Work but he does have a practical plan to prepare for volatility its time to risk less and make more options action starts now. Lets get right to it Health Care Getting a boost today as President Trump announced a new plan aman jabers has it latest from d. C. Aman reporter the president spoke in the roosevelt room today to roll out what this administration is doing on Health Care Transparency the president views this as a political win because a lot of people around the country agree with him that this is a kind of a shady area, pricing and hospitals. You dont have any idea what all these different procedures youre getting necessarily cost. The president wants to change that heres what he would do. The president saying that hospitals will now have to reveal discounted rates that they negotiate with their insurers theyre going to have to disclose prices on 300 Different Services you would schedule in advance. In theory patients would be able to then look at the prices and pick and choose what they want and compare prices among hospitals. Most Health Care Plans would be required to reveal the rates within and out of network doctors. And if there are any differences between those rates, people would be able to see that. The hospital industry, though, says it maze challenge the changes today. So well see whether there is a legal fight here the administration today, melissa, said they believe they are on solidlegal footing making these changes they say they are prepared to weather any legal challenge that comes from the hospital industry aman, thank you aman jabers joining us from the white house tonight. As this was going on, the president was unveiling this new roll, this proposal health care for staging a rebound, the sector was up in the session up 6 the last month still the worst performing sector of the year the chart master says it is the single best opportunity in the market so make the case, carter right so i think a couple things first of all, what you led with, it is the worst performing sector because energy isnt even a Sector Energy is only 4 of the s p and two stocks, exxon and chevron are half the way to the sector if youre looking at sort of real sectors, it is the worst performer so thats the opportunity. And yet its now a recent outperformer as you also said, melissa, meaning its on a longer term basis under performed. Now you have the set up of one, two, three weeks outperformance. Heres the other thing its the second biggest sector in the market. Its a very important sector thats lagged, thats showing na nascent relative performance whether its a political overhang capital performance things that might be steep like apple or chasing the cyclical trade thats already had a lot of money go into it, banks and industrials. Notice those are pulling back a bit. I think this is the singlebest opportunity in the market. Mike, whats the trade . The Health Care Industry is interesting. We can look at valuation it has been a weak performer possibly because of some political reasons. That would be certainly a reason why it would be under some pressure from a valuation perspective, that means it has not necessarily seen an increase in valuations concurrent with the market, both on price to sales, price to earnings. However, like the rest of the market, options premium are exceptionally cheap. So i think the way to make a play here is to keep it very simple i was looking at the january 97 calls. Those were out of the money when i was looking at them earlier today. 1. 65 is what you would pay for those, less than 2 of the level of xlb when youre looking at that this is one of the situations going into a spread wouldnt make a great deal of sense because just going and buying that outright call is a very reasonable price and i think a reasonable way to make a bullish bet. Do you Like Health Care when they lay that out, johnson and johnson is the largest component 10 . It wouldnt take much to go higher to bring it out meaningfully the idea of mikes concern, playing the base that is a call near the money two months out, i think the risk reward is favorable here there are a lot of ways you win. If the market continues to go higher you will see laggards like this start to participate it may act defensive or people may start thinking about things a little differently, setting up into 2020, and thats why i like this thing playing into january in the money its interesting you mention Johnson Johnson. Typically it is a defensive stock, a stable stock. Not one that moves it moved close to 4 one of the larger moves weve seen in Johnson Johnson in quite a long time. That, i think, is pretty interesting. The other thing is just reaching out and trying to make a bullish bet of any type in any sector right now has to give almost every investor a little bit of pause here weve seen a an incredible rally here ment were sitting at alltime highs. To reach out and chase stocks by going out and buying equities at this stage when theyre relatively expensive rather than using options right now, which are relatively cheap, is just i cant imagine why anybody would do that. This is a shortterm trade. So do you believe that the political influences on health care that weve seen sort of dominate earlier, they can creep back in as we approach the election as the election approaches, i think thats certainly possible. However, i would say both the way that health care performed this week and the way that the market has performed this week suggests that maybe were going to see some other political effects coming in. So without get being too far into it, lets just say there are some candidates who are less friendly to health care and less friendly to the market and there are some candidates who might be better the market is behaving like its going to see better candidates we know that one of the important characteristics of investing and trading and frankly any part of capital exposure to risk is that often after something is moved, money looks around to find the next thing thats going to move we see it all the time, it could be ge coming off the bottom or a kraft heinz. As a group because it is, again, second biggest and because it is offensive and defensive characteristics, i think money is going to seek this out and its not new today although ill tell you it was very big, its been going on three, four, five weeks. And thats a big tell. From health care to retail, a slew of big names set to report earnings next week including names like home depot, lowes, macys and target. Speaking of target, check out the stock. Its up a whopping 71 this year, inches away from alltime highs. Says it gears up to report next week, dan is betting it may be off target why dont you break it down. I think its important like you said the stock is up 71 in the year a massive performer in the retail space. Big box space is doing heavy lifting. Home depot and costco obviously significantly outperformed the s p. This is the big one. There is that line right in the middle in august you see where the stock went up 20 in one day thats when they reported their fiscal q2 earn ings. They guide i had up for the year though showed really good comps, Great Results in there the channel strategy, that would be online and off line working well together. But i think as we go into this earnings report, the Options Market is implying a hefty move, 6. 5 the stock moved 11 the last four quarters. Last quarters 20 move skew thats a little bit. Look at that move there. Since that break out i think it closed that day august 21st, 1. 03 it has held that gap and trending upward. That generally is pretty constructive thats the one interesting to me also if youre a bull on this name, look at that fiveyear base it broke out of i suspect that that level in the mid80s is going to be significant Technical Support for a white. My trade thinking about next weeks earnings in particular is just that theyre not going to be able to guide up the way they did in august. I think that reset investors expectations a little bit. I would be playing over the next month for a pull back. Some of the consumer data, some intentions we had about buying into the Holiday Season seems depressed. The idea in my mind if they were to give disappointing guidance it should kind of pull back a little bit to, i dont know, just above 100 gap it looks fair into the print that implied move seems kind of high considering the stock is up 71 on the year, i would look to a put spread sttargeting that 100 level. You could buy the december 110, 110, 100 put spread, paying 2. 50 for that, the december 1 puts, 100 put at a buck that breaks even, 7 1 2, you makeup to 107 1 2 down to 100 max gains there. I like the risk reward of this trade. We have the event, we have the month, the s p teetering at alltime highs every new day combination of disappointing guidance, a little pull back of the market stock back at 102. I was going to say big day today, we all agree, green who was down walmart was down amazon was down. Walmart put up a big number, what you call a classic key reversal date, flares up and closes on the low. Thats a tell and i think its going to happen here, too. Target is at twoyear highs it would be trading at 100, the put strike you chose heres what else is interesting about that strike. You if you take a look at the last quarter, how it behaved one month following that earnings result, you would find that out of 44 reported quarters, it fell more than 10 only two times, all right. So 100 bucks is down a little over 10 from where the stock closed today by selling that, youre mitigating the cost of putting on this trade fairly considerably almost 30 of the premium youre spending on the higher strike put. The likelihood it drops below the strike put youre selling, very low historical performance. Check out our super cool newsletter heres what else is coming up next announcer its been a great month for stocks with all the major indices sitting at record highs. But if youre worried the recent run is about to rollover, our mike coe is laying out his volatility protection play book. Plus, calling all options action fans reach into your pocket grab your phone and tweet us your question at options action. If its nice, well answer it on air. When options action returns. Its got all my favorite shows turn oright there. Boom, i wish my Trading Platform worked like that. Well have you tried thinkorswim . This is totally customizable, so you focus only on what you want. Okay, its got screeners and watchlists. And you can even see how your predictions might affect the value of the stocks youre interested in. Now this is what im talking about. Yeah, itll free up more time for your. Uh, true crime shows . British baking competitions. Hm. Didnt peg you for a crumpet guy. Focus on what matters to you with thinkorswim. Welcome back to options action. Check out those bright shiny brandnew all time highs across the major indices. Looking pretty good. Beware, our master charter says it could be an explosion ahead carter over at the plasma wall carter this is one month thats transpired every day, every hour, the tick, the market is making new highs yet the vixx is not making new lows it is holding here in principle. One might think as the market goes higher the vixx might be making sharp new lows. For whatever reason it is holding. I want to focus in on this level. Take a look over the past month. Basically watch what happens when i draw lines here we have held this level just as we did here, just as we did here and were starting to do this again. Now, ive got these arrows drawn. Does it have to be that you get a big explosion or is it that or is it that the bullets say no, no, carter this is whats coming. This set up, this triple bottom, lets pull it back a little further. Heres going back. Theres your collapse in december your inequities, spike in vixx heres this key libl gefl. Even as we have ticked higher, the market has continued at the volatility level not make new lows my hunch is this could very well be the set up for that kind of thing. I would also point out you have near record short positioning in vixx as reported by the Commodity Commission and that often is the set up for something going the other way. All right so, mike, you have a call to action from this yeah. So, obviously if you think that the vixx is going to go higher, thats a corollary saying you think the market is going to go lower. Trading the vixx itself is tough to do because the vixx itself are not trablable. There are options on those vixx futures. This is something to think about as a hedge here are some things you ought to be thinking about if you do that we identified a reason why you might want to hedge tactically we had this period weve seen off of similar set ups in the past, we have seen the market draw back a big spike in volatility. The other thing is make sure you size your trades appropriately you dont want to spend too much premium making your bearish bets think of this as an insurance play the market is obviously very strong here. When you spend insurance premium, one of the things youre expecting is its not going to payoff. You buy insurance on your car hopefully it doesnt crash if it does crash, you have it if you need it. Heres what i want you to think about. Stocks and volatility move in opposite directions. You can see it in this chart where were mapping the vixx over the s p they correspond to draw downs in the s p. Why dont we take a quick look at spx options this is what the vixx is based on its the reason why when the market rallies typically the vixx drops because you start migrating toward higher strikes where implied volatility is lower and the market declines you go toward the lower strikes where implied volatility is higher thats the reason you see that an had icorrelation one of the things we can point out now is were at basically, you know, the base level of volatility which means that options are inexpensive. One way you could play this, i was looking to january the 300, 280 put spread, 3. 25 you could spend for the january 25 puts, sell the 280s against it for 110 that would be a 10 decline from the current level if it fell to that strike youre short lets think about this for a second this is a 20 put spread youre spending 2. 15, which is about 1. 5 right now of where the s p is currently trading so youre spending relatively small amount relative to where spy is. You get a fairly big payoff in the event of a decline and that is a set up that you get simply because you have this current condition in volatility where options premium especially at the money are exceptionally low. So talking about at the money options premiums, another way you can chart this, apply the volatility of the options spy. It looks a lot like the vixx chart. Banging a bottom around 10 or so usually weve seen some nice upticks involved from that point. What does that mean . The spy goes the other way it goes down i like mikes trade. Hes literally break even down 3 1 2, 4 , Something Like that the whole idea of having like maybe a 9 to 1 pay out i think is attractive. It makes sense in the 350period. Ill mention one other point we have christmas, then new years what do options do when theyre not trading . They decay the idea of doing this as a spread makes a lot of sense. If you were to buy that outright put, that thing might be decaying faster than you think it would in a normal trading period what is the corollary in terms of markets we had a flattish top over the six, seven, eight sessions its still a rising tick by tick circumstances. Thats not the reciprocal for vixx its not making new lows either thats a foreshadowing of what might be coming or as i point out the bear would say no. The vixx is about to crash to 10 i would make a quick point about that if you start seeing the market make new highs and you see volatility also rise, reason implied, that is a real warning disciple we saw a precursor to that in the last quarter of last year. We saw that absolutely in some of the big significant market draw downs that we have seen we saw implied volatility rising before the credit crisis we saw it rising into the tech wreck. One of the things youll see in history that anxiety level starts to rise when people feel the market is stretched. They go out and start spending premium. Not willing to call the top of the market willing to say look, how much farther can we go . If you start to see that confluence of events, i would be a lot more anxious than i am now. How long does that condition have to last before you say maybe we are headed for those periods in the past . You should be keying keeping an eye on it regardless in the tech rec it was a long stretch of time. We saw the vixx in the mid 20s before the market rolled over in march of 2000. Last quarter of last year, actually it was relatively sudden you started to see implied volatility rise as the market was reaching its gene zenith keep your eyes open. Up next its a bond break out. Thats good news for one of our traders. Dont touch that dial if you have a dial. Much more options action right after this robinwithout the commission fees. So, you can start investing today wherever you are even hanging with your dog. So, what are you waiting for . Download now and get your first stock on us. Robinhood. danny s voice of course you donte because you didnt . Your job isnt doing hard work. Its making them do hard work. And getting paid for it. vo snap and sort your expenses to save over 4,600 at tax time. Quickbooks. Backing you. Welcome back to options action. Time to look at our open trades. Last week dan said the bond break down might turn might turn into, i should say, a break out. I think the big story this week on wall street was that move up in yields. We saw the tenyear u. S. Treasury yield bounce really right back to that breakdown level. I think the break down level is really important there just below 2 when the prices of options and the tlt go up, its been this year theyve been going up when the tlt is going up. When the tlt is trading at 1350 today, you could buy the march 150 paying 3. 50 the tlt is up 2 since that trade. So what are you doing now, dan interesting, it bounced off that level 135 is what we were looking at it depth really seidnt seem li tremendous pressure. It hit the yields. I used march in a wide range to the up side. This is going to take some time. This is also very near the money. Now the trade that cost 350 last week is probably worth 450 i think you stick it out you want to cisee this play out over the next couple months. Also mike found a way to play cisco into earnings. If you look at where the october lows are, 7 from the lows in that first week, this obviously even though its had a bit of a bounce lately is certainly under the performing the market in a similar time frame. The trade we were looking at was the november january 50 call calendar we would be buying the longer dated january calls and then selling the november 50 calls for 55 cents net net youre spending 75 cents to put this trade on this fell more than expected after trading. How are you playing this the move is going to be within the implied move, it was larger than that one of the things we said dont catch the falling knife. Good thing not to do that. Actually, the day that they announced the day following, i actually rolled into the 45 calendar i am now in the dec jan 45 calendar this points out if you get the direction wrong, which we clearly did, why you want to use a trade like this had you bought the stock you would have been taking a lot of pain if you owned the longer dated call, i wouldnt recommend selling it, but personally i happened to be in the dec jan calendar now what a disaster to be doing that in a market like this with tech doing what its doing its tempting to think its so bad its good, just walk away. Dan, any hope for cisco not right now i thought the change in their guidance in the last quarter was just very profound the fact that they disappointed two quarters in a row, i think thats telling you something about Enterprise Network spending right now terrible up next, final call 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 your options 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 time for the final call. Carter the xlv to do it. Mike coe. January spy put spreads paying 9 to 1. Dan there you go, target put spreads. Dont pay that 31 but i like them that does it for options action. Dont go anywhere. Mad money starts right 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 . 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