we're live at the nasdaq market site on friday afternoon. the guys getting ready behind me here's what's coming up on the show >> i'm the king of the world >> boeing's having its best year in nearly four decades if you missed the rally, fear not. because we have a way to buy it for less than $5 you're killing me, smalls! >> small caps have been lagging the market but if history's 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 get to it as the dow and s&p 500 close at a record high, small caps have stalled out, posting its worst week in a month. with tax reform on the horizon should you buy these stocks into year end >> in general you should buy things into year end seasonally this is a good time to be long stocks. i don't see a whole lot of reasons why this thing's going to roll over and fall out of bed. i'm talking about equities generally. we often talk about relative valuation. if you take a look at the russell 2000, this is trading at or below where the s&p is trading. so it suggests that you could still be long here >> so there's a lot of bigger seasonal factors to the markets. but also this notion, if we do get tax passed, shouldn't we see

this group rally >> if you look at the performance since mid-august when things weren't going particularly well for this administration and the prospects of major legislative progress happening wasn't great, you know, the iwm, russell 2000 looked like it was going to roll over you've had a 12%, 13% rally, a lot of enthusiasm about tax passing is in it right now if you get that final push, maybe you get that breakout. that said it seems to me, depending upon what happens next week in this election in alabama, that this thing could be pushed out into 2018. possibly, who knows. that would make this index in dollar a little vulnerable, in my opinion. >> carter, you say that in the charts looks like it could be a santa claus rally for this group. >> if precedent is what it is, seasonality is what it is, the lag in small cap suggests you might want to play this for a catch-up put it in the context of history ask then see what we can get straightforward numbers here

we know the s&p goes back to 1928 but the small cap russell 2000 goes back to 1979. all this data is from '79 to present. still what this is, is performance in the month of december right here so all years the s&p has done this as an average. 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 has been on average. and the russell 2000 is actually down so this is an anomaly. i think ultimately that's going to get arrb'd a way or some of it take a look at the table a different way, this is relative performance. all decembers, typically the russell outperforms and this time it's underperformed by 130 base points.

i think that's going to get shrunk we want to play iwm on the long side you also get beta here if and as this works you get a little extra kick. these are the numbers year to date we know it's a big lag think again, we're going to play for the catch-up let's look at charts, iwm, then i'm done how to draw the lines. one thing we know is after you break out from a high, you often check back so watch how we can draw the lines this way after you break out, often you will check back. it checks back perfectly, hits that line and goes again add another line we've got two, so again, we've got the breakout we've got the checkback. we've got the next breakout. we've had this checkback it should be ideal right here. right on trend i think you could put your next green arrow in and make the bet, iwm goes higher, i want to be

long. >> mike, you want to play for this breakout? >> i am going to play for the breakout and i do want to highlight there are still risks. dan was talking about that about if one of the reasons we're seeing an upward move is because of tax, colin's comments are reason for concern looking at february, buy the 152, 162 call spread, $3.80 for 152s and sell the other one, spending $3.30 to make that bet about 2% of ibm's current level. you get to play through the holiday season fit turns out we get some negative news, as you point out also the election next week could play into that quite heavily. >> if you agree with carter's technical setup, that's nice-looking, it is very orderly. i think one of the things that's important is you think about for most of 2017, you know that thing was consolidating, then you got that breakout, then the checkback. you throw the fundamental outlook into it, throw seasonali ity, it makes sense. i like mike's trade, talking about 10% wide move, a little

less than 30% of the width that you're paying, so about 2%, right? that's a good risk/reward play a lot of people think if we get this tax, we get into the new year, everything's going okay, you may have a melt-up in the new year fit doesn't go that way, you're risking about 2% for two months to have exposure to the upside. >> one thing to add, the construction of the two indices. small cap is a much bigger weighting in financials. in a way this is playing betting that rates are going to go and so forth if that doesn't happen, that's going to not make this a good parade trade the two things you're citing in your caution are exactly what's going to make it work, the taxes and the overweight in financials. >> the overweight in financials, does that make you more optimistic about this trade working out or less? >> more for sure first of all, i think we saw positive signs this week, material ones, that suggest and are supportive of that point of view 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 typically upticks in volatility signalling that investors are starting to get a little bit nervous, some are running for exits. we haven't seen that yet that is encouraging a bullish point of view. >> to retail stocks heating up, the xrt retail etf surging nearly 20% from its august low this is the number of big box stocks breaking out. walmart and costco both up around 20%, home depot up 10%. even target lagging the market all year is getting in on this action there's trouble ahead for one of those names next week? >> costco reporting q1 earnings next thursday, the after market is implying a 3.7% move each direction, that's about how much it's moved on average the last four quarters. when you think about that the last month or so, walmart and cost coare body up about 20% here's something that's really important. walmart's up 40% of the year,

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

spread paying $2.50 for that, buying one of the january 185 puts for $3.65 selling one of the jan 175 puts at $1en 15 break even at 182.50 make up the 750 between there and 175. again, you're risking 250. when you do the math, 1.5% of the underlying stock price, i'm targeting an event, giving myself time to play out. a stock trading 20 times earnings, it's a little rich 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's going back down. >> the stock is actually i would argue overvalued here. i mean, at almost 30 times earnings as you point out. one thing i would also say is this options trade sets up very nicely paying 220 on a $10 widespread last earnings 6% move on one day, you could easily see that again. i think the trade setup makes a lot of sense the you side is limited.

we're bumping into the same issue as the last time it traded almost to these levels and it fell back significantly from them. >> i'm on the other side of this we talked about it before the show there's a couple of things the thinking would be, not necessarily that you articulated, that maybe it's going too far, too fast. but this stock has lagged massively. i have a table here. if you were to look at the performance of cost cothe last six months, you're talking about a stock up only 4% versus the market up 9% the last two years trailed the market by 50%. so one of the preconditions for outperformance is preceding underperformance that starts to reverse. the catch-up trade in retail overall has been massive costco is just starting that process. it did just break out in the charts and i think there's the risk that after gapping down two quarters in a row, it gaps up on this next quarterly report >> are you worried about that? >> that's the market. >> that's all good. >> i just look at the massive underperformance, i look at the competition they're facing to me there was obviously a sentiment shift in retail that i

don't buy. i've been wrong on that, short the xrt, so i got that trade wrong the last month i think this is one where they are squarely in amazon's sights here and i just think that not going to be a one-quarter phenomenon. >> i'd be surprised if there's operational or financial blowout this quarter >> for everything "options action," check out our website sign up for our super cool newsletter it's all the rage. what are you waiting for here's what's coming up next high to right center field, way back, going, going, it is gone >> boeing has aboutn a home run for investors this year. but if you missed the move, we've got a way to buy it for less than 5 bucks. calling all "options action" fans reach into your pocket grab your phone and tweet your question @optionsaction. if it's nice we'll answer it on air. much more "options action" right 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

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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. boeing hitting another record high today, now at 83% this year, tracking for its best annual performance in nearly four decades breaking down the incredible run is the always incredible dom u chu. >> boeing is a beast, undisputed you can't say it single-handedly powered the dow, but it's done more than its fair share of the heavy lifting.

around the 4,500 points gained this year, 885 of them thereabouts is just boeing, 1 of every 5 dow points in 2017 that translates into a market value gain of around $75 billion. what's more impress benefit 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 55% apple in third place with a measly 47% return. the worst-performing stock in the dow no surprise, general electric ge down 44%. that performance gap of round 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% can that run continue into next year according to data from faxit we are spot-on the average analyst target price right now not sure if they start up in targets or are calling the

shares for fairly valued, the december pe due your, we'll see what happens. if you missed out on boeing's big run, fear not we've got a way to get in on the rally for less than $5 the call to action, mike. >> as dom was pointing out, a big run in the stock, trading close to analyst tries targets we're going to take a look at a call spread risk reversal. if you're bull in, take a look this is a trade that you could get into if you want to cushion against modest declines. we'll take a look at some levels and see why that might be important. this is finally a trade you might do if options are fairly priced or slightly overpriced. one of the things we can see is the move, especially most recently, has been particularly sharp. i'm taking a look at this level from whence it moved when i take a look at the february 265, 285, 305, call spread risk reversal i would the 285, sell the 2005,

sell the puts against it, costs you $3.30. you are going to have some modest losses in here. the premium that you spipt but basically the real risk is you put the stock down at 265, you get to participate if it takes a $20 rally. >> what would be your biggest concern about bowing at this point? >> first of all, obviously the valuation is one of the things -- one of the other things we have heard a little bit of concern about, where boeing is concerned, is 777, one of their more expensive aircraft, heavily mideast dependant. single-aisle aircraft sales, five-year backlog, that looks promising to me. >> dan what do you think of the structure of the trade and would you like to be involved? >> interesting trade structure, mike goes to the plaza, talks about put selling as a way to put premium against names you're bullish on here he's going the opposite way, willing to sell a downside put to help finance upside playing for a 5%, 7% move to the

upside i like it relationship of it worst case scenario down 20 bucks. seems like a fair risk/reward. makes sense to me. when you think about it, i know the stock's up 85% on the year the chart you were showing doesn't really do it justice, looks like a really nice consolidation, this breakout when you look at it up 85% of the year on a different chart, it doesn't look -- >> what does carter say? >> up in a straight line, there's nothing to interpret you have one thing that's important. it's not really idiosyncratic to bowing which we know airbus is up 50% year to date. northrop grumman and lockheed. a very strong group. and the momentum's there i think it goes higher i think you've got to respect that it won't last forever but it's lasting for now. >> should we be worried? it's the end of the year that you sell the dow winners and go into laggards. >> the dogs of the dow idea. this is a situation is,

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 in tact here one other thing i didn't mention as potential risk would be if you started to see additional competition in basically the sweet spot of those single aisle aircraft coming in places like china or brazil. with a five-year backlog of orders and increasing productivity, these are pretty positive things fundamentally for the company. >> there's not going to be competition. are you getting on some plane made by somebody - >> no, thank you. >> by a company in china >> can i ask carter a question i know that's your job to ask questions. >> you can ask questions, i like to share. >> when you think about this, think about the stock market, dom set it up saying this is one-third of the dow's gains, whatever the number was. we haven't had a sell-off of over 3% in over a year think about this stock up 165% from the 2016 lows in q1, last time this market really ever had

any volatility, aren't we starting to get complacent are these charts showing that? >> you know this as people who study options for a living, right? volatility's low, i'm not sure there's any more complacency in boeing than mcdonald's, for instance a lot of to bes have that, it's the environment we're in. >> also from those low levels, this was a compelling valuation opportunity back then. i think hindsight obviously bears that out as well. >> coming up, dan is betting on one deal stock that's up more than 10% from its low just last month. we'll give you the name and what has him bullish. a question for one of the traders, send a tweet to@optionsaction 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." three weeks go dan made a contrarian call on at&t. >> here's the thing, the stock now is down at a level i think it makes sense to be a little contrarian, make sense to define your risk, give yourself some time the chart really looks like that 36 level is a big breakdown level. today when the stock was trading at 3460 you could buy the february 3540 call spread,

paying $1 for that. >> since the time of trade at&t is up around 5%, trading above the 36 level what now >> it trades pretty well, 36.70, this trade that cost $1 is worth about $2 either table profits, take offal.half, you have until february expiration. i suspect if a disney deal for fox assets gets announced that's probably something that will give traders some sense of optimism about the at&t/time warner deal happening. you could see this at 38 the next couple of weeks i think it looks pretty good. >> a heck of a ricochet. verizon did it too in the sense you've got -- if it's a group, it's not really a group, it's two stocks, but that momentum can carry. >> three weeks ago, d.r. horton's amazing run was done, he said. >> i want to fade this i think it's excessive this is the largest home builder. if you've got great profits in it, you have to, take your money and run. >> it's tough to go and spend a lot of premium, this time we're going to try to look to collect

some looking at this earlier, you could sell the january 4850 call spread, collect 80 cents >> but since then the stock is up another 6%. mike, how are you managing the trade this. >> this is a situation where, when the stock just sits there, time is on your side when it runs through that long strike in the call spread, time is not on our side anymore we've basically seen a short premium trade turn into a long premium. if you're inclimbed to fade, i'd close this out and roll out and up. >> we have to do that in the sense that this thing is just uninterrupted. what has started to happen, looking at the last six, ten, sessions, i think it's run its course and want to kick the can. >> i was rooting for you with the toll brothers down 7.5% earlier in the week. this didn't even budge so that's probably another reason why you kind of take your lumps and move on. >> next 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.

time to take your tweets zack, i bought bank of america calls for 30 cents, jpmorgan for a buck, both expire next friday. >> i like buying calls and financials but i would stretch that out further, i like the 28s in march next. >> london asks how would you play amd >> cheerio, london i would say that you have to wait here. there's no options listed past january. this company's going to report earnings in late january there's no options until april so i think you have to wait a couple of weeks and see february and march. >> what a bad circumstance when semis have been going up forever and amd's not participating. that tells you everything you need to know. >> the "final call." last word from the option pits carter, kick it off. >> i want to play small cap stocks via the ibm on the

upside. >> call spreads in the ibm are the way to make that play. >> i think it sets up nicely, costco, into the event. >> our time has expired. i'm melissa lee. thanks so much for watching. check out our website. see you back here next friday at 5:30 - [announcer] the following is a paid advertisement for the three week yoga retreat. brought to you by beachbody. - are you a woman of a certain age? if you are, pull up a chair and sit with me, because this is for you. i'm leeza gibbons, and it was a big year for me, i turned 60, and i'm all about aging gracefully with empowerment and all of that, but let's be real, there are some parts about getting older that are just hard. - all of the symptoms from menopause, from a to z, i have it. - my body is changing. - i'm not as flexible as i used to be. - i'm anxious, i don't sleep.