing was range bound, finding a lot of resistance for years at the 120 level and broke out in april when they gave some color about this disney plus service, the streaming service that they are rolling out in just a couple of weeks. and so that chart is really interesting to me. you see that island, that it spent in the last six or so months trading above 130
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kind of interesting setup when you think about earnings next week, the options market implying a little less than 4% move, about $5 in either direction, which is kind of double of the average move over the last four quarters obviously that big move in april did not come on an earnings event but a product announcement when you think about the earnings event a week before the launch of disney plus, my guess is you're not getting a lot of the color on subscribers that investors really want to hear because they don't have them yet. they announced the deal with verizon. i think it's a great deal. verizon unlimited customers in the u.s. have one year free of the disney plus service. it's going to be a very sticky service. this is at the price point of about $6 this is going to be a force to be reckoned with. but here is the trade into the report i don't know if 132.5 where the stock closed today is a good entry in front of the earnings
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report there is the gap between 120 and 130 that if there is any press point i think you can get in there but this is a name heading into 2020 that you want long exposure for. once investors are able to model out what subscriber growth looks like and the profitability of this business could look like getting into tens of millions of subscribers. i think the stock goes higher. here is the trade. i don't know whether 132.5 is a great entry point. i want to set up to own it with the stock closing at 132.5 i think you look to risk reversal in january expiration selling a downside put and using some of the proceeds to help finance the purchase of an upside call and this gives me room on my entry point today when the stock was trading 132.5 you could buy the january 120, 140 risk reversal selling one of the january 120 puts at 1.20 buying one of the january 140 calls at 2.20. costing me $1. that's my max risk above 120 so my worst-case scenario, the stock on january expiration is 120 or lower and as if i'm long
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100 shares and lose the $1 but long it and have the exposure below 120 but to the upside, above 140, i have unlimited exposure it costs me $1 for that. so here is the thing i have this risk reward that i think is favorable i think 120 is a level where a lot of people are going to come back and buy it if the stock is down there. >> before we get everybody's take on the trade we have breaking news out of d.c let's get to eamon javers. >> president trump speaking to reporter a few moments ago talking about the stock market today. the president seeing the rally today as a real endorsement of his priorities as president of the united states. i asked him about his tweet he had made saying the stock market would be higher if it wasn't for the impeachment debate on capitol hill the president says he thinks it would be much much higher if it wasn't for impeachment but oddly the president also told me that he believes that
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the dow went up 300 points today because of the release of the ukraine transcript which of course was released a couple of weeks ago. so the president sort of tying all those elements together in his argument that the market very much is tracing the fortunes of his presidency he says if he were it to be removed from office that there could be a real crash in the stock market the president also talking about some possible locations for his next meeting with xi jinping he says that negotiations on the china trade deal are going well, not offering new specifics there. but throwing out the possibility of iowa as a meeting location for his meeting with xi jinping because he says it's all about the farmers. the president said that's not definitive yet but something they're considering because of course they do need a new meeting location now that chile has cancelled the apec summit. the president working through the list on that but an interesting analysis of what happened with today's 300 point rally melissa in saying that ultimately it's because of the release of the ukraine transcript. >> did the president even mention the jobs report, eamon. >> he did. the president is enthusiastic about the jobs report.
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and enthusiastic about what it says about the economy and the president quoted the old line it's the economy, stupid. >> all right eamon, thank you eamon javers. >> you bet. >> in washington, d.c. i haven't heard that that analysis in terms of linking today's record rally in the s&p 500 to the release of the ukraine transcript. >> no. probably not. >> yeah. >> and disney is at an interesting level. >> i love that carter wants to get back to disney. >> i listened as he was brought up if you have nothing nice to say don't say anything and talk about disney because that's happy. >> let's resume the discussion about disney dan had interesting charting. >> he did. >> the key is obviously if you get something unhappy you have the risk of a quick fill of the gap and dan is aware of that and that's why he has done the 120 level. if it's put to you it's going to be at the level where the gap is extinguished so to speak it's the way to do it because basically disney has been stuck
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ever since that really epic breakout and gap on $65 million shares in april. the standoff continues this is the way to get long. >> mike in vegas, what did you make of dan's trade. >> well there are some things i like about it. you know if you sit there and try to buy premium every time you have the upcoming catalyst that's usually not a winning strategy he is looking to offset some of the long premium he is purchasing, selling some you know relatively short-dated puts less than 90 days is usually the kind of premium i'm looking to sell that said we have seen some gaps lower in disney earnings one of the most profound was certainly in 2015 you're not collecting that much as a percentage of stock price. valuation on disney right now is trading pretty close to the all-time peak. and you might not see that in
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the stock price. why is that? because they've taken on a lot of debt frankly since a year ago probably about $40 billion of incremental debt on the balance sheet. so that is one of the reasons why we might be seeing a higher implied move right now obviously as the debt level goes up, volatility of the equity gets higher and we see that in the options prices into earnings i like the idea of buying the calls there for $2.20. i'm not sure i'm comfortable with selling the puts at only $1.20. >> all right let's move on here from the magic kingdom to sin city, let's check the casino stocks shares of wynn resorts leading the group nearly 25% las vegas sands not far behind up around 21%. mgm bringing up the rear with the 19% move higher in the year. but despite big gains the chart master feeling lucky rolling the dice on one of the names head over to the plasma, carter break it down. >> you see the numbers those are market performing numbers. in line with the s&p but we're looking at lvs and see if there is something setting up which would lend itself to a pop. let me just clear this disney and we will move on to lvs i'm not sure we have -- yes and no okay so a bit of a skew there it is, perfect
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what i've got here first the consumer discretionary etf xly, which of course casino stock is highly discretionary don't go to vegas but what we know is the laggard relative to the sector is either a problem or it has been a problem that's about to change and to be something good that's my premise. let's look at this chart another way. rather than a comparative line, this is the relative line. this is lvs on top and relative performance to the xly on bottom look at the next one and look at the following. what's happened here -- i'm zooming this in we have now broken above the relatively downtrend line let's get rid of that. that's an important development. look at the top. we have not broken out on an absolute basis again, again, we have started to move higher. we are outperforming the sector of which it is a part.
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but we haven't broken out on absolute basis let's go to the absolute chart itself my premise here is that that we are now for the first time going to rather than fail at this level we're going to break out why? because i think what you've got here is a perfect minor head and shoulders bottom and the setup culls for that lvs longside simple as that. >> mike since you are joining us from sin city. why don't you give us a trade. >> las vegas sands interestingly isn't so much a las vegas company. so less than 16% of their overall revenues come from the united states, less than 15% of the net operating income comes from the united states most of it comes from macao. and secondarily from singapore you're talking about over 80% revenue those two places and macao is important because we know one of the
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things hurting the company was a crackdown on junckets from people coming from china to macao. what they have done to mitigate that is going to the mass market the nice thing about mass market even they they win less the win rate for the casino is high 40% versus the 10% for bakarat players. i like the valuation i want to sell the premium for longer dated calls i was looking at november-january 65 call spread. costing me approximately $1.30 the idea here is that the decay on shorter dated calls expiring two weeks that offsets the longer dated call purchase hopefully next month i'll sell more calls against this and hopefully higher strike ones if we see this go up towards 65 i'm still owning the longer dated january 65 calls maybe i can look to sell 67.5 or 70s if we get the rally carter talks about. i like the stock
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i'm uneasy with getting long stock or short naked puts because of where where we are in the market, i like the stock this is the way to make a play for the upside. >> what do you make of the play. >> mike didn't like the downside 90 days out. i don't like him selling a call only two weeks away but a couple bucks out of the money and half the percent of the stock price i don't think it does much for you. if you are bullish the way carter is on the technical and bullish on the fundamentals the way mike is you buy a call or call spread. >> for everything "options action" head to the website. "options action".cnbc.com. check out our newsletter here is what's coming up. >> it's been a bumpy road for uber since the ipo but if you bet the stock makes a u-turn on the earnings next week our mike khouw will tell you where to park the cash ahead of the results. plus, calling all "options action" fans, reach into your
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pocket, grab your phone and tweet us your question at "options action. if it's nice we'll answer it on air. ♪ ♪
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it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that.
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well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." if you thought disney was only big name reporting earnings next week think again. uber hits the ignition on a full slate of earnings after the bell but that's not all uber insider lock up expires wednesday. freeing up more shares to hit the market if you want to get in on the action buckle your seat belt because mike khouw has a strategy for you. >> we are looking at a call calendar here. you know, as you pointed out there is two very meaningful catalysts.
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first of all not that much of earnings history for uber. so in cases like this where you have stocks where they recently ipo'd very often the earnings tend to be more volatile than subsequent years after more history and investors are better able to digest the news and information that they are receiving. but of course the lockup expiring is a big catalyst and potentially can put a lot of pressure on the stock. you know, one of the things that causes is exceptionally high options premium. we are seeing the implied move of 13.5% translate to market capitalization of $7.2 billion in the stock but the point i make here is there is two opposing forces we're not expecting good news out of earnings. this is a company burning through a lot of cash. we are not expecting a profit. they could potentially offer some form of upside surprise the other thing is there is a significant high short interest in the stock close to 30% of the float. one of the things that does is when you have a lot of shorts in
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the name they could potentially create a measure of support. you could create pressure on the stock from insider selling you could create support from short covering those two things might actually mean that the stock could move less than a lot of people seem to be anticipating here. i was just taking a look at essentially an at the money call calendar, the 32 strike november-january this was inexpensive when i was looking at it because of the high price of the near dated options. process you could spend $3.10 to buy the january calls. sell the ones expiring in one week for $1.80 a net outlay of $1.30. the idea is if the stock doesn't move as much as anticipated you can see decent profits and own the call for the longer term and look for other things to do here on the flipside if it gets the big move, the most you risk is the $1.30 you spent. this is a way to make a play that it might move less than the 13.5%.
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get to own the longer dated call if you wish and play for the opposing forces to potentially mitigate one another >> carter what do you think. >> i mean, personally i think this is flipping coins when you don't have a lot of price discovery which mike talked about, new. and you also have something that is a valuation vacuum, i mean what is it worth and you haven't settled that we know it can happen when you things like pinterest or beyond meat on how they plunge and even a mature stock like twitter, the risks are that something unhappy happens. obviously it's the way to cope with it is some sort of options trade. but just to make a directional bet outright with the stock is just a coin toss. >> dan. >> that's an interesting discussion because mike laid
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out a scenario to go either way but if you are positively disposed this trade could set up okay i agree. if mike was saying buy calls because i think it's going higher that's a tougher sell he is taken advantage of short dated premiums and if the stock doesn't get creamed this trade works out. i like it from that standpoint but i agree totally fundamentally if we're not at a talking options trade. think about the new from lyft over the last two quarters we know the direction of that stock. i don't think the trajectory is changing in either name on one quarter on a dime. i think you get a opportunity in uber to buy it lower. >> the lyft news was good. >> it's good. >> and the stock action is good too. >> it was. and the third quarter lyft came out earlier than uber. to me i'm more focused on lyft it's a better pure play on north american ride share. and dara is getting handle on other levels i don't know when the bottom is. >> even lyft after popping is
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giving it back. >> that's true. >> it's sort of. >> last word, mike >> yeah, i mean uber has outperformed the market the last weeks but to dan's point i will say that uber is better positioned than lyft many ways cost per ride is half of lyft and of course in a business where scale matters. but fundamentally we have to figure out how the companies whether lyft or uber make money. i would never advise running out to buy either stock here. >> speaking of autos we have news october auto sales rate coming in at 16.58 million, notable because it's the lowest in six months. this according to auto data. up next, one industrial stock tested its meddle against the street and won process we tell you why that's great news for traders it's friday, you know what that means. tweet us burning options questions at "options action" you might get the answer on air. don't go anywhere, much more "options action" right after this "options action" sponsored by think or swim by td ameritrade ♪♪
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♪ ♪ ♪ ♪ ♪ welcome back to "options action." time to look back at open trades last week dan said u.s. steel would show its meddle with a strong earnings report. >> the chart since it started in 2018 if you look at the downtrend. take a ruler and draw a line there.
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it's been bouncing off of ten a couple of times a handful of times in the last couple months. short interest at 33%. wall street analysts hate it two buys eight holds and six sells i look at this and say to myself they don't even have to say anything good they just don't have to say anything bad and this stock probably rallies. the 12 calls when the stock was 11.70 were offered about at 58 cents. >> well, x beat the street surging 15% what do you do now dan. >> there is a few options here obviously you can take the profit i would say when you have something up more than double you do that on half if you are convicted you let it run roll it up and out choose a higher strike and another expiration or take the profit. it was a good trade, contrarian trade and obviously with the defined risk but they don't always go this way sometimes it makes sense to put them in the bank. >> that's right. grab it. this is the ge kraft heinz, something that's down and down and gets a pop
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you thank your lucky stars grab and grow. >> a couple weeks back mike said rally in the home builders might be up for a breather. >> another nice thing about the credit spreads, they tend to have the better than 50 profitability the reason for that as we are about to demonstrate is you can have three things happen to a stock my bet is we have in a strong run coming in here and that maybe we just hit the pause button on earnings specifically the call spread i was looking at was the november 39-40 call spread. >> well after a post-earnings pop the group down more than 1% this week. mike what are you doing now. >> this trade was scratching middle of the week at this .1 thing to consider
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when you have these types of spread this is in the money. you're actually paying to own it i would blow this thing out on monday and look for another opportunity to re-enter it i would say given the market strength that this hasn't relatively been as strong as you might otherwise think it would be. >> that's right. for the structure on the options side it's move along in terms of the premise of group that's overbought, and needs to rest and/or give back that part is intact. >> oh, it is. >> meaning it -- and it is it's had a bad week for home builders the thought that they'll quickly get going again is not a good bet. >> you agree, dan. >> yeah, listen, i think that they've overshot, been relatively outperformers all year who knows if rates are going this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. i see best-in-class platforms and education. i see award-winning se ice, lower it might be like a better level for them but i just don't know. >> up next, final call >> announcer: "options action" is sponsored by think or swim by td ameritrade. with zero commissions on online trades.
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i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪
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i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade final call, mike. >> yeah, uber call calendar is going into earnings and the lockup expiration. >> carter? >> walgreen, fedex lvs. short the s&p. >> dan >> wow
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hey, listen disney had a nice bounce off the 200 moving average. >> next friday more "options action." have a great weekend "mad money" starts right now - [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. is all the clutter in your kitchen starting to look like an old junkyard? sick of spending hours cooking, only to serve mediocre meals lacking in flavor? wish your family would spend less time whining and more time dining? well, now they can! with the new bravo xl, the world's first digital smart oven with flavor infusion technology. it's a breakthrough in culinary creations! coming up next, you'll see how bravo's compact design cooks large family meals in record time! how, with just a touch it can bake, roast, grill,

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