Their worst week of the year you wont believe where some options traders see it going the action begins right now. All right lets get to it because while stocks made new highs, quietly teslas shares are on fire, the stock surging 10 this week for its best weekly gain since july of 2016. Tesla is now up more than 75 this year. So is it time to pump the brakes or will it rev even faster lets get in the money mike, what do you think . Okay. So lets start with a full disclosure there was a period when i actually said it would be better to buy the car than the stock. That was a big mistake had you bought the stock, you could have then taken some of your profits and bought the car and still had as much left in stock. This was a situation with big Short Interest, theres a great deal of enthusiasm for the company. Every single time they make an announcement its basically buy the stock on the promise that offers without much concern about what the execution risk of all of that is and then finally, from a fundamental perspective, whats helped out is that the peopl thought the higher end model x and model s models, those sales were going to drift off and they would rely on the model 3 cars that actually hasnt been happening. We did see a 15 uptick there. Its hard to justify it in terms of earnings because there arent any, but the enthusiasm is clearly there. Dan yeah, theres a couple of things that mike just said, really important, some of the pricing and demand for the model s and model x, the higher end ones we know that theres not a lot of model 3 supply right now. When you get supply, there may be cannibalization on the high end. This is not as mass market car its not that 35,000 electric car. Once its kind of tricked out its much more expensive and you may see people trading down a little bit. The other point mike talked about was Short Interest thats been the killer when you think about it, with close to 27, 28 Short Interest, well you know what elon musk is the largest shareholder with over 20 . He never sells he actually buys every time they raise capital. So you have that thing pairing off a little bit the other point he just mentioned about execution, investors dont really see to care about this execution. This is a company that delivered 84,000 cars last year. They announced 47,000 through the first half of this year. It was a slight miss investors dont care, the stock is up 75 . Its really nearly impossible to short this stock you said lasts run is far from over. Why dont you break down the charts for us . Ill go over to the plaza and do just that interesting things going on in terms of its behavior day to day but also in the context of where it might be headed i think the most important thing perhaps is that we know, theres a lot of rotation this week. Big, popular marquee super cap names otherwise known by a popular acronym, among others, all do poorly this week. In the past five sessions, take a look at tesla. And netflix, amazon, apple lets keep going facebook priceline. Google its separated itself just recently from these high fliers, all of which have stalled. And i think thats an important tell, given where the chart is lets look at a chart or two no drawings, judgments, annotations by me. I would say you could draw the lines this way and if you do, the implication is its already started to break out from this wedge. You could draw the lines this way and the implications are it has yet to break out from the flat top, thats the bet, that it will. In fact, its preciously close to an alltime high, it needs to move 2 and it will go to an alltime high. I think thats the kind of environment were in remember, all those other big stocks are sort of doing this over the past few days i think thats very important. I like tesla for a breakout, for a move to new highs. Mike, whats your trade specifically because i said on a fundamental basis this is a hard stock to go out and buy obviously the momentum is there, the market hitting highs as it did this week. This thing has a beta of about 1. 5. Whatever this market does. This is a case that sets up well for using options. Obviously going out and buying a stock this expensive, whether you talk about the absolute share price or the valuation, its kind of hard to do. You could buy the november 380, 430 call spread. You could sell the 430s for 760. This gives you the opportunity, number one, to participate in the stock for a lower price and purchase the underlying shares, and also given the fact that if we did have some kind of market pull back, this gives you the ability to participate on some upside which it demonstrated it can deliver. For much lower cost. Dan, what do you think of mikes trade well, its an interesting trade because it really is a long stock alternative with limited upside but also limited downside its not the sort of thing if you expect this stock thats up 75 for the year to make a quick move up another 10, 20 , well, you know what, the risk reward is not fantastic do you agree with that, mike if you expect the thing to break out and kind of move towards that higher strike call that youre short in a sort of gradual manner, this trade makes a lot of sense youre risking one to make one for immediate participation to the upside one of the things i would quickly point out, this is a stock, the volatility of the stock is very high if youre going to sit there and say, okay, i think theres a coin toss here where i think the stock goes higher or lower, one of the other things you could do is sell a credit put spread. But it turns out the risk reward is actually much worse. Because this thing is moving around so much, and also because the share price is so high, that for those who are interested in making a bullish bet and are reluctant to reach out and buy the stock, and i can completely understand that, this is a way to get some potential upside without putting too much capital. Without putting too much carter, final word. Relative strength matters impressive relative strength compared to other high fliers. Now to another group of stocks that have been surging this year, the credit card and mobile payment space square up more than 100 paypal up nearly 60 mastercard and visa both up 35 . American express has rallied 17 . All of these names, with the exception of amex, hitting new highs this week. Dan, you say theres more room to run what do you like about the names . One of the things thats interesting, ill let carter talk about the charts for American Express, the consolidation over the last couple of months is interesting to me, in the mid80s here we just had up how much those stocks in that group are up on the year obviously American Express has really lagged here, only up 17 for the year the thing that sticks out at me the most is that the square and the paypal, you know, massive secular shift towards online payments, peer to peer payments, that sort of thing theyre taking a bite out of what American Express is doing i suspect at some point it plays a little catchup here that consolidation looks like if you look at the fiveyear chart, on a beaten race, their next identifiable catalyst will be their q3 earnings in midoctober. I think you have the stock moving back towards that, because of one important factor. This stock trades at 15 times earnings Analysts Expect earnings to get back up to double digit gains next year. And at that point, i think you may see a rerating in the stock. Those other names that we mentioned, the visas, the mastercard, the paypal, theyre all growing their earnings and sales at double digits and they have premium multiples for that so to me i think that this thing plays some catchup. Implied volatility, you want to target that earnings event in midoctober. To me this is an easy. With the vol as low as it is, look out the stock was trading today at 86. 80, you could buy the october 87. 50 call, pay 1. 40 for that those break even at 88. 90. Thats up 2. 3 from the current stock price here youre risking 1. 3 of the stock price. We have a catalyst, we have a good fundamental setup, a really good technical setup the play here, if you get the beat and raise, i think you see the stock back up above 90 in the next month or so mike what do you think of that trade very importantly, i think American Express could barely underdeliver the way they have in the past. They lost all of those affinity relationships, jetblue costco i agree, the space itself is growing. Providing they dont make another mistake like that, they could return to double digit growth actually i kind of like this trade here carter . Technically dans got the thing dead to rights we know that American Express dropped 47 from its peak in 14 to the lows in january of 16 it is about catchup the stock has lagged things like visa, paypal, mastercard its obviously much better than capital one and discover theres a lot of asymmetry the consolidation that dan talked about, th potential to make it back to the former high from the summer of 14. I like this a lot. Agreement there with you, dan. Finally just one last point. Paypal is a name new to a lot of investors. Its got a 75 billion market cap. You know what American Express is 77 billion. Pay pal trades nearly six times sales, American Express trades 2. 3 times sales. I think theres going to be some convergence there. And i want to play it long American Express rather than short paypal got it. We have much more options action still ahead. Heres what else is coming up in the show guess which stock in the dow just had its worst week of the year big mac mcdlt quarter pounder with cheese golden french fries, salad garden or Chicken Salad and the charts arent looking much better. Well tell you how to profit plus calling all options action fans. Reach into your pocket and tweet us your question at options action if its nice, well answer it on air. When options action returns. Logical hey gary, what are you doing . Oh hey john, im connecting our brains options action is sponsored by thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. They save us from gettingones . Lost, getting hungry, and getting tired of places like this. Phones changed everything shouldnt the way pay for them change too . Introducing xfinity mobile. Where you can pay for data by the gig, and share it across all of your lines. No one else lets you do that. See how much you can save when you pay by the gig. Xfinity mobile. Its a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Steve, other than making me move stuff, im here at the Td Ameritrade trader offices. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. See options data like never before. With thinkorswim only at Td Ameritrade. Welcome back to options action. Im dominic chu. Some traders out there have been feeding on restaurant stocks this week. Were talking specifically about the qsrs or Quick Service restaurants like chipotle mexican grill, up 4 this week but still down 17 on a year to date basis as it tries to recover from all that negative sentiment around food safety concerns shares of shake shack doing pretty well, up around 2 to 3 this week, but still down 11 for the year overall then theres wendys which has been serving up hot stuff as of late, up a blistering 9 this week, north of 15 in 2017 now, the downside standout has been the biggest Restaurant Company out there, were talking mickey ds which lost 2 this week, mind you, still up 29 on a year to date basis according to fact set, the average analyst target price for the golden arches is 9 higher than current levels michelle, it remains to be seen whether traders are still lovin that mcd stock back over to you lets find out, dom, thanks very much. Mcdonalds posted its workweek worst week of the year. Carter, you say the charts are pointing to trouble for the golden arches. Break it down for us just what you started with, bad action this week looks to me as though its the gypping of more bad action lets figure it out. Three lines. You got mcdonalds, a threeyear chart, pretty straightforward. The big winner its important to say this is the russell 3,000 restaurant its got things from popeyes to mcdonalds and starbucks, red robin, garden burger, it goes on an on, wendys, about 30 different stocks, cheesecake restaurants have been a real dud. Three years and nothing to show for it in the middle, of course, here is the s p 500 and whats starting to happen, though, theres a little bit of life in some of these laggards as we heard from dom mcdonalds is giving way a little bit im going to remove the s p. Lets go one more. And take a look and see what weve got. Now, this is over the past year. This is important. What were starting to see here is, again, that mcdonalds is starting to go down ever so slightly, while the restaurants are starting to hook up. Im going to bit this is going to continue to happen. Lets go to the day to day charts and try to figure it out. Heres mcdonalds. Heres the trend line you can draw and my guess is, is that were just going to check back, check back, check back the trend i want to fade mcdonalds, if im long, i want to take profits. If im a short seller, you could get a nice 5 to 8 sell off one of the reasons this company has been doing so well or had been so far this year was that management was doing some important things to try to improve their operating results. Specifically, they were doing a lot of refranchising, looking to cut 500 million in sga expense. Theyve been on track and even ahead of track to do that. The problem is theres also secular headwinds within this space that mean that once youve solved those problems, potential growth out and beyond that is going to be hard to achieve. Right now its trading at 23 times forward earnings and i thin at best thats a reasonable multiple you could expect on any kind of a pullback thats fully valid here im with carter we made bullish bets on this earl year and it has come a far as we could expect it to im looking at the december, 155, 145, a 10 wide put spread it goes up to december you can spend just 2. 50 for that, a quarter of the distance between the strikes on that spread obviously many things that could impact the market, and this company, the restaurant space is Consumer Discretionary in general, could create some province with this put spread. Its a relatively small percentage of the stock price youre spending to make this bet. Dan, what do you think . If you agree with carters technical take and mikes fundamental take, targeting 150 and that check back, maybe a little bit more makes sense, but i think it makes sense to do it with the fine risk. I like the fact that mike is spending 2. 50 to get you through that support i just dont think without a broa market selloff, youre going to see a stock like this thats been a massive leader thats had huge upside reactions over the last two years i dont think its going to give up a lot of those gains unless we have something specifically fundamental or a broad market selloff. To m i like the risk reward of the trade and i like the technical setup. I would absolutely agree. Look, were looking at a 10 potential decline, maybe a little more, for a 160 stock were looking for a decline of 7 , maybe, something in that neighborhood, and giving ourselves nearly 90 days for that to play out thats really the idea here, a modest fallback, a modest amount of premium carter, what do you think of these trades the issue is this is there a lot of upside its not so much where you think its going, its where its not going. Its like testtaking, eliminate the wrong answer is mcdonalds in a position to go meaningfully higher i would say no the inference is its going to stall here and or selloff. Thats the bet were trying to make all right next, industrial sized profits. Carter cleaned up on his bullish alcoa trade. They have a way to make even more cash. We will give you the details plus, got a question for one of the traders, send us a tweet, optionsaction. If its nice, well read it later in the show. More options action right after this options action is sponsored by you got here . This bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Welcome back to options action. Time to look at open trades. Three weeks ago, coe and carter three weeks ago said alcoa was the best way to get in on the metal surge. Here are the drawings i think you simply put your green arrow and go like that if you want to be long alcoa, fine im looking out to october, im lookin specifically at the 4146 call spread you could spend 1. 70. For that alcoa actually rallying 9 since he made that trade mike, what do you do now obviously we made some nice profits here they actually peaked on the 1st when the stock rallied through that upper strike i do think that right now the risk reward is not as favorable as it was. You have to ask yourself, is the risk that alcoa is going to take off without me if i take my profits here or that there might be some Downside Risk to the market which could take this lower. My inclination would be to take the profit carter, have you looked at the charts again yeah, all the time. I would do the same thing, 41 to 45, the price of the trade, lets move on. That same week dan said the rally in the homebuilders was getting the a little long in the tooth. It just recently broke down that up trend. It broke it, it seems to be a bit of earnings news which got me looking at that exit in particular. Today, etf trading at 36. 50. I could look to october expiration and buy the october 37, 36 put spread buying one of th october 37 puts at 65 cents, selling one of the october 30 six puts at 25 cents it cost me the whole spread cost me 25 cents so the xhb hit a high on tuesday but has since pulled back dan, what do you do . Well this trade is a tough one. Basically a bust here. We talk about these directional trades all the time. With options long premium, you have to get a lot of things right. First and foremost, the direction, the magnitude of the move, and timing i got the direction so wrong on this one that its really going to be hard to make up that ground, even if the stock or the etf were to come back in in the next couple of weeks at this point, you leave it on, its a bit of a lotto ticket, but its a bust. Carter . What do you think in terms of the technicals. One thing we know, it didnt make the high or it meat albeit barely a new high. Probably if one were to look at it fresh and new, all the things you were thinking are in effect, there is every possibility the xhb here and housing in general have Downside Risk. Really quickly, theres not a lot of premium left. I think theres minimal risk in staying in the trade well see how it plays out what about playing with individual names instead of just going with the overall index, dan . Real quickly, mcc, thats a great question i was looking at it that week, lennar had a bad reaction to numbers that looked okay so to me, that was one of the reasons why i wanted to actually look at a 1 wide, i wanted to play a quarter of the width. Option prices were cheap and the spread was dollar cheap. It wasnt a particularly convicted bet, but, you know, listen, the way that sector went back to make new highs, to me ill take my lumps on this one and just kind of take another look we did have that move in rates so who knows who knows got it thanks coming up next, tweets and the final call from the options pits im here at the Td Ameritrade trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. See options data like never before. With thinkorswim only at Td Ameritrade. Hey, im the internet i know a bunch of people who would love that. The internet loves what youre doing. So put your idea online with a domain name from godaddy. Enter your idea and well find you a one of a kind name. Weve helped 17 Million People find the perfect domain name for their website. Get your domain name and Start Building your website for free hthis bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade welcome back to options action. Our next viewer, john harris, asks, i bought jpmorgan september 22nd, 91 calls at 75 cents. What are your thoughts going into monday . Dan . In a few weeks well have earnings i think you want to extend that call out if you think its going to get back up to that recent high of 94, maybe back to 100 for the first time ever, you probably need a catalyst. That would be earnings thats going to come in the second week of october time for the final call. Dan . Yeah. So to me i think its interesting the setup in options here they are cheap American Express are cheap carter. I want to be long tesla and short mcdonalds mike use december put spreads on mcdonalds. Okay. You heard that looks like our team has expired, our time has expired im michele carusocabrera see you next week right here dont go anywhere. Mad money is up next [announcer] the following is a paid advertisement for the shark ionflex freestanding cordfree with hassle free run time and duoclean technology, presented by shark ninja. Shark wanted to know. Whats holding you back from purchasing a cordless vacuum . 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