Presented by Guy Adami and Greg Jensen
Travis: We’re going to talk a little bit about the Fed. Obviously, we’re in the thick of earnings season, had some fairly impressive earnings out today,
Goldman Sachs being one of those names. We’re going to talk a little bit about earnings, and then we’re going to talk about some of the opportunities that
we see in the market right now as we head into the last half of the year and some of those opportunities that we think you could take advantage of both
from a stocks side as well as from an options side, so we will be discussing both of those.
We are going to get started. I do want to make sure that we stay on time here. Guy Adami is actually wrapping up his CNBC hit this morning, so he’s going
to be on with us very shortly as soon as he wraps that up, so Greg, why don’t we go ahead and get started with you. Let’s talk a little bit about the
market, what you’re seeing right now, and we’ll go from there.
Greg: Well, thanks Travis. It’s a pleasure to be here, and what I see this morning is Tesla moving down, and don’t worry. I’m not going to talk about
Tesla. I know some of you are like, “I don’t want to touch that stuff.” No, I won’t talk about … although this is an interesting story. Tesla got
downgraded by Goldman Sachs today. They’re talking about price targets and sales numbers, and even in a best case scenario, they see Tesla trading at about
$115 a share, best case scenario. Worst case scenario, if their sales come in the light, they could see Tesla trading on $50 a share. Tesla is taking it
pretty hard today, but that’s not what I want to talk about today.
Let’s talk overall about what’s going on in the S&P and the economy. This weekend, Travis and I had the opportunity to go to Jackson Hole, Wyoming and
attend the Rocky Mountain Economics Summit. At this summit, we had a couple different governors from the Federal Reserve. We had President Plosser from the
Philadelphia Fed. We also had Jim Bullard from the St. Louis Fed there, the President there. We had a Chief Economist, the chairman of the board actually
from UBS flew over from Switzerland for the event. We had the Chief of Commerce for the Barkley’s there flew over from London, Chief of Commerce from Dime
flew over from Tokyo.
It was a very interesting meeting of the minds this last weekend, and we sat and talked about the economy and what the Federal Reserve has been doing with
price policy and what that means going forward. The general consensus from the conference, and this isn’t going to be anything new. You’ve heard this
before is that the Federal Reserve has done everything they possibly could to try and stimulate this economy and the commodity of using policy that has
been in place is likely to stay in place for some time. The growing concern I would say, and this isn’t just from Fed governors, the growing concern
amongst many of us is how long can the Federal Reserve continue to do this before we start to have some long term ramifications on the economy.
From an individual trader’s standpoint because that’s what I consider myself, it’s concerning. Again, I look at the S&P, I look at what the market has
done, I look at the strength over the longer term of this rally we have had over the last … really, it’s been almost a year ago that we really started to
take off. I guess you could say November was maybe the lows that we started this rally off of, but you could even go back on this one year chart to the
lows we hit in last July, and it’s been a very impressive rally on the back of not really that impressive economic data.
From one standpoint, I look at the S&P. I look at the levels where we’re at, and I say this is all hype. Eventually, this thing is going to roll back
over, and I have to be prepared as an individual trader to either take advantage of that or hedge my profits in the case that I’ve been bullied for the
last year or so. That’s one side of me. The other side of me, however, you know what? Stock prices really have nothing to do with the Federal Reserve. I
don’t care what monetary policy’s doing. All that really matters is earnings, and so part of me says yes I have to worry about the Federal Reserve. I have
to worry about what the economy’s doing and the potential for a big turnaround because that could impact corporate profits.
The main thing you and I need to be looking at when we’re looking at stocks, whether we’re looking at the S&P 500 because then I’m going to look at the
whole index and what their earnings are like or whether I’m looking at individual stocks like Goldman Sachs that Travis mentioned that came out with
earnings that were phenomenal, and be able to potentially trade that stock based on its earnings. Obviously the market is not reacting phenomenally to
Goldman Sachs’ earnings, but earnings create opportunity.
A perfect example this morning I would have to say is Coca Cola. Coca Cola came out with earnings this morning. They missed expectation and blamed it on a
seasonal situation in India, and whether it be a seasonal situation or not, I think it’s created opportunity because again, it’s all about earnings. This
time of year, right in the middle of it, we’ve got maybe about 10% of the S&P … I don’t know if that many have even reported earnings yet. We’re just
really in the beginning of earnings season. The Federal Reserve is a challenge for us, yes, but I think the most important thing you have to look at
especially with your individually investments is what’s the company saying about earnings, how are their numbers coming in?
Regardless of what the economy is, even if the economy is getting hit, but of my company is still beating earnings, beating expectations … let me give you
a good example of one that I threw out. Many of you who are students with us here, I threw this out a couple of weeks ago as one of my stocks to watch. I
mentioned this is a company that is beating earnings, beating expectations. The company is Nu Skin. The ticker is NUS. They’re a local company here, so I’m
somewhat familiar with their business model, but this is a company as you can see they raised guidance with their upcoming earnings and raised their
It doesn’t matter what the economy is doing. It doesn’t matter if things look terrible. That type of report will cause a stock to jump. It’s really
important for you as an individual investor, to do your due diligence on some individual names. We’re going to talk about Travis, I know you brought in a
handful of names we’re going to talk about today, but I know we’re going to wait for just a little bit to get started. We’re going to talk about some of
those earnings, but earnings are critical.
As you do your due diligence, don’t just gloss over earnings reports. Always know where they’re at. Always have somewhat of an expectation of how they’re
going to do it, and then from a trading standpoint, those earnings reports create opportunity and they also create risks, so you have to trade accordingly
around each one of those vents. Overall, yeah I’m worried about the Fed, not from a stock standpoint. Definitely not from a trader’s standpoint because I
know I can use options and different types of trading strategies to hedge risks in my portfolio, so I’m not really worried about what the Fed is going to
do to my individual portfolio.
I do have to take a step back and say I have to be cautious and concerned about what the Federal Reserve’s exit policy is if they even know what they’re
going to do. I can tell you, and Travis, you may have an opinion here as well, but from my conversations this last week with the different Fed governors
and the different policy makers that I spoke with, I didn’t really hear anything clear or groundbreaking about what they plan on doing to get out of this
Travis: No, it was interesting. Certainly, talking with individuals like that and by individuals I mean Charles Plosser and Jim Bullard particularly and
getting their insight, it was one thing to have their presentation as part of the economic conference and what they were talking about which as you and I
both saw Greg was just a lot of Fed speak. It was very well scripted in what they were saying, but what I really found interesting was the five or 10
minutes after each speech in a more opinionated type mode talking about moving forward.
You could see the dovish nature of Jim Bullard and certainly the hawkish nature of Charles Plosser, but what you saw … what I saw at least that I thought
was consistent between the two in moving forward was both of them saying, “Listen, we’re kind of at the end of what we can do,” and there’s certainly this
understanding between them that it’s time to start digging ourselves out of this hole. What was interesting was I guess they didn’t have an answer for how
they were going to dig us out of this whole just that it needed to start.
You had both of them talking to the fact that there’s a need to end quantitative easing program, the 85 billion per month that we’re spending in purchasing
longer dated securities or treasuries, and the need at some point following shortly thereafter to start increasing the Fed’s fund rate. It was definitely a
shift in their perspective and what they need to do because if you look at it, and I think Plosser made a very interesting comment at the summit. If you
look at it over the course of the past five years or so, it’s been very one-sided with the Fed’s actions, and what I mean by this is anytime there’s bad
news, whether it’s economic news, world news, whatever, anytime there is bad news, the Fed has been very quick to react and stimulate the market to balance
out that negative news.
However, anytime there is very good news or even moderately good news, most of the time we’re either writing it off saying, “Yeah it’s good, but …” or you
just kind of let it be. You don’t do anything with it. There’s no shift in the plan or in how the Fed is implementing their monetary policy, so I think
Plosser made a very interesting statement there saying, “Listen. It’s been very one sided. We have to get away from this one sided mentality and start
addressing the positives that are entering the market.” I don’t know what you thought about that Greg, but that was certainly my biggest take away from
that conversation at the summit.
Greg: No, I agree with you Travis. It was definitely apparent that they really don’t know exactly what’s going to happen, and we’ve heard Guy talk about
this for those who it’s not your first webinar you’ve attended with Guy Adami. I know you would have heard guy say this, and I know once we get him on,
he’s going to say something similar when he gets here is that the Fed doesn’t know what it’s going to do from an exit strategy standpoint, and that’s a
little bit unnerving. However, when you look at the overall picture of where the rest of the world is, you still have the question of typically … let me
explain the past to you what the Federal Reserve’s actions would typically do to the S&P.
Typically if the Fed were to start to tighten or doing some type of tightening policy, you’d see some type of negative reaction in the S&P similar to
what we saw back in the middle of June, actually starting in May when the commentary started to come out about that Bernanke was considering stopping the
quantitative easing. We saw the market pull back in May have another a nice little volatile drop in June. Most of that was about building in that the Fed
was going to start slowing down their process and that’s typically what you would expect.
However, we just bought it right back up again, and they haven’t changed their policy, honestly. It’s not like over the last couple of weeks, the Federal
Reserve has gone back in and said, “Oops, we didn’t mean to say that. We take it back. Give us a mulligan on it. We’re still going to keep the quantitative
easing.” The commentary is still out there. I remember that’s one of things Travis leaned over to me during the speech when President Plosser was talking
and said he expects they’re going to be finished with the tapering potentially with as early as the end of the year, and all of a sudden a breaking news
alert came out on CNBC on Travis’ phone. He leaned over and showed it to me, “President Plosser says QE to end by the end of the year.”
Of course, those types of moments are not new. They’re still saying the same thing. Yeah, we bought the market back up again. The S&P started to rally
again and I think what’s important to look at really there’s not a lot of other places to go with money right now. You look at Europe, and Europe is a
mess. Yeah, it’s kind of gotten pushed to the sideline, but nothing has gotten fixed. One of the interesting things listening to some of the economists in
Europe speak this week is they were talking about rising bond yields again in the likes of Italy, Spain, and Portugal and that’s a little bit concerning
again that maybe instability is back in Europe.
I don’t think anyone has bought into the idea that Europe’s a good place to put money. You look at the situation going on in Japan, and it’s like no way,
stay away from that one at least from a directional standpoint. I might do some type of pairs trade where I’m long the Japanese stocks and short the yen or
something like that that might trade that market in Japan, but that’s one you don’t want to get into. The emerging markets are potential opportunity, but
do we really trust that China’s GDP came in at 7.5%?
Yeah, I know that’s the number they reported yesterday, and it’s all fine and good again, but can we really trust anything that comes out of China? That
was one of the jokes last week as well, so as you look at the other potential places to invest throughout the world, the U.S. markets are still the safe
haven even though the Federal Reserve is doing what they’re doing. I don’t know that you can expect even though the Fed may slow their QE down, if the
S&P, the economy I should say, continues to show solid earnings on the S&P 500, if we continue to show growth in unemployment and growth in our own
GDP, albeit at a very slow rate, there’s nowhere else to put money, and people seeking a return are going to put it somewhere and the S&P just seems
like the place they want to put it right now.
As long as this trend holds true, and until we get something to come in and change that, I think you have to trade the trend that is and that’s still to
the outside even with today’s little bit of a pullback. I will say it’s kind of interesting that we decided to pull back really at yesterday’s highs again,
however, from back in May, and I’m sure Guy will talk to that point. I see Guy is in here, but I don’t know that he’s on the phone yet. It looks like he’s
trying to get on the phone.
Travis: Yeah, I’m working with him right now. For some reason, the audio is not coming through on his end. I’m going to keep working with Guy. Don’t worry
about that. We’ll get him in here, but how about for the time being, Greg, why don’t we go ahead and get started with … we’ll certainly get Guy’s macro
approach on the market and his thoughts on the Fed which are fairly in line with what we’ve been talking about, but let’s instead of going into the
individual ideas because I want to go over some of those ideas with Guy as well, let’s start touching on … one thing that we’ve had … a lot of questions
I’ve been asked in my travels, and certainly you have, Greg, and certainly some of the webinars we’ve done recently is okay, I understand everything that’s
going on with Fed. Maybe I don’t understand it, but I hear it, I see it on tv. We’ve got the earnings coming out right now. All this is great, but how do I
protect myself heading into the later part of the year for some cataclysmic event whether it’s the S&P pulling back on weak earnings, whether it’s the
Fed coming out and saying, “You know what? We’re done with the quantitative easing program. That’s done. We’re going to start ratcheting up the Fed funds
rate.” What do I do to protect myself in this market moving ahead? Maybe you could talk about some of the strategies that you’re implementing in your
portfolio that could be useful to some of the folks, and then we could take some of the strategies and certainly talk about those in relation to some of
the opportunities we see ahead.
Greg: Absolutely. In fact, I think that’s one of the messages I wanted to portray here is that although we’re in this Goldie Locks market that just seems
to be going higher and higher.
Guy: [inaudible 00:19:17-18]. Apologies folks.
Travis: There’s Guy. How are you Guy?
Guy: I’m well. I had some trouble getting in, and it’s all good. I’m here, so continue here, and I’ll chime in.
Greg: Well, let me continue my thought here, and it’ll probably tie in really well with what you’re going to want to talk about the overall economy. The
question, Guy, that you missed and what I’m going to address here is what do you do now with the S&P potentially at a top? You’ve got the Fed saying
that they’re going to start a QE, what if we do get some type of pullback? How do I hedge myself? How do I control risk in a market like this and not just
go straight perish? Obviously, the straight perish way has not worked well this year. You’ve been in a lot of pain this year if you’re predicting the
market is going to go down.
I would say, Travis, to answer that question, risk management can be accomplished in a lot of different measures. Traditional money management controls
risk management through diversification. You go put X percentage in bonds, X percentage in maybe in gold, X percentage in text stocks, X percentage in
retail stocking. Diversify yourself across your assets, and that’s how risk management is controlled. I think that’s great in a normal market environment
because you can control risk for maybe one of those assets blowing up.
Gold is a good example. Gold has blown up to the downside over the last couple of months, and if you had 50% of your portfolio leveraged long in gold,
you’d have absolutely been crushed and you’re hating life right now. Me personally, that type of diversification just helps if one asset blows up, but if
we get a 2008 repeat where virtually every asset class is getting crushed to the downside like we had in 2008, diversification doesn’t really do much. I
think from that standpoint, you really have to understand how to use hedge risk for downward moves and how to use trades like the collar trade and how to
implement protective puts whether that be on a broad basis like puts on the S&P if that’s how you want to hedge your portfolio or whether it be down to
just each individual name.
If I want to hedge companies like Disney. If I’ve got a portfolio Disney, Home Depot, Visa, and Wells Fargo, I can hedge each one of those individual names
and still accomplish the same thing. Now, if the market implodes to the downside, I’m okay. To me, the most important strategy to do that with particularly
if you own stock is the collar trade, and I’ve beaten that trade to death over the last several years, but I love it. It’s my bread and butter. It’s what I
use to control when I’m in situations where I don’t know where the market’s going. Having said that, Guy, where’s the market going?
Guy: Well, that’s really a great question, and I think to your point about risk management, I think this is important why you need to identify who you are.
Are you a trader, which I sense is the majority of the people in this webinar, or are you an investor because in my opinion, it can’t be both? I think if
you’re an investor, you’re not investing enough in someone who actively trades. You say to yourself well four months later, four years later, the S&P
has more than doubled. The S&P has gone up probably 130% or so since that 670 or so low in March ’09, so you’ve got to start to give yourself a mark to
It’s not you’re doing it because you know, but you’re doing it based on a few things out there, and let’s address something quick. China, who we can fill
for half their growth, by all metrics, China is slowing down. Again, you’d kill for half their growth, but they are selling at their own hand for the
benefit of this economy or not, it doesn’t really matter. That’s just the fact. Europe, although [inaudible 00:23:40] in terms of [inaudible 00:23:44].
Nothing has gotten better in Europe in my opinion, and I think they’re somewhere from a five to eight year downslide success, and obviously, as you
approach some of these markets, which although have balanced have been clearly under pressure. Those are sort of the bugaboos out there.
Let’s come back to the United States. Everyone makes a big deal about earnings, but if you look at some of the commentary, listen to some of the commentary
out of the city concerned about North America. Listen to some of the commentary out of UPS. Look at their concerns. Coca Cola Enterprises … it’s a pretty
long list of people seeing hedge things going forward here in the U.S. Now you couple that with a potential move by the Feds. Again, I don’t think any of
that is imminent, but it really comes down to our rates going higher for the reasons meaning growth or for the wrong reasons being the genie seems to be
out of the bottle. If you take your vote from where I stand, it’s the later.
Again, you have all these potential hedge things that seems to the fact that the S&P is 10 or 11 points from that all time high that we made back on
May 22nd of 1687 and change. It’s technically done everything it should have done. The move down to 1560, in my opinion, is text book. We
actually talked about it on Fast Money. It moved past resistance and it moved past resistance of 1560 came in the form of March 2000 and July 2007. Both
times the S&P pushed up to that 1560 level and failed, so with this past resistance comes support, and that’s what we saw when we traded down to 1560 I
think it was in June 24th if memory serves. That’s something to take into consideration.
Again, past resistance becomes support. That clearly comes from a 1560 and [inaudible 00:25:55-58] from what they said. Again, they come from the original
thing. For investors, I think it’s just time to look at what you own. Take a real strong mark to mark look at where we are and try to figure out when you
think the world is going forward. As I like to say, hope isn’t an investment deal. Although we’d love the market to do exactly what it’s done over the last
few years, for the next four years, I’m hard pressed to believe that will be the case. Maybe it’s time to have conversations with whoever your advisor is.
If you’re your own advisor, maybe it’s time to have a hard conversation with yourself and putting some hedging strategy as Greg has outlined.
To traders out there, I think volatility will be at bay once again, and as clear on the radar screen, I don’t think it’s over. I think that volatility is
lurking just around the corner and to think that additions to trades are actually put on trades that take advantage of volatility. I think that’s where we
are. Hopefully, that addresses some of the issues. I’m clearly, and I’ll say this, I’ve been in the nearly frightened camp, and I’ve also been in the camp
that means the market can’t go any higher. Clearly we’ve seen that over the last four years, but now we’re at a low where you’re asking yourself what are
we looking for and what lies ahead?
Again, sometimes it’s not the bus we see coming to get you. It’s the one that no one expects. With that, I’ll pass it over to Greg, and he can sort of
amplify some of those ideas.
Greg: I want to jump on that idea of trading volatility. Volatility is a great opportunity. I brought up Tesla at the beginning of the show, and that’s one
example of how to trade volatility. You look for a volatile stock like Tesla. You wait for an announcement like came out today from Goldman Sachs that I
believe is clearly going to start a trend to the downside of that stock because I believe it has been priced to perfection so to speak, and with the
weakness that you’re seeing today in Tesla, it’s probably going to start some downward move and again, you look at a long term perspective, yeah it’s got a
long way to fall if things are not perfect.
This has been a great story for a lot of people, and I know people that have made a lot of money on this stock to the up side over the last few months, but
three months ago, four months ago, this stock was at $40, and it’s coming down from $140 and change right now, so this stock I believe defines volatility
right now. There’s a couple of different ways to trade it. Number one, you wait for the directional rate of change, and you just in and trade it barishly.
That’s what I did this morning, instituted a bare put on Tesla, which is a simple option strategy where I’m going long a position and short a position. I’m
doing a spread. I went in the August options, and I actually bought the 120.
I went in the money because I actually think this one’s going to move relatively quickly. I bought the 120 put, and I sold the 115 put. Travis is showing
you how easy that is to do with the trade monster platform here, went and created this spread, and there we go. That’s actually pretty close, not far off
from where … I got filled at a little better price than that right there. It’s gone up a little bit since I put this trade on. I didn’t see the Goldman
Sachs move coming. I didn’t start the way to the downside. I’m just going to ride it with this type of trade, and if I hit it right, probably in the next
two or three days, who know. Maybe by the close of business today if Tesla get a moment of downside, I’ll be out of this trade with a nice little ROI.
My goal is to make a 20-25% return, which I think I can do relatively quickly. Again, if this thing gets a little bit more momentum to the downside, that
is one way to trade volatility. I would say that is volatility from a stock basis. I guess another way to potentially trade volatility is to do it from the
standpoint of trading the idea of implied volatility and what that does to option pricing. Travis, if you can bring up a chart of Intuitive Surgical. This
is a trade I did a couple of weeks ago with the anticipation that Intuitive Surgical, ticker on that one is ISRG, that’s India, Sierra, Romeo, Golf.
This is a stock that is consolidating around 500. If you look at the pattern here, you can see on the chart all those little white boxes that have E inside
of it, that’s earnings for Intuitive Surgical. Each one of those earnings events as you can notice is relatively volatile for this company. They have big
blowups to the upside and to the downside. If you wait until the day of earnings, that price, that type of moment is usually priced in already. What I like
to actually do is trade the options in anticipation of earnings.
What I’ll go in and do is I’ll go and do the straddle or strangle. I specifically did a strangle, and you go out about a month before the earnings event,
you buy the strangle. The strangle is a relatively simple options strategy where I’m buying the call and I’m buying the put simultaneously. Strangle just
means different strike prices. Straddle means same strike price. If I did an August straddle for example, I would buy the 420 or 425 put and the 425 call.
That would be a straddle. If it were a strangle, I might buy a 425 call and a 420 put. The idea around this is you want a big movement, but you don’t care
which direction it goes.
Again, looking back at the chart of Intuitive Surgical, it happens quite often. You get big movement sometimes to the upside, sometimes to the downside
depending on the announcement itself. Like I said, the event is oftentimes priced in already into the options. What I mean by that is if you wait until the
day of earnings, those option prices, the call and the put are so expensive, they’ve essentially prices in a $40-50 move to the upside or a $40-50 move to
the downside. If you go out about a month before the earnings event and do that same strategy, you actually get this anticipation, this rise in implied
volatility that can get those options excited and you can actually get a turn on investment before the earnings event even occurs.
That’s what I did with this last one. It wasn’t because of the actual anticipation. We actually got an early announcement from them, and the stock got
absolutely crushed to the downside last week which really helped that strangle, but it’s a way to trade that volatility. You can trade volatility from the
stock standpoint. You can also trade volatility from an options standpoint, and there’s opportunities regardless of what the overall S&P is doing.
Travis: Maybe we can take a little bit of time now. Guy, are you still with us?
Guy: I’m here.
Travis: Just checking. Okay, good. I know we talked about a little earlier a couple different ideas, and one name you brought to the table in the
discussion earlier was Oracle. I don’t know if you want to talk a little bit about some of the macros involved with Oracle, what you’re seeing in the name.
Guy: Again, I apologize for getting here late, folks. Oracle, I think, is pretty interesting. I think it’s interesting for a number of different reasons.
Obviously, they just changed their listing. I don’t know if it’s a big deal or not, but it is what it is. In terms of the price action in Oracle, it’s been
pretty fascinating to watch. Travis can probably pull up a chart, but here’s a stock where I believe it was back in May, and I’m trying to pull some stuff
up myself. It was back in November of 2012, Oracle had been sort of bouncing around. We bottomed out 29 and a half, 30 in November, and then obviously made
that next run up.
This next earnings report really took the wind out of the sails of this company in a major way and you saw a pretty monster volume by Oracle standards back
on June 24th, 140 million shares traded which is anywhere from five to six times normal volume. It did that obviously on an extreme, and it
closed right around that $30 level. I remember talking on the show Fast Money that that’s probably your situation move. It turned out like that for the
short time. To me, Oracle sets up a bit of a logistical technical trade.
Again, the core wasn’t great, disappointing is probably a better word. You have to start to ask yourself is everything sort of priced thin. Was that the
quarter you look back on and say, “Hmm, maybe that was my opportunity.” Oracle is not expensive. Trade is overall 10 times slower than earnings. Again, I
think it scared a lot of people, but you’re still talking about a company with a tremendous balance sheet, and a company that incorporates options probably
better than any corporation out there, not only U.S. but probably globally.
Assuming that the tape doesn’t implode here, I think you take a look at Oracle and say hey, we’ve seen this before. We slipped back in November. We saw
what the subsequent move was, and maybe we’re setting up for another move now. I think that’s exactly what’s going on. You look at Oracle today. Albeit,
S&P is down, give or take, Oracle is up slightly, but it’s up. It really hasn’t given up hope in a major way. As a matter of fact, it actually
outperformed the market on down base which is interesting. This sets up sort of interestingly here. You have that 29 and a half, 30 on the downside, that’s
sort of your bogey. It goes back to November. On the upside, you see yourself see this thing pushed towards the 37 and a half level which was 50 over time,
not only a 52 week high, but probably the highest we’ve seen in the last 12-13 years.
Again, you have to crawl through the wreckage, and it provides trading opportunities. I think it manifests itself in Oracle. On the downside, it’s a bogey.
On the upside, you’re looking at [inaudible 00:37:40] but I think it’s a risk reward that makes sense. Be sure, given the environment end, there’s probably
an investment strategy that fits those criteria.
Travis: I wonder if Larry Ellison has the island of Lanai if that’s on his personal holdings, or if that’s on Oracle’s books.
Guy: Yeah, I know.
Travis: They could always leverage that, right?
Greg: I agree. I think that …
Guy: You’re right. You’re talking about one of the wealthiest men on the planet, so I don’t know where his real estate holdings are, but if you put Oracle
on a $50 stock.
Greg: I agree with you on Oracle. They missed earnings, and the stock got punished. One of the nice things about trading a stock like Oracle is even though
they miss earnings … again, a 10% move like you see here from 36 down to 33 that it had in March and then recently from 34 down to 31, those are huge moves
for Oracle. From a trader’s standpoint, this one’s definitely manageable to fix one of those things if you end up on the wrong side of it. I would say one
of the ways to look at trading Oracle from an options standpoint right now is simply using the leverage of a leap, using the long term option, going out
and buying a leap long call right now.
The chart looks really good. I agree with you. They put in a bottom. It looks like they’re trending higher and outperforming the market. You go out and buy
a Jan 15 leap right now, even go and either at the money … I’d go the 32’s. They’ve got a 32 strike there. Go out and buy the 32 for 375 and you just let
it run. Still set your exit points. You don’t want to be greedy. You don’t want to go into the trade saying, “I’m just going to see where this thing goes.”
Set your exit point at 50% ROI or maybe you want to double on your money. If you want to get a 100% return, that’s a type of trade in Oracle you can obtain
here, and in the short term, you want to generate a little bit of extra return, this is one of those returns where you turn in the calendar trade where in
the slow months if Oracle starts going sideways, you simply go sell a call option against it like you would a stock position.
Obviously, you’d want to sell a higher strike, so that you can get a little bit of potential movement. You sell the 35, and again, it doesn’t seem like a
lot of money in September, but it is bringing in about 30 cents there, and if I get the move from about 32 up to 35, I’m still getting a really good return
on investment. Travis is highlighting a little tool here on Trade Monster, this analyze button. For those of you who have never used the Trade Monster
platform before, this is a phenomenal tool to go it, and it gives you a snapshot view of what your trade looks like, what the risk analytics are, maximum
profit, maximum lost, maximum ROI.
The other side of it, the spectral tab, you can do a bunch of what if scenarios where you can calculate what if the stock goes to x dollar on x date, and I
have x dollar of implied volatility. It’ll sit and calculate your profit potential and the probability of that actually happening. It’s a phenomenal little
tool to go in and help you test strategies before you ever place them to make sure you’re comfortable with it. One of the nice things I have found in
conversing with people who are learning the options strategies initially this tool is a good thing that can help them at least view the strategy and say,
“Okay, am I structuring this right?”
I always want to see a potential for green. If I pull a trade up, and it’s all red, then I probably structured the trade wrong, and I want to make sure I
don’t enter that trade. It’s a great learning tool as well. That’s how I’d trade Oracle right now. Just go buy a leap on it, and if it decides to go
sideways for a little while, sell an upside call, maybe 30 or 60 days out, and lower your cost basis. Let Oracle move back to its highs of $35-36 and
you’re going to make a nice ROI on that trade.
Guy: [inaudible 00:42:17-21] and again, these are all trade side of these folks. I don’t think we’re necessarily talking about [inaudible 00:42:28] and
this and that [00:42:30] completely different set of parameters, but remember, and I think it’s important, everything you can come up with is more of a
trade as long as you know what your parameters are and as long as you’re set up properly ahead of it. In my opinion, once a trade has been put on, you can
tweak it a little here and there, especially vis a vis options but you should know where you are getting out of the long, and you should know you’re
getting profit, hopefully when you’re right.
Once a trade has been put on, you should effectively be on autopilot. Again, tweaking here and there is fine, but overriding what your existing risk
parameters were, to me should not be an option, or it’s never an option. With that, I’d like to move onto one of the more interesting banks. When you’re
talking about banks, I think we speak way too broadly, and I think they fall under a number of different parameters. Certain banks have done very well, so
you look at a Bank of America for example, and this stock has been a monster, and Travis can pull up a chart.
The last couple of years, if you look, it’s been pretty interesting. There’s stock that has probably gone from single digits give or take to the current
levels we see around $14. If I’m not mistaken, Bank of America made a new 52 week high today, but then if you broaden it out and go back to pre 2008-2009
level, you’ll say wait a second. Although this stock has bounced, it really is nowhere. BAC has really gone nowhere over the last four years, nowhere to
slightly higher. What’s interesting to Bank of America, if you put up a chart of the housing market, you’ll see a very similar thing. You’ll see a housing
market that fell off a cliff in ‘08 and ’09 and a housing market that’s bounced but has bounced off a ridiculous low.
To juxtapose that, let’s pull up a chart of Wells Fargo over the same time period, and you’ll see this is not only a bank that has made not only a 52 week
high, at least 45 or so, but if I’m not mistaken, I think this is a stock within shouting distance of an all time high. Again, a bank that performed and
performed admirably under what has been pretty difficult circumstances, so I think the previous high was sometime in ’08 or so, and obviously, the stock
fell off a cliff, and it’s come all the way back and more so. Wells Fargo to me is much more interesting, and I think that management tends to be more on
the conservative side of things, not unlike US Bank Corps which is probably a very similar chart to Wells Fargo and not unlike a PNC.
You go back and you look at the report. With them being Wells Fargo, I think they reported on July 12th. Here’s a bank that had a solid beat on
BPS, a solid beat by five cents. Reviews were better than expected. There’s really not a lot to poke holes in. Their provision to credit losses has been
cut in half, which in my opinion is probably a good thing, and the interest margin, which is one of the metrics people look at, is slightly better than
expected. It seems to be a bank that’s on the right course of action.
[inaudible 00:46:20-25] which is everybody’s concern [inaudible 00:46:30-31] you have to wonder about mortgage origination and refis that have really
gotten to the point that they are now, but assuming that the world doesn’t go completely pear shaped, although it’s more expensive than other banks, I say
to you this is a bank that seems to be, if not better grade, I would say one of the tops to score. If you look at Wells Fargo risks [00:47:03-06] it’s a
broader market play this game from the upside. I know Jim Kramer speaks of it often. It’s not a name that I talk about all that much. I’m a much more
[inaudible 00:47:16] type of guy, but they are very similar in terms of structure and in terms of management.
I think they take advantage of any potential sell off that they could get or they could get a little bit squishy here and look for an opportunity to get
sucked down to that 40 level which stuck around for the majority of June. If you take a look at say this is the shot of [inaudible 00:47:38] alongside
again. You get a dividend if that floats your boat, but I don’t think you buy stocks for that. [inaudible 00:47:48-50] more expensive than some of its
peers, I also think it warrants that type of evaluation which is why I believe you can probably still play WFC from the long side, and I’ll pass it over to
Greg: The cool thing about Wells Fargo, and I agree with you on that. I really love Wells Fargo. It almost feels still like a community bank in a sense. At
least for me, it does. It doesn’t feel like Bank of America or J.P. Morgan to me, but these guys have I want to say one and a half trillion assets under
management. They’re a big bank, and they’ve done a pretty good job of stabilizing themselves. From a standpoint of owning a stock, this is one I don’t mind
owning the equity. I think from a trade standpoint, there is a potential trade here that you can consider that the secondary exit plan if the trade doesn’t
work out is to take the equity as your secondary plan.
I would say that the way I’d look at trading Wells Fargo is a bold put. Again, it’s the flip flop of the strategy I just did on Tesla. Now, instead of
buying the higher priced option on the put side, I’m going to sell the higher priced option probably not until June ’15 though. Maybe September is a bold
put I might look at on Wells Fargo, see what the 40 has in it … not a ton. I might even be a bit aggressive and sell the 41. Again, it’s a little close.
The stock’s trading at 43, but I’m okay selling the 41 strike right here the 41 put, and then I combine it with maybe buying the 40.
I want to hedge my risk. You could just sell that put naked by the way if you wanted to. Again, that’s the strategy right now. I know Travis is changing it
as we move, but if you wanted to sell it naked, you could. I specifically don’t really like to do them naked, so I might just sell the … that’s not
actually a bad trade right there. That’s not exactly what I was looking at, but that’s pretty close. Sell the 41, buy the 40, so you’re creating a spread
there where my bid ask is 22 cents by 24 cents, so I’m bringing in 22 cents. My probability for max profit is probably about 77%, so pretty good
probability of this one actually occurring.
My risk to reward on this trade is one to 0.28. Now, another way to read that is this is a 28% return on investment with a 77% chance of it actually
working. That’s a good trade, high probability if I have my secondary plan of taking possession of the stock if I’m wrong here. This to me is a no brainer
trade. This is money out there to be had, and you may have to back stock it with a little capital to buy the shares if you’re wrong, but like I said, this
is a stock I wouldn’t mind owning at $41 a share that then I just turn into a cover trade or a cover call and eventually work my way out of it.
That’s what I’ve done with Coca Cola recently. That’s a stock again I don’t mind owning. It does pay a nice little dividend as a side benefit, but I sit
and write calls on it at my exit point, but this maxes the trade. You could probably do this trade every 60 days and make a 20% return every 60 days, and
you may end up having to buy the stock every once in a while, but I know Wells Fargo is one of those stocks I wouldn’t mind owning. Not a bad trade there
on Wells Fargo.
Travis: As we start to wrap up- here, I know we’re pressed on time. I certainly appreciate Guy calling in. Guy, I know you’re kind of all over the place
today and running around, so again, I thank you for dialing in and taking some time with us today.
Guy: Real quick. I’ve been having some post operative kidney stone problems [inaudible 00:52:02-06] I know you folks invest your time with us. I wanted to
apologize there for coming in a little late, but hopefully, we gave you folks a couple of trades that may help. I know Travis has a great feed, but just
remember, and I say this all the time [inaudible 00:52:20-27] Greg, his brother, his dad along with Travis. They took what I believe to be a preeminent
education firm out there specifically for options, and if you’re wanting to do this seriously, you have to be armed, and these guys will arm you better
than anything. With them, I pass it back to Travis and Greg.
Travis: Thanks Guy, and yeah, again I want to thank you for taking some time out today. Like I said, you’re running around with all kinds of things today,
CNBC and The Doctor, so much appreciated, and Greg, much appreciated for you joining us today as well. I know we talked about a whole heck of a lot in just
under an hour, and just to kind of recap folks for some of you who jumped on late. What we discussed today again. We opened up this webinar to talking a
little bit about the Fed. Greg and I had the opportunity to sit with some of the Fed governors this past week at the Rocky Mountain Economists Summit, and
it’s certainly apparent that their focus moving forward is not necessarily to the downside and more to economic stimulus.
It’s certainly changing course to when do we end the programs? At least, that’s what we took away in talking to those we spoke with today. Obviously,
discussing kind of the looking into the future to the last half of the year here, a number of different opportunities we’re seeing. Guy talked a lot about
Oracle on Fast Money. That’s certainly an opportunity he’s got on his forefront to the upside. We talked a little bit about Wells Fargo. You’ve heard Pete
Najarian really hammering the table lately about the banks. You’ve had Jim Kramer jump on that train in the past two weeks particularly the US Bank Corps
and Wells Fargo.
Then obviously the volatility trades. For those traders out there, they’re a dime a dozen lately. We’ve had Tesla today, and Greg spoke a little bit about
that. Again, I want to thank you all for attending. We’ll have this recording out shortly, so that you can play it whenever you like. If you want to listen
to it once again or pass it along, we’ll have it out to everyone who registered today shortly. Before we wrap up, we did want to throw a thank you out
there who did join us today. We had a lot of option animal students with us.
For those students who did jump on the webinar today, we’d like to offer you 25% off one year access to a premium product, and those students know what
products those are. We’ve got our mentoring, our trader workshop, as well as our weekly trades, or for those of you who haven’t upgraded to your lifetime
membership, instead of the $3,000 price point on that, if you call in today, we’ll give you that lifetime upgrade for $2,000. For those of you who don’t
have any exposure to options animal, for those newcomers and non-OA students, we’d like to get your started in our community. This is a community. Again,
we do these webinars on a bi-monthly basis with various different industry minds.
Obviously, Guy Adami being one of those where we just talk markets. We chat about what’s going on out there. We try to get everybody’s insight into what
we’re seeing and how we’re trading, so we’d love to make you a part of this community. To get you started, we’ll give you 25% off an educational package of
your choosing. Again, if you call in, we can walk you through what those packages are as well as six months free access to our weekly trades. Unlike a lot
of other newsletters out there who are simply just giving you a trade and saying hey, go trade it. We’re giving you trades.
We’re letting you look over our shoulder, seeing what we’re trading in the market, and follow us throughout the entire process from beginning to end.
Actually executing the trade, adjusting the trade in between, and finally, exiting the trade. Talk to us, ask us questions about what’s going on in our
minds and why we’re doing what we’re doing, and we can walk you through that. Again, I encourage everyone to call in. Thank you for attending today. We
look forward to seeing you on another educational web cast. Thanks to Guy, thanks to Greg, and I hope everyone has a happy rest of the week with their
trading. Take care everyone. Thanks again.