Market Movers: 1/11 Q4 2017 Earnings

Welcome to Market Movers. I'm Jim Iuorio and today we're looking ahead to another highly anticipated earning season. Now, tech had been one of the major stories of 2017, and of course it promises to continue that in '18. Now, six of the biggest names in tech report in a two-day period, January 31 to February 1. And today we're talking about using NASDAQ weekly options as a way to hedge risk or create exposure to these events. Joining me is Chief Investment Officer of Kingsview Asset Management, Scott Martin. - Hi, Jim. What are you -- last time the FAANGS did very well in earning season as a group. Do you expect that to continue? Yeah, because it seems like the FAANGS can't be stopped, can they? And the market would suggest that expectations are definitely high which probably means results will be as well, just given the fact that they buy interest out there and the FAANGs, the taxes off the charts. What's the most important read we're gonna get? Which company? I believe it's Amazon still because Amazon is that leader both when it comes to retail, but also because of the cloud services they provide, my friend, to tech. Well, that's funny 'cause the same reasoning has me not thinking that because Amazon is read on the economy more than it is a read on the specific company. So when you look at Apple and Microsoft, to me that's gonna give me a reading on what's happening in the tech industry whereas Amazon, the other -- - So you're saying my read on the reasoning is 100% wrong? 100 % wrong. - Thanks. Another thing, too, is the tax -- the taxing gonna come into earnings at all? Yeah, in a big way I believe. - Sure. I think if you look at the overall S&P, the NADAQ, you're gonna see a nice percentage boost and earnings growth. And then, specifically on the sector side, certainly. - Right. And that's gonna be more on the calls going forward than it is gonna be on the actual [ inaudible ]. - It is. But you're gonna start to see a preview of coming attractions with respect to the benefits the tax plan's gonna give on these earnings calls that are coming up. - I completely agree. Now, before we dive into our trade discussions, I'd like to point out that as with all Market Movers it's important to view these trades as examples that allow you to see different ways to use futures and options products to either manage risk or create additional trade opportunities, not as recommendations or advice. Prices and movements are going to vary in the markets. Scott? Yeah, so speaking about the markets, -- wow, that was a really serious look. - Thank you. Which it's funny because seriously I was looking at the markets today. This is a really tough period to trade in I believe. If you look at the NQ -- - Because they've been screaming higher forever? Yeah, pretty much. And then we're getting to the points where, again, we're going higher and higher on these cliffs and you look over them and you're like, "Oh, my gosh." And it's just a really tough trade and position to put on I believe because of the fact that we're just at these levels that just seem to keep grinding like you said. So I came up with some creative expression today. Specifically, Jim, I was selling the 6710 straddle. Somebody actually called this trade an iron condor I believe., which you can fill us in on here. 6710 straddle for 165 points. This means selling a NASDAQ call at 6710 as well as a NASDAQ put at 6710 for 165 as far as what you bring you. You following me? - Oh, sure. Good. Covering though, it -- with, I guess where the condor comes in maybe or the wings of the condor? - Your's are the fly. - Thank you. Or the fly. Thank you. - Buying a call and buying a put. Right. Covering it with a call at 6810 which will cost me 39 points, but putting on a protection put at the bottom at 6610 for 49 puts. All, my friends, expiring on February 2. This trade has an underlying currently at 6700. It risks 460 that you outlay to buy those protection points after taking in the premium with the potential to make 1540 if it stays within that range that we established with the wings on the fly. Thank you very much. What you want is for the market to kinda die where it is now, right? Well, die is a very strong word, but yes. - Yeah. You know, that would be the best. You could make the most money. - But here's the thing. If you look at the charts in the NQ, I'll tell you why it's important to kind of pick those levels. If you look at the breakout, let's say, on the NASDAQ, and kind of where I believe the breakout was and where we could at least have some retracement, it's right around that 6510 level. And if you look at where the market is now, you've got 6710 in play, but then you also have another level that I believe is very important in the 6610 which is the bottom level of that put. Which bring us right to my trade at that exact level. - You're kidding. I'm selling the week 4 Jan 6620-6590 put spread. Now, that's the week 4 Jan. It expires before these events happen, and using that to finance buying the week 1 Feb, same expiration as yours, 6740-6770 call spread. Now the whole thing you pay five and a quarter ticks for. It has an underlying 67 even like you said. It risks 705 to make a potential 495. And I know when you look at those numbers off the bat you say, "Wow, the risk reward is skewed." But remember, that put spread is much lower away than the call spread is so it's all about the likelihood of it happening. Now, it's similar expression, we both think the market's reluctant to go down, but I'm saying I hope it goes up. Sure, I'm hoping it goes up, but I almost don't want to totally just outright pay for the opportunity for it to just go up because I believe those are very expensive. And as we looked at the chart earlier, those levels on the NASDAQ where we have the 6500 breakout and then the 6600 level. Those are levels to keep in mind, like you said, when it comes to creative expression of how to maybe take somewhat of a, like you said, a bullish position in this market but not go all out. - Last question. Is the Fed gonna blow anything by talking tough on rates? Yeah. But the question becomes when, right? It becomes when. It probably comes later in the year when I think economic data slows down. - Understood. Thanks for joining us on Market Movers. I'm Jim Iuorio where we're helping to make you a better trader.