4,000 over the past decade. But if you think Stranger Things are afoot well lay out a way to play it. Time to risk less and make more, options action starts right now. Yes, it does and welcome, everybody thank you for joining us eye im Brian Sullivan in for mels melissa again your traders tonight are mr. Scott nations. Nation shared shares christian from hertz founder of trade group and tony zhang, cnbc contribute are. Lets get to it another record day for wall street no big moves in the market but on a are record high every nudge up is a new record the dow and s p 500 closing at alltime highs but if you are worried about things getting frothy at the top or made a lot of money and want to protect yourself a bit, have no fear, because scott has a way to cover yourself heading into the new year lets get in the money with the protection play for 2020. I mean, sully what is not to love only the fourth time in the last 30 years the s p is up 30 for the year its great but easy to get down on whats driving the broad market 80 are earnings, so so, and Interest Rates incredibly low. Right now the 10year low is 86 basis points where it was a year ago. If you are not paying attention, then you might be bearish. But if you Pay Attention then you are likely to be bullish that doesnt mean there arent reasons tor worried. There are plenty of reasons to be worried we talk about Interest Rates, actually up 40 basis points since the middle of the summer thats one reason. In all of those times we have seen the s p up 30 we have seen profit taking in q1 of the next year thats entirely possible people put off selling until they dont have to pay taxes for the year thats the potential and there is always the tune for Something Else from the president. While i am bullish we dont want to be idiots and not take advantage of the opportunity to hedge ourselves. Now we could do this one of three ways we could buy a put we could buy a put on the s p. Say spy pach the problem with that is while options are cheap theyre absolutely expensive dollar expensive while you do that its getting expensive. We could sell a covered call the problem with that is we dont get much protection. What else could we do . We could buy a put spread on the spy, the sppo snp etf. Thats the way to do this buy a put spread in spy. The one i want to buy is the february 300, 320 put spread in spy. If we this earlierier in the day im long spy and i put this trade on we could do this trade for a total of 2. 90 what are we coulding were actually buying the february 320 strike put in spy and paying 4. 35 we reduce the cost of the entire trade by a third by turning it into a spread and selling selling that 300 strike put at 1. 45. We reduced the cost by a third how does it work out that means the max profit is going to be 17. 10 our break even occurs at 317. 10. We get a lot of protection for not much money opinion sully you know we measure the efficacy of put spreads by comparing how much we pay vertsz the total payoff or how much we pay versus the width of the spread. We are paying 15 of the width of the spread. This is a great way to generate protection. A little rally regulates clothes. Christian, tony be thoughts. I was lacking at spx earlier today. Trading 8 above the 200 Day Moving Average which is extremist and i think you get a pull back like you expect in january. I like this put spread normally i would buy a put but the fact you can collect 119. 45 on the 00 put makes sense because of how much premium you bring in. I mean, i think with trading there is always a lot of uncertainties out there, right well always have this thp i pauwels balance fall back to what we know the right now the vicks is a 13. Protection right now, puts are really cheap i think it makes sense i think its a great way for you to kind of stay in the market. As welling a even with the market coming a bit off the highs today we saw that s p is still overbought according to rsi. Taking advantage of the low vol discount thanks for that. Lets move to a group not caught up to the markets record run. Its not bad but in this market, check out the iwm, one of the bigger small cap etfs. Up 24 this year but underperforming the Broader Markets. But if you bet on the small cap surge in the new year tony has a way to play that, tony. I like small caps here because its underperforming throughout the entire year but recently in november it started to break out above the 160 resistance level we have gotten a breakout on an absolute basis but also started to get a breakout on relative basis. Looking at a clarity of the iwm against Broader Market its underperformed the last the two years and bottomed the last few months weve had a lower continuation of higher lows the last few months and this is support of small caps going lower in 020. Coupled with a Strong Economy and accommodative fed, these are reasons why i want to be long small caps i dont particularly like going long this particular stock at the current price. I prefer selling puts here this is a strategy ulgts underutilize by investors of selling puts to acquire the stock it at the lower price. Collecting about 1. 32 this allows me to purchase iwm stock if its below the 164 by the january expiration my net cost basis would be 162. 68 which is the level iwm was at when it broke out above that 160 resistance level thats where id like to be long the stock. So, i mean, small caps will be an interesting tell for 2020. Right we have a nice ray rally on our hands the small caps just started to outperform a bit the last couple months if you look at the trend line between spy and iwm right now its kind of stalled out the last couple days a couple of days isnt a trend but definitely something to watch for 2020 we want to see the small caps outperform. And i think financials which are a big chunk of it will have to outperform. I love the fact you said you dont want to just run out and buy the stock. Buying the stock underperforming is like going to supermarket and getting in the longest line thinking its speeding up. But this great strategy. Overtime options cost more than theyre worth. Take advantage of that youre not drying to dodge a bullet if it comes back and buy it at a discount you got to be ready to do that have the money segregated. You got to be happy to buy it at a discount if you get the chance. Short puts is only a strategy if you want to purchase the stock. In this particular case i like it. You got to like it or undervalue etf or equity works the same for both. You could do the strategy right. We have done macro we have done a sector. Lets dry drill down ton a specific stock opportunity for the money. The payment pace monster Global Payments visa master card leading the way. Master card outperformed apple the last decade. But if you missed your chance to cash innen oh the cash handlers this year, this next trade is for you. Christian, what name are you looking at so im looking at paypal. A name in the payment space, also a way to play consumer skrergs discretionary we talked about in the last segment what i like with paypal is what we have going ob in the technicals and also what we see in the option activity. If you look at the technicals there is a couple of things i like here. Number one, the price just got over the 00Day Moving Average and we see a little bit of consolidates here. It held up fine in a weak tape and then also on the weekly chart as well we have a new macd crossover which is telling me that this is looking like it can push to back to new highs. And then just also what i like to see for confirmation is when we see a lot of call activity in there. And right now if you look at the just going out to january and the at the money strike, the 110 calls be, i see over 20,000 of open interest and interesting too here is what theyve been doing is they havent been going after that just in one particular trade but they continue to add to the position and we also see some positioning a little bit further out. I lake this name i like just going out in the short term rykering about 2 of the capital and lacking for paypal to push back to 119, 120. I love the stock from a he can itle perspective you mentioned it broke above the 200Day Moving Average i see the inverted head and shoulders if it gets the 112 level. If you get above that you have a nice run to 120. But also the fundamentals, the fact you play both Consumer Discretionary and the payment space which i both love. The interesting thing is he is just buying a call. A name like spy or imt wm, those options are liquid you dont have to worry about the execution. In the name like paypal, the options are not that liquid you have to Pay Attention to execution. This is where its really difficult to to a big spread or combination trade. And this is one of the situations where an outright option makes sense. How important is options liquidity. Well to a guy like me, i mean, i. To our viewers. May want to to start doing the strategies you guys talked about, may not think about things because all equities are liquid they may not realize the options are simply not that wick i had and could get trapped. You dont have toware about that in iwm or spy its almost a nonpoorkt factor but in a paypal you can put in a reasonable limit order to buy the call and likely to get filled all right guys a good discussion a couple of strategies, a sector, a macroand stock specific one for ops everything options action you can check out the website options action. Cnbc. Com while you are here, here is whats coming up next. Look up in the sky its a bird. Its a plane. Nope, its the netflix. Streaming higher as the the decades best performing stock. If you bet investors keep tuning into the name in 20 we have a way to play it for less. 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 answert ion air when options action returns. Announcer options action is sponsored by think or swim by Td Ameritrade. Announcer year end records for tech giants and the markets in sight is there room to run the outlook for investors. Squawk on the street, monday, 9 00 a. M. Eastern. 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. If you are home for the holidays youre probably doing a lot of streaming. In fact its statistically probably that someone in your family has a netflix account based on numbers here is another stat netflix is the best performing s p 500 stock of the decade. The original streaming giant up more than 4,000 since 2010. And while the streaming space looks different than it did 0 years ago it can be big gains for the stock in 2020 and scott is here with a way to play it. Scott. Well, sully, its fun to talk about the the monster stocks but lets focus on a way to make money now. And were talking about executing a call calendar spread in netflix, and why is that . Well as you would expect with any stock that rallied 4,000 its pricey. So netflix is pricey the pe right now for this is in triple digits. 105. So we cant just run out and buy the stock even though we love the company. Its a Great Company if you you remember the little red envelopes you realize that they have built an industry. But the stock is priced so we cant just run out and buy it. You also had to define risk in a name like this as you would expect it can obviously rip your face off. So not only is it up a bunch, and would be really expensive if we were buying it and see it collapse, there are some shorter term problems with the stock i love the stock we want to buy it. But were talking about some of those in a little bit. But with a name thats been up 4,000 peppers in the last ten years we want unlimited profit potential. We dont want to be trading for small we dont want to trade this name for a small profit given that we have seen what its capable of. We want unlimited profit potential from a name like netflix. So lets look at this chart the oneyear chart i talked about some things that you might worry about. One is you can see the high from may. And we are not there yet were not become that. Even though the broad market is making alltime highs. Netflix is not participating recently also, right here, there is actually a gap there is an earnings gap and the bottom of that is about 340. And we have not gotten back into that im a little worried until we get back into the gap. And finally this morning netflix actually spent much of the day, morning anyway, as the worst performer in the s p didnt end up the day there but lets look, the best performer for the decade, in morning the worst performer in the s p thats another reason we want to worry. That said, we want to have upside potential so buying again a call calendar. Lets brake it down earlier today you could buy the february march 350 strike call calendar what are with we doing there were buying the march 350 strike call, paying 13. 50 and to reduce the risk and reduce the cost were going to sell that same option, that is the 350 strike call. But in the february expiration and we could sell that for 10. 80 the whole thing cost 2. 70 as with any calendar spread we by thats the max risk the 2. 70. Lets break it down what do we want to have happen what do we want netflix to do . This works best when that february option expires worthless. And thats really what were shooting for we want netflix to be below 350 at that february expiration. That call will then expire worthless. That leaves us just net long this march 350 call. Were long that call outright. Were long it at a net cost of 2. 70. So what wed paid for the spread. And we have absolute upside potential. Unadulterated upside potential because now after the february expiration we are just long the call long at 2. 70. So thats our cost thats our max risk. All right good stuff, scott nations. Tony, a comment, thoughting with criticism. Agree, disagree. I agree with this trade very much netflix just got above the 200 Day Moving Average this week i think its supportive of the stock moving higher. However i think the fact the trade is very smart because it risks less than 1 of the underlying stock price to effectively bet the stock moves higher after earnings in late january into february up to 350 level. Im bullish on the stock but dont think the stock is running to 360, 370. Having the 350 cap is smart risks less than 1 great trade. Good trade. I guess thats the buy if we were doing the other game up next its been difficult times for boeing and its investors we break down how one trader navigates through all of this noise for the company. Plus, you got an options question you are dying to ask . Tweet our handle at options action and you just might get our answer on the air. As always, live at the Nasdaq Market site in times square, dont go anywhere, were back after this announcer options action is sponsored by think or swim by is sponsored by think or swim by Td Ameritrade. Again welcome back to options action. Its time to look back at open trades last week mike khouw laid out a way to protect yourself from news out of boeing. It isnt as if the only problem they have is the 737 max. We have structural problems with the ng things like that. Valuation on the company is not that cheap all Things Considered implied volatility the price of options is a bit higher. Weve been talking about the options getting to the upper level, sell calls against it i was talking to an institutional client short the 350s in march. You could go nearer dated i was looking at 345s in fed. Since then there is major news out of boeing the company firing the ceo monday the stock higher from a week ago. Mike obviously is not with us today. But he did generouslysend us a post card from california. Quote, im cruising the slopes of squaw valley. But the boeing position isnt going downhill despite the departure of the ceo headwinds persist so im happy to continue staying put and collecting proposal yum for now. Happy new year so christian what do you think of the trade as he skis in thoe. Sounds like great snow out there which is nice i like the trade. I think bogey is in the headlines for a while. I think any time you see a little bit much bounce i think its great to kind of reestablish that trade. I just think that theyre taking a lot of time to work the situation out. And if youre long the stock already its a great way to capture some income on the trade. Headwinds and turbulence is what you see with bogey. Selling cover calls makes sense. There is a line in the send, 320 the range it holds for some time if it gets below 320, i would roll to a make 320, 325 strikes and take the premium and buy puts given everything thats going on, the options are expensive. Mike was a little unfortunate not as the ceo but he was unfortunate the ceo got fired. Perversely that often gives a pop to stock and thats part what have we saw. Mike khouw, if you are watching for some reason what time is it 2 30 he should be on the slopes but if you are already off skiing hi up next, your tweets and the final call announcer options action, sponsored by think or swim by Td Ameritrade 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 when i say there is a lot of people in times square, look at that there is a lot ofpeople in times square there is people, guys in costumes, but 16 he will missouris. 42 batman. Elmo. A lot of elmo. Batmen. Is it bats man or batsmen. Im asking. You time to take your tweet this tweet from ed for tony. He says do you stay long february starbucks calls, tony. So this was a roll i suggested off of dans profits on the january starbucks trade if you roll this into the february 91 calls that i had suggested and you were able to do that for even moneys in a great way to play earnings into february youre able to risk less than 2 of the underlying stock price to take a bullish bet on starbucks. Normally costing dunlap that stay in this trade. Good stuff time for the final calls scott kick did off. I love netflix a great business but not trying to pick a top. If you want to be long you have to use a structure like a long call calendar. Okay. Christian. Paypal, long the january 110 calls. Paypal going highe that was your call on fast money too double paypaling. Tony zhang. Small caps. Iwm i like it on the breakout. Sell puts to own it. Like it on the breakout and sell puts. Interesting show and strategy of names. A great year im off until 2020 tony ill do i my mission is simple, to make you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere. And i promise to help you find it mad money starts now. Hey, im cramer welcome to mad money. Welcome to cramerica other people want to make friends and im just trying to help you make money. Call me at 1800743cnbc or tweet me at jim cramer today i want to share some of my accumulated wisdom believe me, i have been doing this thing for a long time