And well, not his house per se more like his Housing Stock him mike drops the mic with one play its time to rick less and make more options action starts now. Lets get to it. Healthcare having a bit of a hangover up 6 . The second worst performance of the year biogen, pfizer, cigna weighing on the space, down double digits the sector has been caught in the crosshairs of late as the 2020 election draws closer our truck master carter worth has a prognosis. She on the plasma. Were not really at the plasma not yet. Are you going to go there . Im waiting for per mention. Permission granted. You are banished from the desk thank you so, you know, this has obvious been a dud, in many ways, it was a year of risd hig market, reit staples, winning, healthcare is that other area thats both defensive but is offensive. At this point its a head you win, tails you win, lets talk about it so since data is available back in 1989, this is a chart showing healthcares weight as a percentage of the s p. And it has been higher, as high as 16. 5. Obviously, its been lower right now were at 13. 5 the average is about 12 and my thinking here is that not necessarily dependent on this, but that there is surprise potential in healthcare. Lets look at a few charts so this is well, just to show you, this is how important healthcare is the second as waiting in the s p. Whats remark sabl its second biggest, yes, it has been the second worst in terms of performance and well look at that a bit heres a cart going back to 1989 this is the relative performance to the s p so the top is the sector, itself the bottom is relative performance so we have this circumstance, obviously, where the sector has continued to advance over the past three years. But its relative performance to the market has been very, very poor now, at this point, though, im thinking weve got the following circumstance we are down to the relative trend line and im going to make the bet that we just as we have in prior instances have bounced, have bounced, have bounced, in this is the point at which this relative performance came to an end and healthcare came to a light. In terms of the absolute chart, itself what you will see here a couple line, this is the compare chart over one year. This is the opportunity. Again on a oneyear basis, actually flat versus the market up ten now lets draw some lines on the sector, itself this is the xlf. Here is a fiveyear chart. And i think the way to draw the lines is as follows. Here comes the setup take a look. And what youve got here is you can call it an acentreing wedge or an acentreing triangle. Its all very precise. These levels are not random and ultimately, a lot of tension here, im going to make the pet that we are going to break out again an offensive defensive area of the market that will perhaps serve its market in any environment market from here. Whats the trade you had put on here . We take a look at the healthcare sector. I think its interesting if we compare this sector to a lot of others and obviously were very close to if not happy all time highs on the market a lot of that is coming, obviously, from some increased valuations we seen higher multiples were not seeing that in healthcare healthcare multiples is looking at the healthcare sector index which this etf is actually based on actually hit the zenith 2015 and it has been going down i dont have all why is that . Overall healthcare has been seeing Earnings Growth we havent soon core someoneing prices in growth here. We dont see very high prices for options in xlv we are talking applied volatility for january about 15 . That puts that basically. Look at where the vix closed vix closed today at about 14 and change so this is a really fair value trade. To be able to buy optionality. I was looking out to january you can buy the 92 call. 3 in this range consider this, what do you think the chances are that overall this sector could move 3 or more between now and the third friday in january. Thats how long we have to make this bet the short answer is its reasonable to assume it can move 3 and considerably in either direction and in either case that makes this a reasonable what i to basically limit your risk and play to the upside here. Karen, do you have a thought here its interesting to me the relative strength of it. So if one didnt want to make a market bet, then you would look like you would say along the market, short devoid of healthcare iagainst it for outperformance no, i would think at this point its been such a relative outperformer j j has been struggle, obviously the managed care stocks others have been fine. The totality of it, it looks like its had its threeyear under performance. At this point its coming to an end. Thats my thinking id rather be amiss on the market is that what you are saying . I didnt get that at all oh, i agree with you do you have a final thought no. You have been validated so you are cool. So j skw was an idiosyncratic issue. Obvious, they had bad news and the managed care space, i think we understand. Weve got an Election Year fast approaching. This is sort of in the crosshairs you could safely say. But its priced as such. Thats the important thing this is an outperforming sector. I cant think of one tesecto maybe technology its got drugs in it, hospital stocks in it its got the longterm care. Managed care tech is speculative biotech is the most speculative of a all its got the most defensive and speculative. Its something for everybody. Its something. Lets move on to boeing taking a leg lower and shaving a big chunk off the dow. The faa saying boeing withheld quote concerning pilot messages about the safety of the 737 max jet. But that did not stop shares of American Airlines from taking off today and as that stock gets ready to report, its profits next week, karen feinerman says it hasnt quite reached altitude yet. So whats the trade here im long on stock its an options overlay, looking at that time calendar, jans 29 call, short of the expiration, these are the weeklys that expire next friday which is after earnings those are pretty pumped up to be if we look at the volatility chart, thankfully, that mike provided we can see the near term relative is compared to the longer i want to take advantage of that and sell these shorteddated calls that are more pumped up to be long to 29 calls. So theyve released earnings that are fought grit and the stock kind of goes sideways to down thats fine. Those go away. The weeklys go away to zero. Im left with a longerdated call for a stock that i want to own. And we have some time. We have time to see how the market does. And i think that the collapse of the neardated one, we may still have value, more than we paid possibly for the longdated one even if the stock is its a way if you own the stock a way to amplify your profit, right . Exactly, not putting up money, you dont own it because are you worried about airline, i think its a cheap way to leg into it. I use calendar spreads all the time its interesting we were talking about this before the show actually today american is implying a move of a little over 5 if you take a look at the last eight quarters, you might say thats reasonable. Thats what weve averaged part of that is last quarter we had a really big move. And if you are thinking what the catalyst could be, consider this, weve had result, first guidance then results from dell that weve had results from united all of the news that might be impactful as far as boeing is concerned, that is well known already. There is no surprise really likely to come from that area. And thats really the issue with calendar spreads, are you expecting that some news could come out that would blindside the markets or do we think a lot is baked in . I think thats why it makes a great deal of sense to collect the premiums which i think is mabel rate issed at least as much as it should be carter, you want to dip in here sure. Independent of all the news, we know this is all news related. You have a circumstance that this is perhaps the best performing stock along with caterpillar. Off the 2016 low for the past three years, its been wideing time. Fuse not withstanding. The ultimate is biding time is the setup, the rest before the next major upleg in the stock. So, American Airlines, you are long the stock you like these longdated calls . Long with stock ive also long delta as well you know, they had somewhat disappointing earnings i like this space. I want to have a little more invested without owning the stock. There is deltas chart. Its up for the year and up today. Everything options action. Check out our website options action. Cnbc. Com while are you there, check out our super cool newsletter. Heres whats up next. Its been a sturdy week for the Home Builders. But our mike ko says one name in the space could get nailed when it reports earnings next week. Well tell you what it is and how to trade it. Plus, calling out options action fan, reach if your pocket, not in your phone and tweet us your questions at options action. If its nice, well answer it on air when options action returns. Announcer options action is sponsored by what do you look for when i want free access to research. Yep, Td Ameritrades got that. Free access to every platform. Mhm, yeah, that too. I dont want any trade minimums. Yeah, i totally agree, they dont have any of those. I want to know what im paying upfront. Yes, absolutely. Do you just say yes to everything . Hm. Well i say no to kale. Mm. Yeah, they say if you blanch it its better, but that seems like a lot of work. Now offering zero commissions on online trades. We charge you less so you have more to invest. And welcome back to options action. Where is that . That is chi, a beautiful i love chicago i have to say, a windy city a lot of options are traded right there in chicago im not sure which street that is whacker, i dont know we are back here at nasdaq, another nice place, new york city thanks for being with us it was a hot week for the Home Builders that tracks the group up nearly 4 closing out its best Weekly Performance since june this is names like lennar, home depot, d. R. Horton i like to call dr. Horton. Mike ko says one name in this space could get nailed on reports earnings next week mike well, named thats a little bit harsh. Im in the sure nailed is the way i would put it we will look at pull pullte home it may hit a pause this is a way you can express a neutral to bearish view. Its had a terrific run. This is a situation where are you looking to collect premium and this is a situation where going into earnings we will see elevated options premia. We are trying to collect that. Another nice thing about spreads like this, out of the money credit spreads they tend to have a better than 5050 probability of profit. And the reason for that as we are about to demonstrate is that you can have three things happen to a stock so we can see here what has happened with pulte. My bet is we had a really strong run coming in here and we hit the pause button itself on eais. We have 30year Mortgage Rates around 3. 5 . Thats obviously a positive. What im going to do here, im going to sell an upside call spread, specifically the call spread i was looking at with the november 3940 call spread. Today i was looking at that you could sell that and claekt credit of 35 cents thats cliff between the distance and the strikes why the probability of profit will be better than 5050 on trade like this one . Three things can happen. One is it could go higher. That obviously is not the bet im making but the other two things that could happen it could go basically sideways or lower and of the three things that could happen, two will be good for this trade basic ally if it stays below 39. 35 by november expiration, this will be a profitable trade. The most im risking is the 65 cents. If the stock surpriseds to the upside, its not likely that will go exactly to a dollar. So that might be rengt at least in the short term more risk than is based this is elevated options premiums you are looking for ways to collect money. Calendar spreads is one way. Selling credit intredz lispreadi is another im going ask you a question for viewers tuning in here for the first time describe what you mean when you say call spread. In other words there, it was graphic. It was clear you are teleselling one, buying another, is that the fundamental definition of it yeah, generally speaking about spreads more often than not is buying one option and selling another. On the statement stock in the same this is a vertical spread but it wouldnt have to be actually the trade karen was talking about a calendar spread is a call. In her case it was an october weekly call versus the january call on American Airlines so that is another form of call spread we call those calendars, in this case they go up and down, we call those vertical. He laid out his case for this if you look at the growth the group has recovered back to its well defined former top in each etf, which was january of 2019 these stock has blown through those highs. Its one of the most extended. I think you got downside plus or minus which is about 7 . Its the kind of thing where this is steep uncorrected and acommit trickal. Can it eek out a point or two in the risk is it has a swift cap even though i bullish the space, that chart is scary. You said that to me earlier. The stock is up close to 50 for the year thats a little scary. Mikes trade a bearish to neutral to bearish on it it also is capped, which is super important. You know the most that you can possibly lose, right, a buck i think your scenario where even if the stock goes up, that spread doesnt immediately go to a dollar why would you pay a dollar for something that would be worth a dollar on its last day you wouldnt so you wont lose that buck if it goes. Thats right. If we were using weekly options and have an opportunity to address that next friday, then, of course, its either in the money, out of the money, somewhere in between actually this one expires on the third friday of november so there is time if it goes higher im not suggesting the Home Builders are completely broken its not like these stocks are immensely expensist. Theyre no they have had a good run. Its a cyclical industry and it shouldnt. So, you know, i think it makes some sense if you are ever going to bet that something might fade its rally. Some trends have correction look at utilities. Look at reits. Theyre sensitive, theyre theyve done well. Thats the nature of an uptrend. You have these setbacks, which are in a way healthy, allow it to reassert itself and no higher this is the point a setback or a pause is likely. You said offline like this group, home builder or confidence was very fair in x months make the case for why you like the group as a group. So many things actually so rates are, you know, at all time lows. So almost everyone that buys a home, they need financing. Rates are very low and people are employed, this is important. Those two things are really important. The Home Builders space we do see. It does have some tariff repercussions because they do import a lot of things, materials, so thats one thing that weighs on it. But that macroenvironment is so good and the space, i mean, that never recovered even remotely close to where it was in financial crisis they are a better managed business now than they were before the credit crisis, by far. Up next, one of our traders is spying big gains in the market and well go deep under cover with that trade. Plus, it is friday you know what that mean, tweet us your burning questions, only burning ones at options action and you might just get your answer on air. Dont change that dial because we got more options action coming up. But when i started seeing things, i didnt know what was happening. So i kept it in. He started believing things that werent true. I knew something was wrong. But i didnt say a word. During the course of their disease around 50 of people with parkinsons may experience hallucinations or delusions. But now, doctors are prescribing nuplazid. The only fda approved medicine. Proven to significantly reduce hallucinations and delusions related to parkinsons. Dont take nuplazid if you are allergic to its ingredients. Nuplazid can increase the risk of death in elderly people with dementiarelated psychosis and is not for treating symptoms unrelated to parkinsons disease. Nuplazid can cause changes in heart rhythm and should not be taken if you have certain abnormal heart rhythms or take other drugs that are known to cause changes in heart rhythm. Tell your doctor about any changes in medicines youre taking. The most common side effects are swelling of the arms and legs and confusion. We spoke up and it made all the difference. Ask your parkinsons specialist about nuplazid. And welcome back to options action. Its time to take a look back at one of our open trades two weeks ago, pike told us he spied, thats your hint, some gains ahead for the market despite the volatility we saw this week, options premium dos me remain relatively low you can actually spend less than 1 of the current price of spy to buy a call option, specifically i was looking at the 295 call 2. 77 is what you would spend to buy those. The spy up 2. 5 since that calm that is a good enough move for mike to escape this trade in the green by the skin of his teeth so whats your next move if you put this trade on earlier this week, the call was 4. 5 dollars. Some may have carried it all the way to expiration. It expired today its in the money, that means you will own the stock id rather own calls than spy here so i think it would be wise tore unload that. Get out unload that. You can buy longerdated calls, theyre still inexpensive. Close it off. Up next, your tweets and our or their final call. Well be right back. This piece is talking to me. Yeah . So what do you see . I see an unbelievable opportunity. I see bestinclass platforms and education. I see awardwinning service, and a trade desk full of experts, available to answer your toughest questions. And i see it with zero commissions on online trades. I like what youre seeing. Its beautiful, isnt it . Yeah. Td ameritrade now offers zero commissions on online trades. Im not really a, i thought wall street guy. Ns. Whats the hesitation . Eh, it just feels too complicated, you know . Well sure, at first, but jj can help you with that. Jj, will you break it down for this gentleman . Hey, ian. You know, at Td Ameritrade, we can walk you through ptions trades step by step until youre comfortable. I could be up for that. Thats taking options trading from wall st. To main st. Hey guys, wanna play some pool . Eh, im not really a pool guy. Whats the hesitation . Its just complicated. Stepbystep options trading support from Td Ameritrade welcome back to options action. We got a few seconds before the final call take your tweets first viewer asks, how would you trade apple into earnings carter id be 240 calls month end, they close at 236. I think there is pop potential. The next rid him, what was it, what was that street we saw in chicago it was options action, Michigan Avenue. We think i believe it is eric for that. That is very nice. We appreciate that lets get to the final call. There it is, options action view of Michigan Avenue in the great midway. All right, carter, final call. Like healthcare here, i use xlv. Karen, next. American airline, expresses bets for one or more, down 29 okay weekly expirations call spreads. Mike you get the last one. Yeah, i like selling credit spreads into pulte homes and calls on xlt. Its been an interesting week that does it for us here on options action you can catch us back next friday at 5 30 meantime, do not no anywhere you know who is right around the corner mad money starts now [narrator] the following is a paid advertisement for the hoover smartwash. When your throw rugs need cleaning, you toss them in the washing machine, easy. If only you could do the same for your carpet. Instead, heres what Carpet Cleaning looks like for many of us hauling around heavy, bulky rental machines. Theyre a hassle. And do you really want to bring someone elses dirt into your home . And then theres all the mixing, soaking, waiting forever for your carpet to dry. No wonder we sometimes give up and call in a pro, but thats a whole other level of pain. Theyre all over your house. Youre left with a damp carpet and it costs a fortune