Break from biotech and get into mikes car honk if you want yield mike khouw turns the dreams into reality with a straightforward play to car max. Its time to risk less and make more options action starts now. Yes, it does and welcome everybody. Hope you have a good friday. Lets get to it. Trade talks taking over the street as phase 1 deal pushed the major indexes to major highs. Of course this is a deal without terms that anybody on the street has seen but hey, whatever. Dan nathan says if a full agreement does come through there is one payment play that could charge up the portfolio. Lets get in the money, dan tell us about it. The narrative of the last few days has been some of the headwinds to kind of growth or the headwinds to a u. S. Consumer have been lifted i have no idea what today means in terms of a phase 1 deal and i think the administration told us were not going to actually see anything papered until the new year but if this enthusiasm that we have seen the last couple of months or specifically in the last few weeks carries into the new year, then you want things that are pretty much levered to the u. S. Consumer. Just talk about American Express a second here is a stock trading at a discount to the broad market a discount to many of the peers. And probably for good reason when you think about master card up 55 on the year, or visa up 40 on the year. These are much more Profitable Companies than say American Express. Different business models. Their Payment Processing plays but American Express at 15 times up 30 on the year. Looks interesting. Has not gotten back to the prior 52week and alltime highs if you think the market stays here or moves higher into the new year, thats the play on the chart that you want to make a run for the 130. And then a move beyond that, the company will be expected to report q4 earnings the week of january expiration this is simple if you look at implied volatility, the price of options are cheap and in vol terms and dollar terms when it traded at 124. 50 you could buy the january 1. 25 call paying 2. 35 for that less than 2 of the stock price breaks even at 127. 35 up just about 2. 25 or so. And then you have the leverage to the upside. If you are looking for relative value and names that might enjoy a run over the next month, American Express could be one of those names. Yeah, this is one of those strategies we have talked about in a couple different spaces obviously weve had an exceptionally strong market. Axp as it happens has not performed as well, its not trading at the alltime highs. One of the things pressuring the company was that they had some missteps i would say the affinity card losses earlier. And they have recovered somewhat from that. We are talking about a company that doubled eps the last six years. Thats good. But the strategy dans talking about makes a lot of sense once again, we are dealing with stocks close to or at their alltime highs once again, talking about options prices that are relatively low this is a way that you can risk very little to try to make a bullish bet going into the end of the year. And, again, there arent many stocks trading at the multiples that American Express is right now. It always trades at a below market multiple. You make the point it is not visa or master card. Its not capital one capital one has broken out but with credit risk the truth is the setup is good if you want a catchup, this is the large liquid name having lagged the market that could catch up the breakout potential is there. Good discussion and good trade. Watch American Express lets switch gears because we have after hours moves in the biotech. Here with the detail, meg tyrrell at hq. Looking at two names, horizon and amarin for horizon it was a positive vote on the companys experimental drug for thyroid eye disease. The stock up 10 in the after hours. The fda does not have to go with the vote from the outside panel of advisers but it often does and set to decide on that drug by march switching to amarin that stock halted all afternoon and reopened getting fda expansion of the label for what its heart drug is approved for including in the label the drug is shown to reduce the risk of events like heart attack and stroke and Heart Disease is the leading cause of death worldwide its up 6 as expected however it came up a couple weeks earlier. Which is a trend with the fda approving drugs sooner than expected. The stock moving up, amarin up 3 . Staying with biotech and look broader at the ibb, the biggest etf in the sector. Surging in the second half of the year now on pace for the longest weekly winning streak since back in 2013. Wow. But your chart master says biotechs big run probably is too far too fast carter worth, head over to the plasma and bust out the charts on the ibb. Lets take a look sometimes you are right to right calls or trim along or take measures if its too hot thats the case. We know that health care having lagged almost three years has come back. Within health care, biotech leading. If you look at the simple table on a twomonth basis which is where the real fire has been biotech is up more than financials, industrials, these are the areas purportedly doing best more than staples, more than Consumer Discretionary by a long shot at this point i think you fade it lets look at charts and make the case this is the before when it was dull and boring. We know there was a well defined trend line look at the next chart there is the trend line. And what happens watch the arrow. You get a major move above that level. But where does it return to . Its returning right to a prior high and more often before exceeding a high you have to contend with it look at the next chart we are stuck right at the high weve been grinding now almost a week i think what youre going to get is a period of very low vol after the big move as two things happen. You encounter supply people from here taking profits i mean getting out, and people from here taking profits. I want my money back i want to book my gains and you get stuck. The betting here is that this is actually just that, stuck and its right to harvest gains if one has done well. Good charting, carter back to the desk mike give our viewers the trade on the ibb. Its interesting carter hit on something right away. He said maybe right some calls interestingly enough ibb that makes sense. Right now the implied volatility of the at the money call options of ibb is 22. 5 or 23 for a single stock that might not seem high but for a stock trading at implied volatility at 15 which is what ibb has been doing thats quite high. The problem with going out and selling calls is that you expose yourself to unlimited risk if for whatever reason the thesis that this is going to trade sideways proves incorrect. The way we mitigate the risk is by instead selling a call spread specifically i was looking at the january 1. 23 spot 33 call. You sell that for 2. 15 and buy the 1. 25 calls for 1. 45. Netnet collect 70 cents on a spread that at the most could be worth 1. 67. We can calculate approximately the likelihood in a normal circumstance thats going to end up in the money. This is a trade that will typically have a higher than even probability of profit why . Because this makes money if ibb goes sideways, if it falls and even if it goes up a little bit. Obviously the risk being it breaks out from here but we mitigate the risk of loss by buying the upside call. This is an interesting options trade. If you are looking for a stock guy or gal and saying that thing has 115 or 110 written all over on a pullback the next couple months youd say option prices are relatively cheap i would look to make a 10 move to the downside and willing to risk maybe 2 or 3 to achieve that mikes trade is different. Mike looks at the probability of success and saying to himself i have a pretty high probability of a small gain here and if carter is right if the thing does nothing then im taking in lets say close to 50 the width of the call spread im selling. This is an options trade very much but if you said i think ibb is on its way back to 105 there are other ways to do it, i dont think you want the call spread. Its worth noting as is the case with so many etfs there is a big name that drives it. Amgen is the big weight. The exbi equal weight. A sector lagged triple the market market up 6 its up 20 the past two months and this part hotter in certain names. And every day new news it feels peak the real thing to consider on options trade are you actually spending some money betting on something happening . Or are you collecting money kind of expecting something not to happen here if it continues to contend with this high, then its going to languish along here that means little is going to happen by selling a call spread you look to get paid for that nothing to happen. And if it declines whats the risk on that selling the call spread. The risk is of course. The call spread. The risk you are taking is the difference between the strikes which is a dollar 67 and the 70 cents you collect basically, you know, youre not risking a great deal but the risk happens if it actually in turn breaks out. But it has to break out in within the next month because thats when it expires. Thats a good discussion. I learned something in that. Good day for everything options action go to our website, options action. Cnbc. Com and while there check out the newsletter but in the meantime on the television here is whats ahead. There are some car max its disbelieve car max racing higher this year. And if you bet on more upside ahead our mike khouw lays out a trade too good to pass up. 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. Options action sponsored by think or swim by Td Ameritrade beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. 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. All right. Welcome back, everybody, to options action. Todays retail numbers missed the mark a little bit. Next week we get another chance to kick the tires on American Consumer because thats when car max reports earnings you may car max yeah car max helped Investors Bank serious coin this year up nearly 60 . But last earnings the stock dropped immediately following the release that despite a beat by car max on top and bottom lines investors sold how to navigate car max Going Forward . Mike khouw has the answer over at the plasma with the call to action, mike. Yeah, were going to talk about selling a covered call actually for those who own stocks, this is probably the way that most get into the Options Market the first time. You sell calls against stocks that you own when you look to do this, what are some of the reasons . What are we looking for . Car maxs case, one of the things we definitely identified is that we see above average options prices when you sell options, the price of it matters a lot. The higher they are the more they collect right now seeing a move of 8 on earnings well above the 6 the stock typically averages the other thing i would point out as brian mentioned, the stock has had a heck of a run here and right now its basically trading right at the average analyst price target of 99. Approximately where it closed. The idea here is were trying to generate yield on a stock you would be willing to sell at a higher level this is a yield play, kind of like trying to get yourself of an extra dividend. Lets look at the stock and we can see what brian was talking about. Obviously the stock had a tremendous run here. Here is an interesting thing with the Market Making new highs this one seems right about now to kind of level off here. Well wait to hear carters view of this from a technical perspective. But one thing i happened to observe is that this is a stock that generally speaking when it starts getting close to those upper levels of its valuation as it is right now, and we can see the orange line is the average analyst price target through time and this is the spread. What we can see is when these converge, very often what happens a month or so after, the stock trades sideways or falls off a little here is the trade. If you own the stock what you can look to do is sell the january 105 calls. At the time i was looking at these earlier you could sell them for 2. Here is the thing, you would basically look at a situation where you collect the 2 on the stock you own. Near 2 yield on the current stock price. If the stock rallies through 105 you could have your stock called away from you. But if it does that you collect the 2 plus the 6 that the stock gains between the current 99 and the strike worst case, if the stock rallies threw that youll end up making 7 or 8 thats pretty good better than 8 in one month. And if it sits here you make 2 yield. Thats the idea looking for covered calls. Look for a price where youd sell the stock look to enhance the yield. And then hopefully you can find situations where the options are overpriced i think right now they are. Pretty amazing for you to talk about the tech stocks now talking about car max, good stuff, mike come on back dan what do you make of mikes trade. I think mike laid it out perfectly to a stock up 50 on the year consolidated a bit. There is an even you can target. The implied move this is where mike is looking to sell the call, the best Case Scenario is the stock at 10 and taken in 2 after the stock appreciated if you have that between now and january expiration that would be a pretty good outcome for the stock. I like the idea of overriding a long like this. Right and its also threatening to break a trend line there is a well defined line you can see on the chart from the december low and were at risk frankly after the 55 advance to new sharp alltime highs, 52week highs its exhausted i think you have to take measures however one does it this is as good as any. One of the things also its interesting because we come into the end of the year. And its not uncommon people have huge gains we have seen big gains in American Express begins the ink of the year big gains in car max a lot of stocks like this but there are reasons people dont want to go out and sell stocks that are gainers before the end of the year. There could be tax consequences. A lot of reasons you wouldnt do that but this is a way you can look for a little bit of additional yield. Worst case in january up 8 in it continuing to rally through the strike. Good stuff there, mike and car max. Up next, another hot stock, starbucks really steaming this year we tell you how a trader is betting on the coffee giant in the new year plus its friday you know what that means send us the burning questions. If you are lucky our traders answer it on air and time to pick favorites go to twitter at options action to tell us which of our trades tonight strikes your fancy live as always from the Nasdaq Market site in times square. And were back right after this. Announcer options action is sponsored by think or swim by Td Ameritrade. Int easy. 12 hours . 20 dogs . Wheres your belly rubs . After a day of chasing dogs you shouldnt have to chase down payments. vo send invoices and accept payments to get paid twice as fast. danny its time to get yours vo quickbooks. Backing you. And welcome back to options action. All right time now to take a look back at one of our open trades last week dan over here said starbucks was due for a boost. It just bounced off a couple of times from that uptrend from the december lows. Its now approaching what i think was an important technical level on the downside a few months ago which is now resistance you know right below 90 or so. That looks like a constructive chart to me you could buy the january 87. 5 call for 1. 50 breaking even at 89 up 3 . All right and starbucks up 2. 5 since the trade good work, dan what if anything are you doing on this trade now. Yeah, this happened week over week, the stock up 2. 5 or so and now in the money the stock was 86. 30. I bought the 87. 5 call now the call is worth 2. 50. You want to roll that up a bit id be incline to look at id be inclined to look at january 90 call. Look to use that to finance the purchase of the january 90 calls thats how i trade it. We are joined by options play chief strategist tony zang for more insight into starbucks. Welcome to the options set tony thank you. What is your play, trade on starbucks. Dan i like the trade. I thought you caught the inverted head and shoulders at the right time broke out about and it run up to 92 when you volumes are cheap. Trade up about 6 like you said. And normally with options play i think we start thinking about trying to parse gains here but i think i found an interesting play here where you can roll it out to february 90 calls trade that for an even trade. Which means that you can actually roll this out to february, capture earnings which is a week after your Expiration Date and be able to buy yourself another month without spending any more money. You know brian ive been doing this show ten years. I got schooled by the kid this is called rolling it up and out. He identified a catalyst i was looking to play momentum and technical setup and looking at january what he is saying now because we have the profit lets look at that catalyst which february expiration will do and i can do that net even money. There is another reason thats a good idea one of the things youll typically see on options on the long side of a catalyst is that the implied volatility will rise as that catalyst approaches, right . If you are trading it through the that you can almost get lowered rate of decay because the option is not going going to decay as quick as you think. Of course you can reevaluate but i think that makes a lot of sense, i think the stock can continue up to 92. You dont think back to prior highs below 100 you get and the momentum and the earnings event catalyst, is that how you think about 92 or more to go. Im thinking you risked 2 and i can trade earnings risks 2 thats a great trade. Before you get to 100 you got to get to 92. A small point. Good point. There is a lot of congestion at the 89 to 92 entire month of trading as tony noted. In the way thats the immediate target where maybe measuring. Do you think it will get there. I think it will push into over supply but not through it and thats what that. If we get to 92 break through, makes sense. Thats weeks and weeks of time this is more immediate you go quickly into the 92, 92 where it ends. All right. How optimistic about the levels. I like starbucks into earnings, i like the Growth Strategy they have currently in china. Its a great play. Ill make one last point on this if you overlaid mcdonalds and starbucks the last six months or so they had similar charts, new alltime highs in the summer, both had peak to trough declines both had peak to trough declines of 15 this one bottomed and started to turn mcdonalds cant get out of its way here i like playing this for the momentum into the 90s. All right tony real pleasure to have you on set. Thank you. The kids schooling the nathan up next, the final call. 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 well thats all we have time for tonight. Thanks, guys see you back here next friday. Dont go anywhere because mad money with jim begins next. He [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer, sponsored by nuwave. Live well for less. 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