Earnings plus, the original story of alibaba is one of both greed and redemption right now, the same could be said about the internet stock. This is an interesting situation. Mike khouw explains to how to avoid the thieves. Its time to risk less and make more options action starts right now. Lets get right to it. Its been a wild ride for the market since the march bottom, but its the commodities that have really taken off. Gold and silver seeing big gains as some investors fly to safety, while crude and copper are popping on hopes of higher demand, but that group is not the only game in town. Could now be the time to take a harder look at the soft commodities. Carter werth is digging into a unique way to play carter, what are you looking at . Its very true. Its been very dynamic for precious metals, but to think crude went negative, almost 40 a barrel and bounced back. And we know other industrial commodities like copper, as you said, are in play, if indeed theres a recovery but the softs, now, the grains are a little bit weak. That would be, of course, soybeans, corn, wheat. But over softs, sugar has been quite strong, cocoa, coffee. And well look at a few charts and try to figure out what might be in store for john deere the first chart, this is a broad commodity soft index and what you see here is that its a disaster. I mean, essentially, down to the right, an unmitigated mess and yet, you can see ever so slightly, weve just broken above the established down trend line, in effect, for essentially five to seven years. Now, look at the second chart. This is a twopanel. The top panel is what we just looked at. Its the softs index but on the bottom is the relative performance of the soft commodities to all commodities the bottom panel relative to a broad basket of commodities. Industrial metals, precious metals, oil and gas, and so forth. And what we do know is even as the softs were continuing to make new absolute lows as a basket, their relative performance has been basically improving versus all commodities for the better part of a year. And the word developmental is what comes to mind so now the third slide, its just a table, but i would point out that weve heard from major agricultural stocks and their earnings have been very good this is simply just a stacking order of the past two months performance. Look at mosaic, a big chemical company, up 32 . You see agco, a related business, up 26. Cf, up 18. Fmc, Food Machinery copper, an old famous name, up 15. 5, and the s p is up 11 meaning these stocks are actually outperforming even though commodities have for a long time been under pressure. So two charts to end it. The first of two this is a chart of Food Machinery, fmc, and you can see the welldefined tops of the past year. And the stock is just now breaking out indeed, they reported earnings this past week, and just as was the case with all the others, the numbers were very good a final chart, john deere. Its the exact same setup its whats known as a conventional juncture, conventional meaning, something everyone knows and agrees to everyone knows what a breakout is do they always work . Of course not. But this is the setup we look for and then we look for the catalyst we know we have earnings coming up in the next few weeks john deere closed out at 183. 50. And i think this is going to 200. Micke, whats the trade so deere is an interesting case, right . So when the pandemic broke out and a lot of stocks got it, this is one that saw a lot of annalys downgrades they basically lowered their earnings estimates considerably. Consequently, right now, deere is trading at about 22 times forward earnings estimates, which is above its historical average by 10 to 15 heres some other fundamental things to think about. The tractor fleet we often talk about car fleets, but the tractor fleet is aging, rates are relatively low, and if you start to see a bid for commodity purchases, the reason were looking at a name like deere and not cat is because they have bigger exposure to agriculture combine that with the fact that they recently reinstituted guidance and april tractor sales were slightly better than people had anticipated, perhaps the analysts are actually trailing and that is actually borne out by the fact that the actual analyst price target for this is 170 and it closed above 183 today. Right now, the Options Market is implying just under a 5 move when they report earnings, which theyre going to be doing on august 21st. I think what we want to do is sell that evaluated options premium. And because were at this juncture, we think its poised to break out, but of course, the markets are trading very close to alltime highs here im going to buy the september 185 calls, when i was looking at those earlier today, those were about 6. 75, sell the august 195 calls against 1. 10 net net, im spending 6. 75, thats a little over 3 of the current stock price. The idea is to collect some of the decay in the neardated options. And of course, after earnings, which is actually going to take place on that same day that those august options expire, if it does not go above that 195 price, we have the opportunity to roll into a vertical spread, as well. Were trying to capitalize on the evaluated options premium. Trying not to reach out and buy stocks that are trading close to their alltime highs but the technical setup and fundamental setup basically support a trade like this one. What do you think, donie . I quite like this particular setup john deere is a name thats not on every investors radar, especially because it doesnt dominate the tech headlines. And it trades at what i think is a fairly reasonable valuation. But what i like most about it is the recent relative strength weve seen on this stock as it broke out above that level to 183. And mikes trade structure of the diagonal makes a lot of sense. And normally with a stock like john deere, the implied move is only about 5 , i would get a little bit more aggressive and sell maybe the 190 calls but the fact that you have this really strong relative strength and the fact that you have earnings coming up on this new breakout, i do leek aike and i mikes trade adjustment up to that 195 trade is very smart what do you think of tonys more aggressive approach, mike its aggressive in one sense, which is that youre trying to collect more premium, but its less aggressive in another, which is that that obviously would be basically not giving room to the upside and i think carters price target is probably closer to 200. Usually up 7 to 10 or so. And of course, because this does involve some element of a vertical, its a diagonal in this case, but obviously, you dont want to have a situation where it blows through your short strike thats a situation where you got the trade structure wrong. And i want to give myself a little bit more upside than selling the 190s would provide me carter, last thoughts on this again wi, i think tony also touches on, no ones looking at it thats to say, there arent major shareholders in john deere, but its not in the robin hood radar, so to speak, and thats whats interesting. All right well, the earnings train keeps on trucking next week with some big names on deck to report. Tony zhang says theres one stock that could surge higher on rulg results. So tony, what are you looking at im looking at cisco. Just like john deere, its one of those names in the Tech Community thats not on most investors radars because its not one of the f. A. A. N. G. Names, but cisco is the backbone of the internet hardware business and it currently trades at a very reasonable valuation, just like john deere. And its recently made Strategic Acquisitions here in the Cloud Security business. And i think that 2020 is going to be a turnaround year here for cisco, especially after underperforming so strongly over the last year. If you look at the chart here, its not particularly interesting. Its actually had some pretty poor relative strength here over the past year, but as you can see, its recently traded itself into a bit of a wedge here and moving averages starting to move higher here, i think the earnings catalyst here next week is what takes cisco to break out above this 48 level that its currently trading just below if you couple that with the strong estimate revisions that were currently seeing going into the earnings announcement, thats really what im typically looking for, for a potential beat here. Now, the Options Market are guying on the about a 5. 8 move, while on average over the last four quarters, its moved about 7. 4 so markets are not expecting a big move here, but i am looking for that breakout here on that earnings catalyst. Im using a trade structure here thats specifically designed to capture a potential breakout, but do so in a way with a small amount of risk and im using a call sprayead here im looking to use a september 47. 5, 52. 5 call spread, paying about 1. 85 for that 47. 5 call, collecting about 35 cents on that 52. 5 call so im paying about 1. 50 here for this call spread, a 5 credit spread on cisco stock, thats about 3 of the underlying stock price and the key here is to risk as small amount of money as possible in relation to the stock price. Mike, what do you think of this trade yeah, so we often talk about the implied move around earnings how much does the stock move the day after they report or the week that they report. Of course, in tonys case, what hes doing here is using a call spread that expires in september. A more relevant metric for us to think about might be how much cisco moves in the month following their earnings report. And in that case, they actually move quite a lot on average. About 9 and i think thats the thing to think about here whether you think the stock is going higher or lower, if the average move, the month after they report earnings is close to 9 and you can make a directional bet thats going to capture most of that move for about 3 of the stock price, even if its a coin toss, that means that the options math is kind of working for you here i think what hes doing is, hes taking advantage of the setup that the Options Market is providing. Ill leave it to others to decide whether the technical setup is the right one, but in terms of going into earnings and giving yourself enough time for your trade to play out, i think the options trade is the right one. Others, meaning carter werth, i would imagine, on the technical take so go ahead, carter. Exactly we heard and tony is being not that interesting that is the technical setup meaning sometimes stocks are where they belong. They dont have to always be moving up or down. Sometimes theyre at a moment of equilibrium where buyers and sellers are matched off, and its news or Something Like that that moves the standoff. This is a moment of equilibrium, but what is interesting is that the Analyst Community basically doesnt like it. Youre talking about a price target, 12 months forward of the 30 analysts that cover it thats only 2 higher the stock closed at 47. 50 and theyre looking at 49. 50 for the next 12 months thats pretty uninspiring. And of the 30, basically 15 are buys and 15 are hold or sell on wall street, a hold is a wink, wink euphemism for stocks. Analysts dont want to offend the company and lose access, so if youre 15 that are saying buy and 15 are saying hold sell with a price target only 2 higher, no one really likes it and that perspectively is the opportunity. Tony, last word on this well, i quite like cisco here because of the fact that theyve recently made these acquisitions in the cloud securities business, and that is really one segment of the business that is growing very strongly. And that is the one i really like about the turnaround story here for 2020. For everything options action, you can check out our website, optionsaction. Cnbc. Com. While youre there, sign up for our newsletter heres whats coming up next coming up, opensaysamike professor khow will light your way through the dark cave. And then grab your phone and tweet us your question at options action. If its nice, well answer it onair, when options action returns. And look, it feels like im just wasting time. Thats why Td Ameritrade designed a firstofitskind, personalized education center. Oh. Their awardwinning content is tailored to fit your investing goals and interests. And it learns with you, so as you become smarter, so do its recommendations. So its like my streaming service. Well except now youre binge learning. See how you can become a smarter investor with a personalized education from Td Ameritrade. Visit tdameritrade. Com learn welcome back to options action. Check out the slate of chinese internet names getting hammered today, this after President Trump issued an executive order, aiming to shut down popular apps like tiktok and wechat despite todays losses, many of these names are still among the years big winners in tech, including alibaba. The stock is up nearly 20 mike khouw has a way you can get paid to play for even more upside when they report results later nont here he is with his call to action mike baba is one of these interesting cases you just pointed out. Obviously, today wasnt a great day for the stock, but it is not trading very far off of its alltime highs this is a stock thats trading about 10 higher than its january highs, in fact and right now, going into earnings, perhaps unsurprisingly, options premiums are slightly evaluated and, you know, one thing i would point out, we were talking about deere, the analyst getting caught a little bit offsides there. Maybe in cisco, evenly matched between the bulls and the bears. This is not the case for baba. This is a stock where the street is overwhelmingly bullish. And this is one of those reasons where you think if you own the stock, is there another way i could play it that would have more downside if the earnings are disappointing and still give me some of the upside . I was taking a look out to september and specifically i was looking at the 235, 260, 285 call spread risk reversal. Whats going on here were buying the september 260 calls, selling the 285 calls, and selling the 235 puts when i was looking at that earlier today, you would collect about 1 in premium to do that and whats going to happen here is that if the stock happens to rally through that lower strike, then, obviously, we getup side from 260, up to 285. And because were collecting that dollar, in fact, the total profits we could get would be about 26. A little over 10 of the current stock price. To the downside, if the stock is put to us at that 235 strike, were going to own it at 234 that is right about those highs that we saw back in january. So effectively, it would be as if the year hadnt happened in that situation and heres the thing to think about. How much could the stock move between when they report earnings and that september expiration or what happens if it doesnt move at all . If it doesnt move at all, whats going to happen is those 235 puts and the 285 calls are going to decay more than the call that you own. Actually on a standalone basis, you might actually collect more than 1 if the stock traeeads sideways and if the stock just basically stays put, youre going to collect a little bit of premium. And i mean a little, because the stock is about 25 250 if youre collecting 2 net when you close this position out if the stock goes sideways, thats about 1 of the stock price. Not a huge amount, but over the course of one month, its not bad, either. Tony, what do you think about baba so i like the stock a lot. Its very similar from amazon from a Business Model perspective, with the exception of the fact that their Cloud Business is less than 10 of total revenues, but it is growing very fast. And that you are Revenue Growth numbers are absolutely off the charts i like the stock itself, and i think mike has a very kracreatie trade structure to play for upside with a breakeven price thats lower than the current price. My only concern is the geopolitical risk that were currently in between the u. S. And china. And the impact that has on stocks like alibaba, where we saw today, where it was down 5 to 6 intraday the trade structure i like, but the only part im correspond about is telling that 235 put. I would prefer to buy the 260, 285 call spread which mike suggested that cost about 8 bucks. Thats about 3 of the underlying stock price as bullish as mike and i are on the stock, i would like to take this bullish bet and not take the Downside Risk of geopolitical risks mike, your take on carters suggestion first of all, for people who dont own the stock already, thats actually probably a pretty good way to play it im really thinking about this more for those that already do own the stock, thinking about an alternative to that long stock position going into earnings if thats the case, this does reduce your risk does it reduce that risk considerably no, it reduces that risk sw somewhat modestly. Lets ignore that geopolitical risk for a second. If you take a look at trade structures like this, over the course of the reported earnings, probably outperforms a long equityonly position by about 10 to 15 over the entire course of the history there. So, you know, not selling that put obviously reduces your risk, but it also means something has to happen. If you sell the put and collect some premium, if nothing happens, youll end up working out already. So this is more a judgment for each individual trader to decide how much risk theyre willing to take carter i think it gets down to this. Theres two types of weakness, right . And today was weak weakness to take advantage of and weakness to stay away from so if you have a stock thats an unrelenting downtrend, 70, 30, 40, and has a horrible day down 6, 7, 10 , thats weakness to stay away from by comparison, this is a strong stock that is down on news and frankly 6 is not a lot. I think if the news were really trouble, it would be down 16 or more that kind of thing so i think it goes in the category of weakness to take advantage of and im a buyer of baba all right up next, shares of zpodisney feeling the magic. What that means for one traders bet on the house of mouse. Plus, were taking your tweets, so send us your questions at options action. Well be back after this that selling carsarvana, 100 online wouldnt work. But we went to work. Building an experience that lets you shop over 17,000 cars from home. Creating a coast to Coast Network to deliver your car as soon as tomorrow. Recruiting an army of customer advocates to make your experience incredible. And putting you in control of the whole thing with powerful technology. Thats why weve become the nations Fastest Growing retailer. Because our customers love it. See for yourself, at carvana. Com. Walk to end alzheimers alzheis everywhere. Tion all of us are raising funds for one goal a World Without alzheimers and all other dementia. Because this disease isnt waiting, neither are you. Go to alz dot org slash walk. 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. Time to take a look back at a couple of our open trades. Just last week, disney said it would need to pull a rabbit out of a hat to avoid an earnings disappointment we know theres going to be a significant decline from theme park revenue we know that the media and Studio Division was going to be relatively soft. And then you have the disney plus side, which we know is the only part of this business that is growing, but the numbers for q 2 hasnt looked particularly attractive here. Going out to august, a relatively shortdated options and im buying the 115 105 put vertical here, paying about 3. 85 for the august 115 puts and collecting about 95 cents for the august 105 puts. As it turns out, disney had just enough magic left in it to surprise to the upside so tony, what do you do now . So this trade didnt work out, obviously we cut losses, as we put out the tweet here on wednesday, but the most important thing to remember is, as an investor, youre always going to have trades that dont work out and this is a trade that we use that only risk 2. 5 of the underlying stock price in terms of risk on this particular trade. This is a primary example of how you can utilize options to keep your risks small and losses small when trades dont work out. Also last week, mike said uber shares might hit the brakes after earnings one of the things you want to take a look at going into a catalyst of earnings when you see that are ways you can capitalize on the evaluated options premium and take a neutral to bearish view. I was looking at selling a call spread, specifically the august 30 30. 5 31. 5 call spread. I could collect to sell that going into earnings. But they did and the stock surged, so that means this trade is still just sitting outside the green. So mike with, what do you do thats exactly right. We got the thesis on earnings correct, but of course the stock rallied about 10 going into the print. The thing is, it seemed to trade very poorly today. I usually dont like to cover a situation like this until about three days afterwards. So were going to close this trade at the end of tuesday, win or lose. But right now, youre synthetically long that 31. 31. 5 30. 5 put spread for the a quarter, which is a position we dont mind well probably close it tuesday afternoon or wednesday morning quick take on uber, carter . Well, its just not a very good chart pattern, so the premise remains, why long . And that leaves us with do nothing or stick with a short. All right up next, the 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. Its a thirteenhour flight, tfifteen minutes until we board. Oh yeah, we gotta take off. You downloaded the Td Ameritrade mobile app so you can quickly check the markets . Yeah, actually im taking one last look at my dashboard before we board. Excellent. And you have thinkorswim mobile so i can finish analyzing the risk on this position. You two are all set. Have a great flight. Thanks. Well see ya. Ah, theyre getting so smart. Choose the app that fits your investing style. Time now for the final call. Last word from the options pick piths. Carter braxton werth john deere, an american icon, buying ahead of earnings, the chart is excellent were going long tony zhang . Cisco networks, going to break higher here on earnings. Buying a call vertical Michael Khouw i like deere following carters technical setup. Well be back here at 5 30 p. M. Eastern to talk more options and fast money will be back monday 5 00 p. M meantime, dont go anywhere. A very special program, Summer School back in session thats up next. [man] the following program is a paid presentation for the oxypure air purifier brought to you by nuwave, llc. 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