>> this is an interesting situation. it's captivating when professor co explains how. "options action" starts right now. >> u.s. markets rallied for a strong week, but the start master and mike say there is value to be found across the pacific. break down the charts for us here, what are you looking at in japan? >> before we get to the charts, what we know is year-to-date, the nikkei is virtually unchanged. the s&p is up 8%. with that in mind, let's look at a few charts first, taiwan versus korea so instead of using the taiwan stock exchange index or the kospi, we're using the ewt for and eye for korea and what you see is their neck and neck, a set of parallel lines. now, add in japan, ewz, the i shares for japan. here you see the divergence. if i were to include the spy, it would look identical which is to say these are all in dollars so we have adjusted out for the currency that comparative chart is the opportunity, japan lagging. and so take a look now at the individual i shares themselves. first ewt. i've circled the pre pandemic high. the plunge, we recovered to it and we've broken out. the index has made new highs we know that the index itself, the taiwan stock exchange index. now look at korea. next chart ewy. same circumstance. the prepandemic high, i have circled it, the plunge and we have recovered to it and broken out. the final chart, ewz, i shares for japan. i've circled the pre pandemic high, the plunge, but we have not yet broken out. the inference is, japan will. the long trade here is ewz. >> there is the trade. we are looking at japan using those -- thanks, carter for that. mike khouw, let's go to you. how do you execute that particular view? >> i actually was looking at ewj, actually, which is the msci japan index etf. there's a couple things i would have us observe about this. one of the things to think about when noticing that japan hasn't kept pace with the s&p 500, japan, although it has some big globally recognized names in that index, it doesn't have the same stocks that have lifted the s&p. i'm talking now about the apples and amazons and teslas of the world. tesla is not in the s&p five 500, but it represents a big chunk of the u.s. equity markets and some of the rally that we've seen. but it includes notable names, toyota, honda, mitsubishi and tech names, sony is among them this is a low volatility etf, that sets up well for making directional bets but it is slightly elevated like many global indices. we're seeing implied volatility. surrounding the election largely. still seeing a bump, it came in a little bit last week but it's slightly higher. i was looking at a calendar spread to the upside. so i was looking at the january 63 calls, about 65 cents and then selling the novembers against it for 20 cents. net-net you would be making about 45 cents per contract. but overall you will be spending less than 1% of the levels to make this bullish bet. which will see its peak profits at the expiration of the earlier option if it goes to that strike price, which would remember about an 5% to 6% increase between now and november expiration. and then after, you'd benefit from that too. >> so let's talk more about this. tony, i think, tony, if you've got this situation where you want to be long longer term, you've cheapened it up a little bit by selling some of those near-dated calls. how exactly does this play out is this a trade you agree with to make this kind of view? >> carter mentioned a few things mike also said this is a fairly slow and steady type etf you see the ewj grinding higher and carter mentioned it is lagging behind other countries from my perspective, that speaks to the economic indicators we are looking at out of japan. they are slowly improving, but not particularly strong from my perspective. the makeup of the etf, as mike said, is dominate with tech names, consumer discretionary names. it does have low exposure to sectors like energy and utilities. from my perspective, you look at the chart, i do see some massive resistance at that 60 1/2 level. the fact that it's lagging behind most of the other domestic equities, from my perspective i think the upside is fairly limited. while i like the structure to have the slow grind higher, i think i would adjust my strikes a little lower because my target prices aren't as high. i was looking at the 61 strike what i particularly like about mike's trade here, he's risking less than 1% of the ets value to take his bullish bet. but you can lower that strike price down to 61 and give you a slightly higher probability of profit but risk just over 1 %. taking on a smaller amount of risk, but a little less upside that i see here for ewj. >> let's turn back to you, carter, as we look at the charts how exactly timewise do we expect this thesis to play out it could be a slow grind what would you be watching for signal wise about whether this trade accelerates or decelerates? >> right. first of all, thank you. three times i said ewz, that's the brazil etf. we, of course, are talking about japan, ewj. here's the thinking, one can see it as a laggard, it is and therefore something is wrong idiosyncratic or it is a laggard and it is going to play catch-up that's kind of the tape we're seeing. we're seeing bombed out value names in the u.s. catching a bid, ge we just heard. we are thinking that it is a laggard that will play catch-up. it is at a difficult level a breakout if it is able to do it is the definition of momentum we think you can get at least 6% to 8% if not more. >> mike, we'll give you the last word here. as you top it off, what exactly do you think is the real case here >> if you are playing for the breakout is the 6% to 8% move. i'm not sure this is the place i would be playing. we're not risking a great deal of money to make that bet if it goes that way. and if it doesn't, risking less than 1%, so think we're setting our self up for the right trade structure for his thesis. >> thanks very much, guys. let's move on to a more specific part of the market investors are getting more bullish on big pharma. as a race for a coronavirus treatment heats up. and our own tony zhang says there is one name in this pharma group who could have healthy gains ahead. tony, which drug company are you looking at >> i'm looking at eli lilly because antibody treatments have taken a backseat to vaccine news. but with president trump last week getting the regeneron treatment, that's been pushed back into the spotlight and they both applied for emergency use this week. before investors jump in to these types of names i think it's important to understand what you're investing in. both the regeneron and eli lilly drugs, they're both monoclonal antibody drugs they're both only useful for covid-19 patients who have seen less severe cases and specifically early on, similar to what president trump was seeing when he received this treatment. so it's important to understand that these are not vaccines. they're not useful right now for prevention purposes, even though both regeneron and eli lilly have started clinical trials to see the efficacy of using them as a preventative measure. however, the efficacy so far has been fairly strong in both clinical trials, so far eli lilly has seen about a 72% reduction in risk, meaning the number of patients that are seeing hospitalizations compared to a control group is 72% less than for regeneron. it's a small sample size, it's down 59%. so both of these have fairly strong trials at the current moment. so it's important to take a look at this, because the optimism around it right now is the efficacy and, more importantly, the speed at which these treatments could get fda approval for emergency use. however, both of these treatments have limited production capacity, so that is one of the limiting upside functions of this -- of these types of investments so when you couple that with the chart, what we're seeing is that eli lilly has been underperforming the broader markets and the health care space for the last few months. but on this fda news, it's recently broken out above that 155 level and broken that down trend. and we're starting to see a little bit of outperformance here. so when you couple the potential optimism here around the drug and the chart, what i'm looking to use is a trade structure going out to december to buy myself a little bit of time. and i'm going to use a debit vertical spread here. i'm going out to december and i'm buying the 155, 170 call vertical spending about $8.70 for that december 155, and collecting about $3.20 for that december 170 call option, because i have a target price here of about 170 to the upside. and if regeneron -- if eli lilly does break out substantially higher in the short run in the next few weeks, what i would do is i would try to roll this up a little bit further into that 170, 190 level if we do get a breakout here up to that 170 target. >> all right. that's a -- that's an interesting way to go about playing it. it also, again, cheapens things up a little bit with that. mike khouw, to you for the trade structure. does tony's trade make sense i see getting on the call and cheapening up a little bit. is this the way you would play lilly? >> yeah, i think something people ought to focus on when they're looking at this call spread is notice that the lower strike that tony has chosen here is in the money by almost $2, actually. so when you think about the decay, that's one of the things you wanted to think about when you use any kind of a debit option strategy going into any potential catalyst, is how much decay you're ultimately going to pay. in this case, you're spending $5.55 premium, but the decay probably represents only about $3.65 of that. so call it 3 to 1 on vert spreads, debit spreads, here it's not as critical because it's already in the money. that improves its probability of profit as well and he's given himself some time, it's difficult to play very short-dated catalysts, it's a little bit of a coin toss. but if your thesis is in alignment, you can mitigate your downside risk because you're only spending $5.55 versus well over 100 to buy the stock. this is a way that you can make a bullish bet into a period of uncertainty playing off some of the fundamental items that he's just outlined and have relatively good probability profit and relatively low decay. so all of those things, i think, are attractive aspects of this. >> cbw, let's turn to you here. tony pointed out the chart. it's kind of snapped a couple of different trends. it's gotten above where it's supposed to in terms of the overall longer term trend lines. do you believe the charts here is due for more upside >> i think one of the more compelling things on an immediate basis, if you look at the long term big three, america, pfizer, lilly, just on a trailing basis, the other two have made no progress. lilly support 46%. meaning, the market is speaking, the collective wisdom of all participants, whether they're dedicated health care portfolio managers or generalists, people are favoring lilly. that is the very definition of impressive relative strength compared to other. and maybe it's because of covid or what have you, but what we do know is that you want to often go with the leader or a laggard. it's something in between that becomes interesting. lilly's the leader. compared to merck and pfizer i like it. >> big move for lilly. thank you very much for that for everything "options action," check out our website. while you're there, sign up for our newsletter, it's free. here's what's coming up next on the show. tony just tackled eli lilly, now professor khouw is going to broaden up this healthcare class and show you how to capture a move in united health. plus, calling all "options action" fans, reach into your pocket, not your phone, and tweet us your question at "options action." if it's nice, we'll answer it on air. when "options action" returns. ♪ ♪ ♪ car vending machines and buying a car 100% online.vented now we've created a brand new way for you to sell your car. whether it's a year old or a few years old, we want to buy your car. so go to carvana and enter your license plate, answer a few questions, and our techno-wizardry calculates your car's value and gives you a real offer in seconds. when you're ready, we'll come to you, pay you on the spot, and pick up your car. that's it. so ditch the old way of selling your car, and say hello to the new way-- at carvana. so you're a small bor a big one. you were thriving, but then... oh. ah. okay. plan, pivot. how do you bounce back? 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>> yeah, absolutely. first of all, i love the stock from a fundamental perspectives for the same reasons that mike said and i think it trades at a very reasonable valuation for all those reasons. but from a technical perspective, you have a stock that just broke out above the major 320 resistance level. not only has it broken out on an absolute basis, right now if you look at a relative basis compared to the health care space, it's on the merge of a multiyear breakout. i'm extremely bullish on this particular play on this particular stock. i like mike's trade and i like the fact that on the november calls he's gone all the way up to that 350 giving himself a lot of room to the upside in the short run and then he has that long january 340 call to take advantage of longer term upside. >> carter braxton worth, the charts, what do they tell you? >> well, first of all, we do know, of course, this is the behemoth, this is up eight-fold versus its sector. it's triple the performance of amgen, one of the great performers. almost five-fold over j&j since the sector data begins in 1989. it's been the most consistent, and at fact, at certain points over the last five years it's been the single most widely owned stock among many long only players. it's fantastic. we have a chart here. if it's up there you can see it. it's been toying with breaking above this ascending line for quite some time. it is now that it's likely do it, in my estimation. >> dreide e e edreider. trader s keep an eye on that united healthcare stock. coming up next on the show, chairs of caterpillar leaping higher this week. what that means for one of our traders. that's not a w coming up with cat after this.ld 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. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪ a livcustomizeper iquickbooks for me. okay, you're all set up. thanks! that was my business gi, this one's casual. get set up right with a live bookkeeper with intuit quickbooks. it's 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, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action" and a look back now at one of our own open trades. a few weekends back, tony zhang came down with the case of cat scratch fever. >> i'd like to take a look at caterpillar breaking out above that 150 level which happens to be the november, 2019, highs. recently came back to retest that as support, and i think that this is a potential continuation higher here for a name like caterpillar. especially if you couple with the fact that this is a stock that's trading at a fairly reasonable 28 times forward earnings, it's got a very stable dividend that's fairly covered -- it's fairly well covered by operating cash flows. so this is the type of stock that i'm looking to play defense in this type of weaker market. i'm going out to the october/december 155, 160 call diagonal. i'm going out to december paying about $10.30 for that 155 call. and i'm selling in october 160 call against it collecting about $3.15. i'm paying about $7.15 for this call diagonal. >> tony, what have you done with the trade in the meantime? >> yeah, so this is the diagonal that's worked out fairly perfectly. you can take about 85% gains earlier today so i would take my profits and run. coming up next, guys, the final call. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning 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 it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪ that selling carsarvana, 100% online wouldn't work. visit tdameritrade.com/learn 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. that's why we've become the nation's fastest growing retailer. because our customers love it. see for yourself, at carvana.com. ♪ ♪ ♪ ♪ ♪ ♪ welcome back time for the final call. carter braxton worth, to you. >> japan get along with the nikkei 500 is making all-time highs right now. ewj, the vehicle. >> all right. tony. >> playing for fda approval of eli lilly's drugs, buying a december call vertical. >> mike khouw. >> unh call diagonals and earnings. >> all right. 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