And Boston Scientific has had a wicked good run the last three months but mike khouw is down working on safer way to play going not Jp Morgan Health care conference and earnings. Time to risk less and make more. Options action starts. You yes it does and welcome back, everybody. Lets dive right in talking about the payment stocks because most cashed in gains last year. Check out master card and visa led the pack up 58 and 40 American Express and paypal did well 30 and 25 gains square lagging a bit 3 up on the year but carter worth says one name will help you ring in more money in the new year. Carter at the plasma to break down charts for you. Carter jump right in were looking at am ex the setup here is recently recent outperformance relative to other financials and presiding underperformance its good one too more often than not you see the table, very simple over the past six months what we know is the bank index has done 13, 14 we know the etf financialshave done 11. And am exhas done a pal tri 1. 5. Over forward look over the past month thats the chart look over past month its the exact opposite. Whats happened is now am exon top, up six, more than double the financials and much more than double the banks. So, again, over a longer period of time, six months underperforming now starting to come to life thats what naysant relative strength is all about. Here is the chart in reverse basically the setup on the chart, so many ways to draw lines but one way is a something of a myren she had and shoulder bottom thats clear you also have this working into and quite perfectly, right it stops to the penney stops to the penney. Stops to the penney. To the penney. And here we are again. Quite right, play for the breakout so many stocks broke out am exposed to do that im a buyer. Carter he is a bier head back over here mike whats the trade. Looking at American Express, i think its pretty interesting. If we look back over the course of the last five years or so, obviously the equity market has been on a tremendous tare. American express up considerable over the aim time. But actually in a valuation framework it hasnt increased as much as the market has were trading roughly around the same multiples now in American Express as five years ago. There are some good reasons. Some may recall that American Express had a couple of notable stumbles including losing the affinity relationship with costco those things cost the stock during the rally but at this point when we try to find names trading at reasonable valuation this one trading attious under 15 times forward earnings this is place to look this is also i think kind of a tough time to get long stocks. But i think using options we can find a way to have some upside exposure and mitigate the risks in case if the entire market sees shortterm weakness what i was looking at was a sup u. P. Side calendar spread the february april 130 call calendar you could spend 1. 65 for that the april 130 calls would cast 3. 30. You could sell the february calls against it for 2. 15 the idea is that axp my grates or goe slightly above the level and make money as the shorter dated options decay. If you bided at that point you could hold the longer dated calls and use that to take longer exposure. I think that this trade structure makes a lot of sense writing the 130 february call right above the 52week high collecting almost 50 of the premium of the long length offsetting risk spanxly. Here you are able to play the options play earnings play rick less than 1. 51. 2 of the stock price really cheap. There is no real camp you have visa and mafr card of type capital one and discover of a type goebel payments. Payments am exis its own creature and a dow type of low beta type financial which i think has catchup potential thats part what have mike you were implying. The right the multiple on American Express is nothing like master card or visa very different stories, trading at a premium to the overall market exactly the opposite true in axp sort of more of a steady eddie in the space if you think about it that way. Good discussion there on American Express carter likes the carts and name as well. Mike gave you a good strategy maybe make money pay off the am exbill from payments to airplanes dont look now but Delta Airlines flying high lately the stock up more than 6 in the past month kicking off earnings season for the airlines tony zhang sees strategy ahead blue skies ahead. Delta reports earnings on tuesday. I like the stock out of the peer group between the Legacy Airlines because delta clearly has built leadership in this space and builds a premium product that leads in particular space. The numbers clearly show the leadership they have they built a premium product and able to charge higher multiples or premiums. Theyre charging higher premiums for every seat mile compared to the Legacy Airlines. And if we look at top line growth for 2019, delta has about a 6 growth looking into 2019 versus American Airlines and united has only about 4 and given the fact that we have higher revenue growth, higher margin and a Dividend Payment Dividend Growth higher than the Legacy Airlines we see delta trading at a fairly relatively cheap multiple at eight times revenue. If we look at that i think the stock is cheap compared to the peer group and if you look at ceos speech at ces earlier this woke, this company clearly is interested in growing that for the long run. They are interested in building the best possible Customer Experience for their clients and theyre using technology to do so so trading at eight times earnings i think builds a strong case for this stock to trade at a higher multiple. Given that this stock doesnt move much on earning im looking at a call calendar looking at january, february 60 call calendar. Looking to buy the february 07 clarps for 1. 65 against that i sell the january 60 calls collecting 65 cents. Netnet paying 89 cents for the trade. Which gives me a mildly bullish outlook to the earnings cycle. After the earnings i have a strong bullish outlook for the stock while risking only 1. 5 of the underlying stocks. Because youre could go nissanant of the charts there is the head and shoulder and also the relative strength all the other airlines on one month basis made no change aal unchanged. Ulv process unchanged and delta up 6 . No exposure to the 737 max. Thats an excellent. On aftd basis its one thing i think i know we are talking options and charts but they dont have the max exposure. Theyre of an Airbus Airline print unit has 737 luv southwest has the largest 737 max exposure interesting when you think about the factors that go into pricing an airline fuel costs go into that. Delta has been interesting among other things going out and going so far as buying their own refinery this is a Company Forward looking in that sense. Listen, we talk charts not fundamentals but i think its important given the news of the day around boeing and the documents around 737 max i talked to a former Airline Executive and said dont be surprised that they may advertise the plane they fli if people are wary of the 737 i see. I dont think that was the kind of thing that people would advertise in the past. You think about the airlines benefitting from that. They would be one. Jet blue could be another. The newest fleet of airbuses. Where youre not whatever. Really interesting trade on Delta Airlines the name we certainly tony are watching thank you very much. For everything options action. Check out the website. Options action. Cnbc. Com. While there check out the news letter as well in the meantime heerp is whats coming up next on oa. Coming up professor khouw ploo applies the Scientific Method to Boston Scientific ahead of the two big Upcoming Events for the stock plus, calling all options action fans reach into your pocket, grab your phone and tweet us your question at oio aio if its nice, well answer on air. When options action returns. Options action is sponsored by think or swim by Td Ameritrade this rounds on me. Eat. Hey, can you spot me . Come on in. Find your place today, with silversneakers. Included in most Medicare Advantage plans. Enroll today by calling the number on your screen or visit getsilversneakers. Com 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. The annual Jp Morgan Chase Health Care Conference kicks off next week. And the event has been known to spark interesting moves for one group in the sector, more on what we can expect meg tyrrell back at cnbc hq. Well jp morgan biotech team being looks at stock in that sector back to 2001. They found during the week of conference biotech outperform the broad are market in all but three three years by average 2 . One of weeks was in 2016 the last president ial election year. Are we in for a tough year if i spoke with the head of Investment Banking who said the industry is in cross hairs during elections but despite 2016 history doesnt necessarily suggest that much disruption his prediction m and a. We have seen the conference in previous yeerg years and he says that could happen. And analyst are watching gill yap surpta for the updates next weeks and well have a number of of the ceos appear others joining us on cnbc brian. Thank you very much meg. Sticking with the Health Care Space by the way check out this mystery name. Surging more than 20 in the last three months and outpacing the Broader Health care secretary are. Mike khouw has more gains ahead. He is at the plasma with the call to action and who is it mike. Talking about Boston Scientific, a medical device company. Bha were looking at here is trading a diagonal call spread in a diagonal its like a calendar call spread except different strikes. Using longer dated call and selling shorter dated against it here are heens reasons you might look at this for wung thing we have what we call inverted term structure what is that thats when the shorter dated options premiums are implied higher volatility space than longer calendar spreads are nice because any improve the probability of profit time is on your side. The near dated options tend to decay more rapidly than longer dated. The options you are short are paying more than youre losing on the options you are long. The other thung is here as you were pointing out a 20 run in three months this is one of the situations where you can feel like its a little bit dangerous possibly to try to go out and chase the stock. Here we can see the term structure i was referring to february options obviously trading at a significant premium to the longer dated mays we are looking at buying two reasons for that one is the conference next week and the other is that february catches earnings. We can see the move its made. 20 off the bottom were trying to find a way to get some near upside exposure without taking risk in case it finds its way back to the october lows the trade liverpool is this i was looking at the may 46, february 48 diagonal call spread buy the may 46 calls, 2. 60 is what you pay for those sell the shorter dated 48 calls against it, for as the 60 cents. Netnet, you spent 2. This is a trade thats going to see base country peak profits at 48 at february expiration if you elected at that time you could hold the longer dated call which might be in the money at that point or look to roll it. But this is a trade with time working for you. Youre not taking the state your name risk at buying the stock up 20 peppers and taking advantage of the fact that near dated options premiums are eed. The why dont you come on back, tony what do you think of the trade. Sounds like we are thinking the same thing with expect to stocks near alt alltime highs selling the 48 call give you a 4 upside but still collecting the 60 cents only risking the 5 of the underlying stock to take the bullish view i like this level. If you get the break outabove you get the room to grow up to 48. This is what you call an old reliable Boston Scientific is something that doesnt quite have the epic drawdowns you see in so Many Health Care names. Its outperforming on a oneyear basis. Almost five fold the xlfv appear not extended on a day to day basis it looks like it Presses Higher what with about biotech in health care in general Boston Scientific is a big name, big company. Theyre biotech in certain ways. What about the pure biotechs where literally you roll the dies if you hit it they you win bog big if not this goes down a lot. The Health Care Sector over overly has been a laggard the past three years and just showing relative performance you have steady eddies like the managed care stock and the low Beta Pharmaceuticals netnet you have the upside potential or biotrade but the defensive element associatewood the sector overly yao. The biotech they are working on one therapy if it works they could have tremendous opportunity but if if doesnt obviously disaster could follow. Then of course sort of Boston Scientific tends to acquire some of the technologies that turn around and sell existing in the biotech space as well thinking about drugs. Sell gene might be an example. You have companies that basically make acquisitions and thats probably a safer way to play it or ibb. I wonder tony if in some ways smaulg the midcap biotech the one trick pony mike was talking you buy an option on the drug working or them getting bought. The difference there when you buy the option you limit rick. When you buy the biotech you have the unlimited risk. I dont like that. Ibb has been relatively week versus health care stronger later. Anybody interested in ibb because it hasnt been that great. It stopped. Thats the big boy tech were not throwing random letters. Looks like its pressing high are and makes a high. You think so. Reacted to a former level precisely. Backed away. Been doing this almost three four weeks i think its set up toth again. Might have a future segment carter worth producing from the chair i like it. Coming up a crazy week for crude poil tensions with iran sparked a wild ride for the commodity up and then no. Down, down, down we tell what you it means from the traders. Plus do you have a burning question probably a lot keep it to the options market. Send it to the twitter handle options action might get the question answered on the air. As always live from the Nasdaq Market site, back after this announcer options action sponsored by think or swim by Td Ameritrade some things are too important to do yourself. Get customized security with 24 7 monitoring from xfinity home. Awarded the best professionally installed system by cnet. Simple. Easy. Awesome. Call, click or visit a store today. And welcome back to options action. Happy friday by the way. Its time to look back a a couple of open trades. The last week mike and carter bet on a high energy rally in the xle. Its waiting now right here were bound back to the level when cisco was worth more than any cup in the world below that energy historical waiting is 9. 5 were never getting there again i dont think. But here at this low level of four and change i think we move back toward 5. 5 or 6 of s p. I was looking to april, the 60 spot 21 strike calls costing you 2. 65 precisely at the money where xle traded today. Its been a crude awakening for the energy stocks. Investors since then down 1 after the initial spike during the week mike what are you doing now here. You know ill defer to carter on the technical aspects but one of the reasons we bought calls and went out to april is because they were cheap. Number two gave us upside Exposure Limited risk. Both of the two things remain true i think what surprised a lot of people was that we didnt see the big spike net of the turmoil in the middle east but that dont change. Surprised everybody. It did surprise everybody. Everybody on twitter. I think i do follow you on twitter. But i cant catch that when you tried to stop me from doing this a week ago here is the thing. What were talking about remains true i would stay with it. Thats right. Listen, it popped, gave it back. Were down a . I mean, conceptually you got a lot of news thrown at the sector its held up injury you should stay. You think so. I think so. From a fundamental perspective we are talking about a week which in the life of a oil trade is a gnat. Because the market is deeply backward dated we are seeing opec cuts working a bit. U. S. Oil industry starting slow down rig counts come down this trade and the xle with you, you might longer term or medium term might be right im not making a call this is my sector. I can feel a bit of the feeling change among investors by the way, highyield debt this week, midstream Equity Partners and etp, issued huge blocks of debt, gobbled up according to my sources. There is appetite for risk in energy. And mikes trade going to april. You have a lot of time a lot can happen between now and april the only thing i can say is if you want to reduce risk a little you can sell upside calls mere to reduce the cost here. What would you sell what would you do. I would be looking out to very short dated february, xle looking at 62, 61, 62 collect a bit of premium over the next couple much months as xle moves higher good stuff. I know a lot of people hope mike is right in that space in the meantime tony said the part in the pantry might be over for a Consumer Staples name. Looking at here in late october, this stock broke below the 200 Day Moving Average not only below the long term moving average relative basis is started to deteriorate since then however, it has recovered back up to that 200 Day Moving Average last weak. But got rejected at the level. Going out to february looking at the 70 62. 5 put spread appear buying that 70 put costing me there eabout 3. 30. Purposing buying in the money to offset the high implied volume at this time. Collegiate poll monthlyive jumbling three with three weeks to go. This trade not wondering out the way i expected however below the 200 Day Moving Average down about 35 if it moves 40 cents against us this is where i . T losses where i lost about good stuff interest up next your tweets and the final call this piece is talking to me. Announcer options action is sponsored by think or swim by Td Ameritrade. D 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 all right time now for final call carter American Express. It is poised to pop rightout. Mike. Boston scientific diagonal spreads limited risk to the downside. Ton yao. Delta clear leader of of the airlines good are good buying in earnings that does it for us here on options action well be back here friday at 5 30 p. M. Eastern time mad money with jim starts ne xt my mission is simple, to make you money. Im here to level the Playing Field for all investors. There is always a bull market somewhere and i promise to help you find it. Mad money starts now hey, im cramer. Welcome to mad money and cramerica. My job is not just to entertain but to educate and but teach us so call me or tweet me at jim cramer when we stop being so greedy and start being more cautious. It is hard to tell because we keep getting such a good back drop the kind
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