Recent news make you antsy about playing alibaba. Professor khouw helps you. Its time to risk less and make more options action starts right now. Lets get right to it retail rescue taking aim this week at xrte outperforming the Broader Market by more than 5 as a number of names pulled out earnings beats but our chart master says it may be closing time for the retail space. Carter, what are you watching . We know that retailers typically report earning late in the cycle and we heard from almost all of them now and it has been quite good. So the question is, is it a bit too much lets look at a few charts and tables first, of course, the etf xrt is the spdr s p 500 retail what you can see here is 84 stocks and 3. 1 trillion youre talking about the biggest names in there with walmart in there and tiffany, costco, amazon, macys, urban outfitter, ebay, footlocker and it goes on and on. Look at a few tables first onemonth up 7. 25 versus the entire Consumer Discretionary sector up 1. 4. Look at the threemonth, next table. Up 11 1 2 versus the entire sector up six, a double. Look at the sixmonth performance, again here up 51 , almost double the sector up 27 so the question is, have we come a little too far too fast . Thats the thinking. Lets look at a couple of charts here is the xrt. The chart itself, no judgments made, no annotations by me now, the next chart. What we know is that it had five distinct drawdowns, corrections if you will, of 10 plus you can see them there the thinking is we are due for one of those the final chart, it is lines drawn, converging trend lines, which you can see. It is all the same chart three times. Now the question is, were up against the upper band of that internal trend line, the thinking, we pull back towards the lower end. That would be about a 5 plus selloff from here i think thats what is coming. All right, carter thanks for that. Mike, whats the trade based off this yeah. So, you know, xrt, as carter was pointing out, is a really broad basket of stocks unlike other things that are heavily cap weighted where maybe amazon or the microsofts of the world basically predominant, this is a larger group of company and each represents a smaller part of it of course, if youre looking at the multiples, the p. E. Multiples, youre going to see 50 times earnings. You have to put that into con text were in an extraordinary period right now, but i would point out we are seeing basically alltime highs in this thing. What you have to be thinking about is what is the next step we have obviously had a tough economic environment, but the consumers have been supported by a lot of stimulus and aid. Some of that might be running out. In addition to that, we also have a situation where were seeing an upsurge in cases this is a big spending season but i would say that i think were pretty extended here and if we have exposure to the stocks, you want to hedge them yourself if you are so inclined you might look to take a bearish bet if you are looking at xrt, i was looking out to january the 55, 50 put spread. You could spend about 95 cents for that, spending about a dollar for the higher strike and then selling the lower one for 55 cents now, youll notice that the payoff here is a little better than 41, slightly better than we normally get. To choose a spread out of the money, we are looking for more bang in the buck even if we only get a 5 decline, even if it dont run to our short strike, this should go up fairly handsomely and the lower strike put will help mitigate a decay of carrying one like this. Tony, how do you like the trade . Yeah, i quite like this trade because if you look at the chart of xrt, it has all the classic signs of exhaustion. Basically over the last three months as it continues to make higher highs, were not seeing momentums confirm the higher high we are seeing the negative convergence from momentum, and during that time the market breadth of xrt continues to decline. These are signs were near a market top and about to see a correction if you look at the retailers, a lot of them have moved their sales earlier in the season, some to avoid black friday crowds in their Stores Amazon moved prime day to october 15th that will take some of the strength that we typically see going into the end of november and beginning of december. So i like the fact that mike is going out to january, giving him plenty of time the implied volatility here is fairly cheap, and hes only risking 1. 7 of the etfs value to take this bet it is a very small risk of the overall etf value. The only thing is when you buy an outofthemoney debit spread like this, if xrt doesnt move fairly quickly or fairly soon, you do have some paper losses. So as for investors, it is small risk, but be prepared in the short run. You might see losses until this starts to accelerate to the downside carter, i wanted to go back to a point you and mike were making about the xrt as an instrument being comprised of smaller real tailers names, not the walmarts, not the targets of the world. So what do you foresee for walmart for the walmarts, the targets versus, you know, the bearish outlook you have if xrt . Sure. Remember, those big names are in the xrt, it is just the xrt is essentially an equal weighted index versus the transferring sector versus market cap weight, the names you are referring to those are also far along let me just say that walmart, target, theyve been great, but we know all great up trends typically are punctuated by givebacks, pullbacks, dips, corrections, whatever nomenclature one chooses but to stay healthy you want to have pauses and rests and were playing for that in xrt. For regular retail to highly discretionary fitness spending, peloton up higher today and up triple digits on the year as americans get their exercise from inside the house. Vaccine news aside tony zhang says the stock could still be fit for more gains ahead. Tony, what is the trade here yeah, i want to take a look at peloton because i think it is a stock that is has been misunderstood by some investors as an expensive spin bike company with a cult following. I think theyve really pivoted here over the past couple of quarters into an allaround Digital Fitness platform i think thats the bigger term opportunity here for peloton if you look at the chart itself, the stock recently broke out above its 100 level in late september, took a big hit after pfizers vaccine news, down about 20 , but held the 100 support level as retested the level as support and holding it and continuing its continuation higher here. I think it is an opportunity to take a new longterm position or a new long position here in peloton. Now, if you look at the valuations here, by all means this is an expensive stock so when you look at some of the stats that justify these valuations, some investors will say, you know, this is due to the pandemic, its not sustainable, 113 subscriber growth versus the same time last year if you look at quarterly revenue, up 170 versus the same time last year but the one step i want to point investors to that i think speaks to the shift peloton had over the past couple of quarters, thats the average number of workouts by subscriber per month. For years they averaged 12 to 13 workouts per subscriber per month. Over the last quarter it doubled to 24 workouts per month that speaks to the shift that peloton has taken now into outside of the spin bike into tread, into yoga, into boot camp, into meditation. This speaks to the fact that the opportunity now is not just here for spin but for overall fitness. I think that is a longterm opportunity here for peloton so the trade structure that i want to use here really reflects the fact that it is trading at a fairly rich val using, and it is at risk that more vaccine news may take a small hit to the stock, but it will likely recover from that. So the trade structure im going to use is a put vertical spread because if the stock declines a little bit on some vaccine news and comes back and stays to where the current level is, it can still be profitable at these current levels so im going out to december 31st, and im selling the 110, 100 put vertical here, so i think about 9. 40 for the december 110 put, collecting about 5 for the december 100 put. Net net here, im still collecting 4. 40, which is 44 of the 10 wide credit spread. Thats the type of risk reward thats actually fairly hard to find even though the implied volatility for peloton isnt that particularly expensive. Mike, what do you think about the trade . What do you think about peloton directionally . So, you know, it is interesting. Of course, the valuation is hard to get your arms around, but i have to say that i suspect that the secular trend is in their favor. You know, some people who have been watching for some time know i refer often to the holly index, you know, we used to participate in something called orange theory, kind of a social workout sort of thing. It is a very different experience, and i think that trend is here to stay. Of course, we cant do that kind of inperson thing, so peloton is in the right place. It just so happens it is, unfortunately for most of us, also the right time for them so i think theyre in the right business thats the first thing i would say about it the second thing is just talking about tonys trade, three things can happen two are good, one is less bad. If the stock goes up, you will collect that premium if it just goes sideways, you collect the premium. If you are concerned about the valuation and the momentum fails to keep up and it rolls over, you are actually risking considerably less than you would be if you bought the stock and you are taking advantage of the fact options premiums remain relatively elevated. I think the trade structure makes sense, secular trend makes sense. The valuation, look, thats always the situation when you are dealing with story stocks like this one is if you think the secular trend will continue, if you do believe it, the promise could be real. When you said we used to participate in orange theory, do you mean holly used to participate in orange theory lets put it this way she made me go. Okay, all right. But it is a social thing. Yes, i did do it too believe it or not, you wouldnt know it to look at me, but i havent gone in a while. It didnt seem like your cup of tea per se. Carter, what do you think . This is a money flow issue. Markets down a lot today. What was up today, zoom, docusign, wayfair, peloton all dropped exactly 35 to 37 peak to trough it is a money flow thing more than anything else for everything options optionsaction b cnbc. Com while you are there, sign up for the newsletter heres whats next remember the childhood snack, ants on a log, celery and Peanut Butter and raisins . Lets say you had your snack on the playground and the ants fell into the dirt, do you cry . No, because the celery and Peanut Butter is still a great combination. Professor khouw explains why the same could be said about alibaba. Yes, thats a lot to unpack. But it will make sense after the break. Plus, calling all options action fans reach into your pocket, grab your phone, and tweet us your question optionsaction. If its nice, well answer it on air when options action returns. Options action is sponsored by thinkorswim by Td Ameritrade just last week based on a declining dollar mike showed you how to set up a bullish trade on emerging markets using etm etf he will get to the performance in a minute but it is worth noting that the Largest Holding alibaba encountered a slew of headwinds in recent weeks. Thats also worth digging into on its own mike, take it away yeah. So the reason we were making the trade on eem is definitely sometimes you are dealing with relative trades. You know, do you prefer one market to another, one asset to another . Really, i think what it came down to, carter and i were both talking about this last week, that we prefer emerging markets to u. S. Markets. The u. S. Equity markets had been hitting new alltime highs the emerging markets had not this is despite the fact that the data coming out in, for example, the Asian Financial results were actually quite strong so we were favoring that, but, of course, you were talking about baba, which is one of the largest constituents of eem, but it had some idiosyncratic issues so i still favor emerging markets over u. S. Markets. I still favor being short the dollar on balance which was our other trade. What i am taking a look at is the specific situation of one of the largest constituents, alibaba. Of course, alibaba, despite the fact we have seen good significant strength in a lot of emerging markets names, hasnt seen it. Why . Because of the ant ipo, which hit the stock fairly hard. What i would ask people to think about is their results, alibabas results still are very good i think some of the issues might ultimately get sorted out. So i think that actually what has happened here is this is presenting an opportunity for people who had not gotten into long positions in alibaba to now do so at a significant discount to what we were seeing before. Now, of course, because of all of this, implied volatility is relatively high, so we need to structure a spread thats going to permit us to take advantage of the situation specifically, i was looking at a diagonal spread. I was looking at the february 270 december 285 call diagonal, buying the february 270 puts, selling the december 285 strike calls excuse me, i said put calls against it net net you will layout 15. It is a trade that should benefit from the decay of the 285s over time by december expiration and gives you longer term exposure to the upside by having the february 270 calls. So i think this pullback that weve seen in alibaba is an opportunity for that stock specifically i think it is going to ride the larger emerging market trend, which im definitely more favorable on than u. S. Markets right now. All right, mike carter, youve got some charts for us on baba. Sure. Just three simple ones first is just baba, twoyear chart. Stock is double, 150 to 300. The second is with the 150day moving average excuse me, it might be the one with the drawdowns. The second chart, you will see, this had distinct pullbacks, not 10 , but more like 20 in fact, four of them. This recent sell off from 320 to about 250, where has it stopped . Last chart, right off the 150day moving average for a buyer here, it is the biggest constituent of eem and followon trade from last weeks eem buy. All right given all of that, given the charts, given mikes trade, tony, whats your take yes, so i completely agree. Just to reiterate what we were saying last week on eem, you know, the exposure you get from a geography perspective and sector perspective looks constructive compared to what were getting from a domestic Economic Perspective i like the eem play. If you look at alibaba the stock has obviously overshot a bit to the down side on the ant ipo news the fact it held the 260 level, which as carter said also corresponds to the 150day moving average, i think is very constructive for the long run. As mike said, if you look at the results here of baba, it is pretty much in line with what we would expect from china. From my perspective, babas growth isnt particularly strong 29 Revenue Growth is in line with what were seeing out of the asian countries. The billion dollars in a single day was strong, also 30 growth from last year overall i think the longterm view on baba is constructive, and the trade structure mikes using, the diagonal spread, is suitable for what we consider a more stable growth here to the upside the only small adjustment i might make to his diagonal spread is hes using the december 285s. I would adjust it a little bit higher to the december 290s because you have a gap fill for baba up to the 290 level i think that by december you could tag that level and potentially just be shy of that 290 level by december. Mike, were you laughing at tony nitpicking 29 Revenue Growth yes, i was, actually. I mean thats remarkable growth. Its one of the largest growing markets. Its a company that if youre keeping pace with one of the Fastest Growing economic areas in the world, thats pretty good, and 30 Revenue Growth is pretty good. I would ask people to think about one other thing, too this is a Company Whose valuation is about half of that of amazon in rounding numbers. Think about the opportunity here if amazon is worth 1. 5 trillion, wheres baba going to be five years from now ask yourself that question and then decide how you feel about the valuation and those growth numbers, which i think personally are pretty phenomenal. All right up next, you ask, we are answering. The options traders are standing by to take your video tweets on air. Dont go anywhere. Much more options action up next. Options action is sponsored by thinkorswim by Td Ameritrade pp pp 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. 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 some of your tweets elijah in california is wondering if boeing shares could take flight in the next week hello im fairly new to options trading, so i thank you guys for everything you do over there at options action. I have a quick question. I have a call option in boeing that expires on november 27th for a strike price of 215 i was hoping with the approval of the 737 max that, you know, it would go up a couple of points but instead, as we know, it has taken quite a hit i am wondering if it is worth it for me to keep that call option until close to the Expiration Date or should i cut my losses and move onto the next trade elijah was spot on in terms of the pullback, down 5 since wednesday when the faa cleared the 737 max to fly again mike, what are your thoughts on boeing sometimes your first loss is your best loss and you might want to get out of this one. Boeing has some problems they still have some whites we talk about that we usually talk about. They have a white order bag, a whitetail parking lot full of airplanes, and its not clear to me that approval of the 737 max is sufficient to go up against it right here. If youre going to make a foolish bet in boeing, make it a longer term one than shortduty options. With covid cases on the rise, neil in california is looking out to earnings in terms of social media plays with covid cases at alltime highs, im looking to see which companies can duplicate stellar earnings from last quarter, pinterest or snapchat. Which one do you like better, and whats the play . Well, snap shares posted a gain of 54 since the companys last Earnings Report in late october while pinterest is up about 27 . Tony, would you rather snap or pinterest . I think between the two i certainly would choose snapchat over pinterest as you said, the stocks up 54 since the last Earnings Announcement i think its a tall order for it to continue rising, especially after the next Earnings Announcement but the next earnings are not until february 2nd so i think you have a lot of time to wait and wait until early february before you have to make a decision as to whether you want to enter a new position. Carter, would you rather based on the charts pinterest or snap i like them both. Im not going to play. Theyre fantastic. The strength is the number one factor thats ever been tested in the models around the world this is the definition of relative strength, pins and snap. Wow all right. Up next, the final call. Options action is sponsored by and look, it fee 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 visit tbeautiful. Butm learn when i started cobra kai, the lack of control over my business made me a little intense. But now i practice a different philosophy. Quickbooks helps me get paid, manage cash flow, and run payroll. And now im back on top. With koala kai. Hey more mercy. Save over 30 hours a month with intuit quickbooks. The easy way to a happier business. Time for the final call. Carter short, retail, xrt, baba. Tony zhang . Peloton it will revolutionize the way we workout, selling a december put vertical spread. Mike khouw. Long xrt put spreads, along the diagonals in baba. That does it for us were off next friday after thanksgiving see you the following week mad money starts 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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