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tv   Options Action  CNBC  August 8, 2021 6:00am-6:30am EDT

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with a really good price, but more importantly, a great purpose. at a minimum, i expect them to do a million. i'm very proud of you. brad: hell yeah. trevor: thanks, marcus. a good chunk of the rest of the healthcare sector is on life support. we'll deliver a second opinion as to why this patient will pull through. sticking with the theme, rising covid cases won't ground all airlines why? and how your flight crew is still preparing for take off finally, the singular compelling stack on the
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financial sector, the best way for you to cash in it is time to risk less and make more "options action" starts now. >> all right, welcome back, you can see we have a big half hour followed by a special 6:00 p.m. hour, jim is off tonight you will want to stay tuned. let's talk a little healthcare moderna hitting new high this week, not so the rest of healthcare stocks. they have been as cramer may say subo suboptimal the prognosis is so bad it may be good. please explain >> as a state from healthcare the focus is on biontech we know there is bifurcation
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first, a table, what we know the total number of stocks in the spider's etf captures 195 there and you see $129 trillion. look at the look at the first comparative chart. two lines, one is the spider verses the i share this is an interesting diverse of a market cap etf for all intended purposes. the spread year to date is about 2500 basis you can see that there look at the next chart here are the two etfs again. this is the opportunity, look at the next three chart, this is the xbi and you can see the draw down that i annotated down to
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30%. that 30% is exactly a 50% retracement from the pandemic low. you can see the line there then the final chart drawing the chart of support meaning a 30% sell-off a 50% trace of a move, right to the level that keeps holding we think the xbi is a circumstance of so bad it is good that it has a bounce potential here having sold off to support >> okay, bounce potential there on the xbi carter, thank you very much. mike, do you agree what if anything may be the trade here >> yeah, so one of the things i do like about this is when we compare sort of the cap weighted etfs indices to the weighted
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one, the cap weighted one is essentially if you feel that some of the best performing stocks in a given space have essentially out perform, kwaul weight is the weight to go i was taking a look out to october, the 130 and 145 spread in xbi when i was looking at that, that would cost about $3.95 viewers will know that we typically when we are trying to buy these vertical spreads are looking to spend some where in the neighborhood of 25% of the distance between the strikes and maybe getting 25 % to 30% or so the short option is going to mitigate the effects of decay. when you have volatile sector, that's where you will see more pricey option. i am not going to call it expensive because oftentimes those higher prices will justify. this is a way to mitigate that another thing to use a call
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spread of course is if that support fails, it does fall back towards those pandemic lows. i am not sugigesting that's goig to happen. a lot of concerns that we have seen has been exactly that are we going to see essentially economic hardships as a results of the delta variant and so on this is a way you can risk a relatively small percentage, less than 4% of the xbi share price. another quick and important point, xbi was down a little two bucks today. so on monday, not knowing exactly what's going to open is an important point keep your strike essentially very close to at the money on the long side if you can and adjust them accordingly. >> okay, tony, do you like the trade or do you want to hammer
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mike's trade here? what's your take on this >> i think this is an interesting opportunity. despite the poor relative performance verses the market cap index, the 120 level on xbi is important that has held since july of last year it has held twice over the past couple of months the upside target is limited to that 14 0 level. it is hard to get a grasp across 196 companies. you have to look at the technicals as to mike's trade, the spread structure is the right structure do limit your losses as mike says he's risking 3.1% of the etf value. i think the upside is a little more limited, i would adjust the upper strike of the 140 level and risk a little less on this
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particular trade that's just a minor adjustment based on my target >> okay, minor tweak there on mike's trade let's stay with tony, he thinks all is ending well at wells fargo. explain that >> exactly right, they really turn things around here. we saw financial strength. i think there is further upside going from here. if you look at wells fargo first, what you see is today we broke out hereafter spending about the last few months in a range between 42 and 47 and more importantly not only did we break out from this range on an absolute basis, we broke out on a relative bases to fortuinancil i do think it is constructive
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for continuation higher. wells fargo has turn around. it is strong relative performances to its sectors. we have seen this recent out performance here and recently they just raised their dividends, their well position potentially returning capitol b back investors who share buy backs. now i am going to use the trade sector similar to my trade sector to xbi, i am going to use the in the money debit spread. i am going out to october and i am buying the 52.5 call spread i am doing this because the stock is trading at relatively highs. we want to make sure we want to protect ourselves against potential pull back here, i am going to use in the money debit spread spending about $2.15 for the $5 debit spread. this is going to be conservative because the stock has moved about 2% higher in order for
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this strategy to be profitable and there is relatively small amount of decay verses an out of money debit spread in this case. >> mike, let's flip the script, comment on tony's trade. >> yeah, i like getting along wells fargo here it trades at a big discount to the group, probably about 1.2 times, relative to 1.6% for the group overall. of course, a lot of that is testified. after the basically the controversies around sales practices and bed restrictions could be lifted. they were untouched by some of the more recent controversies. of course we could see those restrictions lifted. i think that would actually be the propellant to cause the stock to catch up to the rest of its peers which suggests it may
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have as much as 25% or 30% upside in my view. in this particular case, that's not likely happening before october's expiration there after knowing eventually they're going to get that propellant that the company needs to start catching up with the group, you want to be out right long with the stock. for now this is the right structure. >> okay, interesting trade there on wells fargo thank you all very much. we are a long way from being done yet for everything "options action," check out our website optionsaction.cnbc here is what's coming up next we'll look at two flight pads
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for your portfolio plus, calling all "options action" fans, reach into your pocket and grab your phone and tweet us your questions @options action if it is nice, we'll answer it on air when "options action" returns. "options action" is sponsored by think or swim, by td ameritrade. we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car. whether it's a year old or a few years old. we wanna buy your car. so go to carvana and enter your license plate
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>> this is an airline that has not been fperforming well here the past couple of months. that's our opportunity here. if we take a look at the chart of luv, you see it is under performing since april if we zoom out a little further, we see it is just touching its major bullish trend line this is the opportunity i see for potential bounds for southwest airlines to start out performing their airline industry going out to july 30th, weekly options, september 52.5, 56 calls diagonal here from spending $3 to purchase the september, 52.5 call, i am selling the july 30th, 56 calls against that for about 60 cents. >> all right, was that long ago but since that time, tony luv
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shares, southwest are pretty much flat. a lot of covid headlines out there by the way, what do you do now and recommending >> that's right. the overall thesis on the technicals and fundamentals are still in favor in my opinion the july 30th, 56 calls have expired, the investors would be along the september 52.5 calls one of the ways i am looking to buy a little more time is 55 strangle here. selling the 55 calls for about 80 cents i am going to bring in $2.80 which we bring the total trade down to about 25%. this strategy does require me to buy more shares of southwest if it goes below $50 by the september expiration which i am comfortable doing based on the technical levels at the same time if the stock stays between 50 or 52.5, i will
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see a small gain, if it rallies and if it exceeds that $55 upper strike, that's when i can start rolling my call spread to a higher strike and start participating on further upside. this allows me to buy more time between now and september for this stock to potentially rally. >> okay, tony, thank you very much if you were a little bit late to that luv trade, carter has a second flight path on the airlines for you to follow, le let's talk about the jet ski etf, what's on your chart? >> first we know the etf is 51 stocks it is all the big airlines you know and plus one you don't know $815 billion market cap you can see there. the three charts, the first, it is a very wide ranging channel
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jets etf has behaved perfectly p with the parameter of the channels this sell-office literally leaving the etf at a level where it is bounced before and we think it will bounce again next chart is the same chart taken back the same annotation but five years is this weakness to take advantage of or to stay away from what's important is we didn't make a new incremental low in the etf verses where we were three weeks ago. that's encouraging technical development. the final chart is the same chart on the five-year basis to show where the back off sell-off occurs we have the most epidemic run off the airlines because nobody
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tr travels. this again 30% sell-off is at the point where i think you can trade on along the long side, jets >> we hear that. no offense to the jets fans there. if you are on board on this trade, mike, how do we trade the jets, the trade, not the ball team >> yeah, one of the things obviously about getting along the jets etf or luv if you are looking at a single name one of the things we have seen is when we get more bad news, we are getting steep draw downs and of course the whole idea here is that the news that we are going to get all clear is going to cause basically the prices to elevate relatively slowly if we get bad news on the covid front,
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for example, if we start to see slow down and trafvels, we could see weakness we don't want to take naked risk to the downside. we want to own call options to get our exposure for our rally back as carter suggested because it has been so turbulent that option premiums are elevated i was looking at a call diagonal similar to the structure that tony originally proposed when he came up with the luv trade i was looking at the december 23 call that diagonal spread would cost about $1.55. those shorter options are likely to expire and worth less than the 23 in the ecvent that it rallies. you are reusing less than buying the jets etf out right
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this is still relatively high percentage of the current share price and that reflects the volatility that we have seen in the space. >> yeah, certainly has there tony, your take on that as far as the balance of potential profit verses potential loss, what do you think? >> yeah, i like those diagonal calls. if you do see jets rally faster between now and the short expiration date than we were expecting, you don't see a loss to the upside. that's some of the challenges you have when you are trading diagonal if it exceeds your up short strike in this particular case is september options. >> carter, you have a thought on that trade >> well, i don't actually. i am going to leave it to the experts. >> i love that
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powerful words i don't know i love it. up next, you tweet, i would say we answer but i am not going to answer, they answer that's next. "options action" is sponsored by think or swim, td ameritrade before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪
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we'll take some of your tweets our first viewer asks. "with disney earnings next week, i believe the stock will not move on the call news and was looking to sell the $182.50 august 13 call and buy the $18 $182.50 august." >> what do you think tony? >> you are risking $50 to make a little over $200 that sounds a really strong risk reward you are really threading the needle here. so relatively low probability.
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if you think the stock will end up at $182.50, interesting strategy to take >> okay, our next viewer asks, when should you use a straddle, mike, you want to take that? kind of a general "options" question >> sure, when you are trading a straddle, you are choosing a call and a putt of a same strike and expiration the interesting and exciting thing about having a trade like that is profitable if the stock rises or if the stock falls. the downside is it has to rise or fall by at least if you spent on this straddle if you spend 6% for a straddle, the stock has to move more than 6% in either action. one of the reasons we don't recommend the trade often is because we would favor, ifthe other thing you can do if you
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find the situation the stock is going to move if it does get a move before ex expiration considers hedging. >> all right, our next viewer asks this about amd devices, what dow think since the pull back, do you think amd, can carter continue to trend up? >> so this is a perfect technical set up we know amd was ranged from 70 to 100 for a year. the day before earnings, it traded 91 box. that's a 36% move. very few stocks did so well. this pull back, is it a bad thing or a reaction to a move from 91 to 22? you pull back to 110 here, i think you buy the pull back.
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>> carter, thank you, appreciate that well, that does it for us on "options action ." we'll be back at 5:00 p.m. eastern time don't go anywhere, a special "fast money" is next personalize. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit ♪ (man) so when in doubt, just say, visit tda"let me talkm/learn to my manager." next, carvana's 100% online shopping experience. oh, man. carvana lets people buy a car-- get this-- from their couch.
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