Its time to risk less and make more options action starts right now. And that is the motto, risk less, make more. Lets get right to it. Despite everything that has been happening, what a week it has been health care has been flat lining for much of the year but carter, worth, the chart master think its time to yell clear as the sector could soon get shocked back to life carter, you are a doctor you, too, have charts. Your prognosis lets see what it is. Here we go a couple of tables and then some charts well figure it out. The first. What we know sometimes one day says a lot what was the best performing sector the day after election day . Health care. Are there reasons for that sure maybe because obamacare is less under pressure maybe there will be less regulatory pressures for drug stocks but this week its the second best performing sector only to tech take a look at the next table. Is it a good sector . Of all sectors, it has the strongest top line growth of the past three years Revenue Growth is 29 . Compare that to the s p at 11, and even tech at only 12 how about valuation . Look at the next table health care right now is its cheapest valuation to the s p in five years in fact, the trailing p. E. The trailing 12 months, you can see it on the screen 21. 8, versus the s p, 27. 2 what you have before you is a twopanel chart. This is all data going back to 1989 thats the Health Care Sector on the top. On the bottom, this is the important thing, is the sectors relative performance to the s p. You can see that the sector has been underperforming since about 2015 hence the fiveyear cheapness on the pe but whats most important is every time weve come down to that trend line, it has bounced to the penny and we are bouncing, this week, literally off that line. And finally, the etf we could use to trade, theme in health care, this is the simple chart one year of the xlv. It has all the elements of a classic breakout candidate you can see it is making new 52week highs where the s p is not. This is the second biggest sector by weight in the market at 14 , and also its a very diverse sector, with bio tech, which is aggressive. You have devices, managed care, life sciences, tools its a good place to be. Its an offensedefense trade. Xlv long you make a compelling case for it Professor Mike, give us a second opinion. How would you put those facts to work how would you trade it i think a lot of the things carter was pointing out was important considerations a lot of times in a sector you feel like you dont have sufficient diversification but carter was making the point about that you have Growth Opportunity in the area of bio tech, for example. We were talking about biogen in the last half hour and it was disappointing news, but this is only about 1 1 2 of xlv, but so you have exposure to the upside but you have diversion few indication if things dont work out but its relatively recession proof. You dont have head winds that could affect other areas of the market like Consumer Discretionary for example. One of the things i was taking a look at here is the fact that, of course, options prices have come in considerably since election day, but they still rema remain elevated in many cases. They are elevated in xlv this is one instance that i think this is a case where its well justified what we have seen since the election is that sharp move. Even though options prices arent as cheap as i would like, i would like to be net long options. And i think we can do this with a very simple trade. I was looking to january the 114 spot 33 strike calls sometimes due to various actions with securities, youre going to get these oddlooking strikes, but that is a strike that expires in january its essentially the first out of the money strike you can trade in xlv when i was looking at it earlier today it was trading at about 2. 10. May be a little lower so 2 bucks. Heres the thing, youre risking a small amount of the xlv to make an upside bet the idea here is if you get the move in your favorite direction, then we may sell an outside call or a nearer dated call against it. I think thats one way we should be just taking advantage of the momentum were seeing in the sector right now tony, when i see the phrase as i did just there on mikes chart, profit potential unlimited, i like it do you like it, tony yeah, so i actually quite like this trade. First of all, if you look at the Health Care Sector, it was one of the strongest sectors off of the mafrch lows, but it lost steam about mid april because it has underperformed the market pretty much since then but as carter showed, since the election, we have seen this break out on an absolute basis i do think its constructive specifically when you look at the valuations, that is from my perspective, quite attractive. But what i specifically like here is actually mikes trade. Mike has chosen to go out to january. Unfortunately, the first out of the money strike price is actually quite far out of the money. Its about a 35 delta. The 114. 33 strike price. For me i usually wouldnt pick something that far out of the money but that was the first strike price he could choose he is only risking a little under 2 of the ets value to take this bullish bet here when you use such a low delta call option here, what you have is a relatively low probability of success trade but the tradeoff here is the fact that you have very low risk and an extremely attractive rewardrisk ratio if you get the breakout carter is looking for on xlv cart every, what to you think of what you just heard i like it all sounds like its 3 to 0, were all on board one, two, three lets move on to another sector of the market. Usually thought of as more boring, things that are just really hard to fight, and among them a large volume of Rushing Water and the fed. But tony has a way to keep you flowing along with both. You have some water for us yeah, tyler, like you said, a utility is usually considered a boring sector. But we have seen a bit of slow rotation into utilitie the last couple of months. I want to use American Water works as a way to potentially play for the upside into the rotation that we see into utilities. If we look at xlu which is the etf that tracks the utility sector, we had a range bound between april and october but recently just broke out above that range, above the 63 level here if you look at xlu on a relative basis to the s p 500, it has actually been underperforming the markets during this whole time but the recent breakout here has actually coupled it with some relative outperformance here i like this. Xlu has been outperforming the market during an environment where Interest Rates have been rising which is generally speaking a head wind for this sector. I am fairly constructive here on the rotation we are seeing into utilities. Now if we look at American Water works which is one of the stronger names in this sector, this stock also broke out above that 150 level at the same time when xlu broke out above its range. And its come back to retest that level as support. So not only do you have a breakout on an absolute basis, but you have American Waterworks continuing to outperform the sector itself. So you have the stock outperforming the sector, which is a set up that i look for in a situation like this. The trade setup is taking advantage of the facts of implied volatility on American Water works is quite cheap currently trading about 13 of its rank over the past two 52 weeks so the trade setup that im using is going out to january. I am paying about 6. 40, for the 160 call, collecting about 1. 25 for that 1. 75 call netnet, im paying about 5. 15, which is only about 3. 2 of the stocks value. Thats all im risking on this particular trade looking to play for upside going through the january expiration very interesting, mike khouw, what do you think of that trade, how would you trade it i think i would use the same structure, actually. A couple of things i like about it for one, oftentimes in utilities were talking about fairly safe and stable stocks. We dont mind being long in a stock. This is a stock that has moved sharply off the march lows its up over 65 off those march lows and has Good Movement as tony is eluding to. The other thing that he spoke about was the fact that implied volatility was relatively low. Thats true. Whats lower is realized volatility thats probably why he was looking to use a debit spread here the situation you want to look at, if you see low volatility thats a reason to buy, and if you see it lower, as in this case, you might look for situations where you can spread. Because weve seen the big move, because we have relatively low realized volatility, he has given himself sufficient time. I think all of these are reasons why the call spread is probably a good setup if youre playing a bullish bet in this particular name carter, do you like the way this is playing out or would you do Something Different no, no, i do. First of all, its a great chart. In my case its less about the sector utilities just on september 1st made a tenyear relative low to the s p. American water works is in a way not a utility. Let me just put it this way. What is the best performing utility this week . American waterworks. How about the last year, two years awk this is really about idiosyncratic growth here if you will its a stock that on a tenyear basis paced the s p, some of the great tech names but i think it continues but i think its less about the sector less about the sector and more about the company as you call it. Kind of an idiosyncratic play within the sector. Thank you. Folks for everything options action, you can check out our website, options action. Cnbc. Com. While you are there sign up for our newsletter here is what is coming up next announcer only one is allpowellful Professor Mike khouw has hit yet another bunker when you cant fight the fed plus, calling all options action fans grab your phone and tweet us your question. optionsaction if its nice, we will answer it on air when options action returns. vo weairlines, hotels,of fees. Food delivery, and especially car dealers all charge excessive, lastminute fees. When you want something badly enough, it feels like your only choice is to pay up. But what if you had a choice to take a stand instead . At carvana, we believe in treating you better. With zero hidden fees, you can drive off without feeling ripped off. Thats what it means to live feelessly. But you can work out anything wowith comcast business. W. Get fast, reliable, and secure internet on the nations largest gig speed network. Flexible tools like wifi you control. Voice solutions that connect you from anywhere. And expert advice here, here, or even here. Be fast. Be flexible. Bounce forward with comcast business. Get started with a powerful internet and voice solution for just 64. 90 a month. Plus, for a limited time, ask how to get a 300 prepaid card. Call or go online today. It comes to life with equities with the general market, and you can see the huge run with the august high about 27, or thereabouts, about 150 advance. The giveback annotated on the chart, down to 21. Thats a 25 selloff. So up 150, down 25 . Now its starting to come to life one way to show that coming to life look at the next chart whether you call this a wedge or you call it a triangle, it doesnt matter what you call it. It represents, after great volatility, a period of eke l equilibrim equilibrium, a standoff, a debate being resolved to the upside you can see the arrow ive drawn. These are converging trendlines and we are breaking out to the upside where could we go . Its tomorrows launch going way out there in the future. Going back to the 2011 high at 50 you can see in context the longer term, we have this powerful move. We were as low as 10 or 11 a ounce in silver come surging to life and we are in this consolidation phase which looks as though its going to be resolved to the upside, and i think dramatically so. Resolved to the upside. Mike, how would you hammer out a trade with this one . So lets just take a look he was pointing out some longerterm charts im looking forward and backwards two or three months. Looking backwards two months, we saw slv just above the 26 level around 27, that was the highs we saw in that time frame, late august. Since that point it fell where did it go . Roughly 22. A little bit lower where do we find ourselves now right in the middle. Just about 24. Right now were seeing very elevated options premium in slv due to the volatility that weve seen i think we could take advantage of that. I was looking at selling the january 24 put when i was looking at that earlier today. You could collect 2. 10. The idea here is that i am comfortable owning slv in fact, i do own slv shares myself if it goes below that 24 strike in expiration, youre going to own it but where are you going to own it just below 22. Even if it trades sideways, essentially almost 9 ish, and in terms of returns over the next two and a half months and it might bump into, in the near term, a little bit of resistance if it gets back to the levels from whence it came. Again we will be collecting about as much by selling the puts this is one of those cases i think we can take advantage of the elevated options premium and sell some options. And here, im comfortable owning slv if it does drop. All right, tony, how does that strike you . So i think, first of all, gold and silver are two metals that ive been paying attention to, a lot of investors are paying attention to this week. Carter and mike brought it up last week through gdx. I think this is another way to get into gold and silver the thing about gold and silver, its consolidated, as carter said, over the past couple months we recently had this breakout and thats constructive for continuation higher. And if you look at gold and silver, the two are very highly correlated if you look at the 60 decor lagss, about 93 the difference between gld and slv, which doesnt get as much attention from investors, is the fact that gld trades about 7 times the price as slv which means, if youre selling an at the money put option, your margin requirement or cash requirement to sell an slv contract is only about 2,200 per contract but to do the same thing on gld would cost you 17,000 so for those investors who have a smaller account or want the ability to be more flexible on your sizing, slv could be potentially a better opportunity here and also, the implied volatility for slv is more than double that of gld so as mike showed you here on his short put here, youre collecting almost 9 of the ets value in premium here, versus the same january put on gld, youre only collecting 3. 2 . So the premium youre collecting that you could potentially use down the line to purchase call options, if you saw acceleration in the upside, i like the thesis i think slv will break out above this 24 level if you look at the chart. So i like how mike is being really aggressive by selling the in the money puts. Sounds good guys. Thanks up next, check out shares of wayfair. How this work from home winner is paying off for one of our traders. And we will take your tweets send us your tweets and we will answer some of them. Were right back after this. Its a thirteenhour flight, thats not a weekend trip. Fifteen 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. 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Welcome back to options actions everybody time to look back at some of our open trades. Last week tony said wayfair was set to be a big work from home winner i really like wayfair going into earnings next week. I think that it sits at the intersection of ecommerce and the shift weve seen in terms of spending for home improvement. I am going out to december and selling the 2. 10 put vertical here and collecting about 12. 50 in credit. Boy, was tony right wayfair taking off since the time of that trade tony, a great call what do you do now so wayfair reported fairly strong earnings across the board. Both top line and bottom line. Gross margins came in better than analysts expectations at 30 , Customer Growth also coming in fairly strong when you have a put spread like this, earlier today you could buy it back for about 2. 90. Which represents about 75 of the max profit with 42 days left to go, this is time to take profits and move on to the next trade. Move on to the next one mike khouw, what do you think . Absolutely. When you have taken basically most of the reward, relative to the risk, that basically becomes asymmetric against you if you dont. I agree with tony. You know, this is definitely a situation where you should take the money and move on. Take the money and run. Thanks, guys up next, the final call. Im searching for info on options trading, 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 100 online car buying. Carvanas had a lot of firsts. Visit tdameritrade. Com learn car vending machines. And now, putting you in control of your financing. At carvana, get personalized terms, browse for cars that fit your budget, then customize your down payment and monthly payment. And these arent madeup numbers. Its what youll really pay, right down to the penny. Whether youre shopping or just looking. It only takes a few seconds, and it wont affect your credit score. Finally a totally different way to finance your ride. Only from carvana. The new way to buy a car. And welcome back to options action. Time to take your tweets our first viewer asks, whats the impact of the vix on longterm options like leaps i dont know what theyre talking about. No, i do a bit mike, explain it to us when you are talking about the vix index, what you are looking at is the implied volatility over the next 30 days, very near term when you look at leaps, those are longterm options. Typically a year to expiration or more. Longterm options. The volatility of volatility is relatively low so the short answer is shortdated volatility doesnt have a really big impact on longterm volatility lets go onto the final call about 30 seconds carter you go first two of them, Health Care Long and silver long. For Health Care Use xlv. For Silver Bullion use slv tony, you next. Playing the rotation into utilities of american wat waterworks buying a january debit spread. Mike you next xlv called. Thanks, everybody, for watching we will be back next friday. Dont go anywhere. Mad money right now. [announcer] the following is a paid commercial program for rotorazer, sponsored by razor tools llc. upbeat music uhoh. Cant find the right saw for the job . You need a handsaw for this, a circular saw for that, a bandsaw, a miter saw, and a jigsaw . And with all the different blades, that jobs turned into an expensive jigsaw puzzle. Not anymore. saw buzzing hi everybody, im joe fowler, and this is the rotorazer. 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