hey, there we're live at the dmakz market site on a friday afternoon the guys are getting ready behind me, while they do that, here's what's coming up on the show >> i'm the king of the world >> boeing is having its best rally in decades we have a way to buy it for less than five dollars. plus -- >> you're killing me, smalls small caps have been lagging the market if history is any indication, it could be your best bet into year end. and later --

investors have been rushing into retail stocks but there's something in the charts that suggests one name has run too far too fast we'll break it down. it's time to risk less and make more the action begins now. let's get right to it because as the dow and the s&p 500 close at a record high today, small caps have stalled out. the russell 2000 posting its worst week in a month. with tax reform on the horizon, should you buy these stocks on year's end mike >> in general you should seasonally this is a good time to be long stocks. i don't see a whole lot of reasons why this thing is going to roll over and fall out of bed. i'm just talking about equities generally. we often talk about relative valuation. if you take a look at the russell 2000 on a price/earnings basis, this is trading at or maybe even below where the s&p is trading it suggests that you could still be long here >> so there's a lot of bigger seasonal factors to the markets,

but also there's this notion if we do get tax passed, should we see a rally? >> in mid-august, things weren't going particularly well for this administration and the prospects of major legislative sort of progress -- process happening wasn't great the iwm, the russell 2000 looked like it was going to rollover, a massive underperformer you had this 12%, 13% rally. i think a lot of enthusiasm about tax passing is in it right now. then if you get that final push, maybe you get that breakout. that being said, it seems to me, depending on what happens in this election in alabama, this thing could be pushed out until 2018, a little bit, who knows. that would make this index in particular a little vulnerable, in my opinion. >> carter, you say in the charts it looks like a santa claus rally. >> if precedent is what it is, we know seasonality is what it is, the lag in small cap i enough to suggest you may want to play this for catch-up. i want to put the iwm in the context of history

and see what with can get. so pretty straightforward numbers here we know the s&p goes back to 1928 but the small cap russell 2000 goes back to 1979. so all this data is from '79 to present and still, what this is is, performance in the month of december, right here, okay so all years the s&p has done this as an average, yes it's the best month of the year. and russell 2000 has done this, meaning almost double. now, this year, this is 2017, we're not on pace. we're not on schedule. yes, the s&p is up but nowhere near as much as it, quote, has been on average and the russell 2000 is actually down so this is an anomaly. i think ultimately that's going to get arbed away, at least some of it.

all decembers, typically the russell outperforms. this time it's underperformed by 130 basis points i think that's going to get, again, shrunk. we want to play i with" m on the long side. you also get beta here even as this works you get a little extra kick as well. these are the numbers year to date we know it's a big lag we'll play for the catch-up. let's look at some charts of the iwm and then i'm done. how to draw the lines. one thing we know is that after you break out from a high, you often check back so watch how we can draw the lines this way, meaning after you break out often, you will check back and it checks back perfectly and hits that line and goes again. let's add another line now we've got two. so again, we've got the breakout, we've got the check back we've got the next breakout. and we've had this check back. it should be ideal right here, and we're right on trend i think you can put your next green arrow in and make the bet that iwm goes higher i want to be long. >> mike, you want to play for this breakout?

>> i am going to play for the breakout actually i do want to highlight there are still some risks you know, dan was actually talking about that one of the reasons why we're seeing an upward move is because of tax, you know, colin' comments today are reason for concern. i was looking at the february. you could buy the 152/162 call spreads, spend $3.80, sell the other ones for 50 cents. you're spending $3.30 to make that bet about 2% of i with" ms current level and obviously you get to play through the holiday season. if it turns out that we get some negative news, as you point out also the election next week i think could play into that quite heavily. >> i think if you agree with carter's technical setup, that's a nice looking -- those are some good lines, it's very orderly. i think one of the things that's really important, you think about for most of 2017, that thing was consolidating, then you get the breakout, the check back then you throw in seasonality. i like the trade, it's a little less than 30% of the width

you're paying. so about 2%, right that's a good risk/reward to play a lot of people think if we get this tax and get into the new year and everything's going okay, you may just have a melt-up early in the new year. that being said, if it doesn't go that way, you're risking 2% for two months to have exposure to the upside. >> one thing to add about this is the construction of the two in diseases. small cap is one way of the financials in a way this is also playing, you're betting that rates are going to go and so forth if that doesn't happen, that's going to not make this a good trade. the two things that you're citing are exactly what's going to make it work, the taxes and the overweight in financials >> the overweight and financials, mike, does that make you more optimistic about this trade working out or less? >> more, for sure. first of all, i think we saw some positive signs this week, some really material ones that suggest and are supportive of that point of view one final thing, i keep hearing it, people are always talking about equities are fully valued or maybe even slightly overvalued typically bull markets don't end when you reach full valuation.

typically they end when you reach overvaluation. and you also will see upticks in volatility, signaling that investors are starting to get a little nervous and running for the exits. we haven't seen that yet that, again, is encouraging a bullish point of view to year's end. retail stocks heating up over the last few months, the etf surging 20% from its august low. big box starts have been breaking out check out walmart and costco, both up around 20% home depot up 10%. even target which has been lagging is getting in on this action danny, you say there's trouble ahead for one of those >> costco reports next thursday after the close. the options market is implying 3.7% move in either direction. that's about 7 bucks it's interesting, when you think about that, mel just said, over the last month or so, walmart and costco are up about 20%. here's something that's really

important. walmart is up 40% on the year. costco is up 20% on the year given about two months ago, costco was trading flat to down on the year. look at that chart right there i want to show there's a gap back in early october. that was the october 10th earnings that was after their fiscal q4 earnings there were fundamental trouble signs. the stock went down 5% they were seeing lesser membership fees and tighter gross margins. they're competing with amazon, amazon prime now with amazon's combination with whole foods, costco has to invest more for same-day delivery of groceries. i don't think the issues we saw when the stock was down two months ago have abated given this massive ramp in costco over the last month in half or so, it's a good short opportunity from a trade, and i think do it with defined risk makes a lot of sense i want to look out to when the stock was trading at 188, you can buy the january 185/175 put

spread, $2.50 for that, buying one of the january 185 puts, selling one of the jan 175 puts at $1.15, and you break even down at $182.50, make up between $7.50 and $175 you risk $250 and that's about 1.5% of the underlying stock price. i'm giving myself some time to play out here's the stock trading at 20 times earnings there's a lot of enthusiasm in this stock in particular that is baked into this tax situation. so to me, if there's any fundamentally bad news like we saw in early october, the stock is going back down, not up >> the stock, you know, is actually, i would argue, overvalued here at almost 30 times earnings as you point out. one thing i would also say is this options trade sets up very nicely you're paying 250 on a $10 widespread take look at what happened last earning. 6% move on one day, you could easily see a move of that magnitude again. i think the trade makes a lot of

sense. the options are limited. we're bumping into the exact same issues. it fell back. >> i'm on the other side of this we talked about it before the show the thinking would be that maybe it's gone a little too far too fast but this is a stock that's lagged massively ive -- i have a table here if you look at costco, over the past two years it's trailed the market by 50%. one of the preconditions for outperformance is proceeding underperformance that then starts to reverse. the catch-up trade in retail overall has been massive costco is just starting that process. it did just break out on the charts i think there's the risk that after gapping down two quarters in a row, that it gaps up on this next quarterly report >> are you worried >> that's all good >> i just look at the massive underperformance, i look at the competition they're facing to me there was a sentiment

kw shift in retail that i don't buy. i've been wrong on that, i've been short the xrt i got that trade wrong over the last month this is one where they're squarely in amazon's sights here you just think it's not going to be -- >> i wouldn't be surprised by an operational and financial blowout this quarter that's the final thing i would leave it with. for everything "options action," check out optionsaction.cnbc.com our super cool newsletter is apparently all the rage. what are you waiting for here's what's coming up next high to right center field, way back, gone >> boeing has been a home run for investors this year. jooirksz boring has been a home run for investments this year. if you missed the move, we've got to a way to buy it for less than 5 bucks plus calling all "options action" fans if it's nice, tweet it much more "options action" after this. >> logical see that's funny, i thought you traded options.

i'm not really a wall street guy. what's 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 you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

well, it'sonce again.eason

>>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." boeing has been a home run for investors this year. incredible dom chu, hey, dom >> reporter: melissa, this boeing is a beast, undisputed. i can't really say it's single handedly powered the dow but

it's done more than its share of heavy lifting. around one of every five dow points in 2017 that translates into a market value gain of around $75 billion. that translated into a market value gain of around $75 billion. what's more impressive about boeing's 83% run this year is how much bigger that return is than any other stock in the dow. second place in terms of year to date performance is caterpillar, up just 55%. and apple is in third place with a measly 47% return. the worst performing stock on the dow, no surprise, general electric, ge down 44%. that performance gap of around 127% between top and bottom dow stock is the biggest since 2012 when bank of america was up 109% and hewlett-packard was down 45%. so can that runcontinue into next year? according to data from facts we're pretty much spot on the analysts' spot target price right now. not sure, melissa, if they're

up in targets or calling the shares now for fairly valued the recipe du jour we'll see what happens >> thank you very much, dom. if you missed out on boeing's big run, fear not. we have a way to get in on the rally for less than $5 mike is at the plaza with the call for action. >> as dom was pointing out, we have had a big run on the stock. it's trading close to analysts' price targets. if you're bullish longer term in boeing as i am, this is a trade you can take a look at secondly, this is a trade you can get into if you want to cushion against modest declines. we're going the take a look at levels and sigh why this is important. this is, finally, a trade you might do if options are fairly priced or slightly overpriced. take a look at how the stock has behaved. the move especially most recently has been particularly sharp. i'm taking a look at this level from whence it moved the february 265, 285, 305, call spread risk virtually would you like buy the 285 calls, and sell these puts against it

that whole trade costs you about $3.30 when i was taking a look at it today. so you are going to have some modest losses. basically the real risk is you put the stock down at 265 and you get to participate if it takes a $20 rally. >> what would be your biggest concern about boeing at this point, mike? >> well, first of all, obviously the valuation is one of the things -- you know, one of the other things we have heard a little bit of concern about where boeing is concerned, 777, one of their more expensive aircraft, heavily mid-east-dependent single-aisle aircraft sales, you've got a five-year backlog, that looks promising to me >> come back over to the desk, i guess. dan, what do you think of the structure of the trade >> interesting trade structure we don't talk about this too much, mike obviously goes plasma and talks about put selling. here is one where he's going the opposite way, he's willing to sell a downside put to help finance some upside.

you're playing for what, a 5, 7% move to the upside i like the relationship of it. it's a 20-wide call spread and actually your worst case scenario is you put down 20 bucks. it seems like a fair risk/reward there. makes sense to me. when you think about it, know the stock is up 85% on the year. the chart you were just showing doesn't really do it justice it looks like a really nice kind of consolidation and this breakout when you look at it at 85% on a different charkts it looks different. >> what does carter say about it >> if you're up in a street line like that, there's almost nothing to interpret one thing that's important, it's not idiosyncratic to boeing. airbus is up 50% year to date. northrop grumman and lockheed and raytheon it's been a very strong group. and the momentum is there. i think it goes higher i think you have to respect it it won't last forever but it's lasting now. >> should we be worried? it's the end of the year you sell dow winners and go into the laggards. >> oh.

dogs-of-the-dow idea look, this is a situation, oftentimes you can look at industrials and you can think about cyclical patterns. this is an industry where basically you have long term drivers, and we have long term drivers that remain intact here. you know, one other thing that i didn't mention as a potential risk would obviously be if we started to see additional competition in basically the sweet spot of those single-aisle aircraft coming from places like china and maybe brazil, but we haven't seen that yet. with a five-year backlog of orders and increasing productivity, these are pretty positive things fundamentally for the company longer term. >> there's not going to be competition. are you going to get on some plane -- >> no, thank you. >> by a company in china >> can i ask a question? >> sure. >> when you think about this, when you think about the stock market that we're in, dom set it up, saying this is one-third of the dow's gains this year, whatever the number was. we haven't had a selloff of more than 3% in over a year now when you think about this stock being up 165% from the 2016 lows in q1, the last time this market

really ever had any volatility, aren't we starting to get really complacent here? >> you guys know this as people who study options for a living, volatility is low. there are a lot of stocks that have that. it's just the kind of environment we're in >> also, from those low levels, this was a compelling valuation opportunity back then. i think hindsight, you know, obviously bears that as well coming up, one deal stock up 10% from its low last month. we'll give you the name. a question for one of the traders? send us a tweet, if it's nice we'll read it later in the show. much more "options action" still ahead. see that's funny, i thought you traded options. i'm not really a wall street guy. what's 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 you're comfortable. i could be up for that.

that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

well, it'sonce again.eason >>yeah.

lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to take a look back at some of our open trades three weeks ago dan made a contrarian call on at&t. >> the stock now is down at a level, i think it makes sense to be a little contrarian and define your risk you need to give yourself some time it really does look like that 36 level is a big breakdown level today when the stock was trading at $34.60, you could buy the february 35-40 call spread, paying one dollar for that

>> since the time of the trade, at&t is up around 5%, trading above the $36 level. what do you do now >> it trades pretty well, up to $36.70, the trade that cost a dollar back then is now worth about two. you can take some profits, take half off, take the money off the table. you have until february expiration if a disney feel for fox assets against announced, that will give traders some sense of optimism about the at&t/time warner deal happening. you could see this thing at 38 over the next couple of weeks. i think it's good. >> it's a heck of a thing. the other thick is verizon did it too if it's a group, it's not really a group. it's two stocks, but that kind of momentum can carry. also three weeks ago, carter said dr horton's amazing run was done >> i want to fade this i think it's excessive it's the largest homebuilder take the money and run >> it's tough to spend a lot of premium. this time we'll try to look to collect some

i was looking at this earlier. you could sell the january 48.50 call spread, collect 80 cents. >> but since then the stock is up another 6%. so mike, how are you managing the trade? >> this is a situation where when the stock just sits there, time is on your side when it runs through that long strike in at it call spread, time is actually not on our side anymore. we're basically seeing a short premium trade turn into a long premium. if you are still inclined, i would close this out and roll out and up >> i think we have to do that in the sense that this thing is just uninterrupted what has started to happen, if you look at the last six, eight ten sessions, i think it's run its course we want to kick the can. >> i was rooting for you guys when toll brothers was down 7.5% and this thing didn't even budge. that's another reason you take your lumps and move on coming up next, we've got your tweets and the final call from the options pits.

see that's funny, i thought you traded options. i'm not really a wall street guy. what's 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 you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

hello there friend! hi! hey there. i'm an imaginary friend of a kid just like you. you're going through a lot right now and i know you're scared. but you're stronger than you know. but look, we'll get through this together. and remember... we at the imaginary friends society always have your back! well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.

welcome back to "options action." time to take your tweets our first question is from zack who asks, i bought bank of america calls for 30 cents, jpmorgan calls for a buck. both expire next friday. mike, what do you think? >> i like even xlf i would stretch that further i like the 28s in march. >> next question is from london who asked how would you play amd? dan? >> cheerio, london i would say that you have to wait here. there's no options listed past january. this company is going to report earnings in late january no options until april i think you have to wait a couple of weeks and see some febs and march listed. >> semis have been going up forever and amd is not participating. that tells you everything you need to know carter >> i want to play small cap stocks via iwm on the upside >> mike.

>> call spreads are the way to make that play. >> nathan. >> so it sounds like i'm contrarian to carter but it sets up likely, defined risk, bearish into the event >> all right looks like our time has expired. i'm melissa lee. check out our website. meantime see you back here next friday "mad money" starts right now - [announcer] the following paid presentation is proudly brought to you by samsung. delivering you innovation and technology, and quality connected home electronics, appliances, phones, televisions, computer tablets, and more. samsung. when you walk in the door, does your home feel noticeably different, fresh and clean, like the cleaning service just left? do your senses tell you, it's okay to relax because the work is really done? how would you feel to just see the fresh lines from the vacuum, the pet hair, dust bunnies, and the crumbs have just disappeared? you can have that, daily. you should. this isn't a story about the future.