we're live at the nasdaq market site. the guys behind me are getting ready for this last friday before christmas while they're doing that, here's what's coming up in the show ♪ we hope you'll place your order right now for the '59 chevy, here's how ♪ >> thanks, pat we've actually got a better way to get long shares of gm we'll show you how plus a classic investment theory is flashing a buy sign for one dow stock. here's a hint. ♪ who let the dogs out

>> we'll give you the name and how would you like to buy micron for under five bucks? >> that's incredible >> no, it's not. that's just mike khouw's signature options strategy we'll show you how you can do it too. it's time to risk less and make more the action begins right now. let's get right to it because autos have been kicking into high gear shares of fiat up 70% in the last few months, ford up 13% all those stocks are on pace for their best annual performance since 2013 could any of these names jump-start your portfolio as we head into the new year let's get in the money right now. dan is taking a look at gm today. >> as of like six months ago, i think detroit automakers were kind of left for dead, trading near their 52-week lows. it was autonomous vehicles, it was electric vehicles, it was

just all these technical or technology themes that are playing very well with some of their competitors, with some private companies like uber and waymo, part of alphabet, that sort of thing. all of a sudden, gm stock rallied 30% from september to late october, early november on that point on the show, i was kind of feeling that move, it was too far, too fast. gm has pulled back i think those themes will be important in 2018. it can be a great investment thesis that chart right there, we'll speak to it, i like the breakout, it pulled back to that breakout level, if it holds here it looks like a decent entry for a long as we think about early early 2018 setups. >> how do you get long >> something we did last week on the show, look at call calendars. we're at a holiday period here, things could be kind of quiet over the next week, week and a half or so then we get into a period of january where we may see some people take profits.

those situations set up good for call calendars we're selling short dated calls and you're buying longer dated ones when you're targeting gm was trading at 43 bucks, bought the january february 43 strike call calendar i sold one of the january 43 calls at 60 cents and bought one of the february 43 calls for $1.20. that cost me 60 cents. that's my max risk over the next few weeks, as the stock moves towards that 43 strike, i want that to expire worthless. i want that to be long the february call for 63 cents at that point i'm targeting the earnings event in february i hope their 2018 guidance is what catalyzes this stock for a meaningful breakout off of this hold of this 42 level. >> mike, do you like the trade would you have chosen gm of those automakers >> yes it's interesting, i mean, in general, the thing about general motors, this company is incredibly cheap it's trading a little over seven times earnings the stock price is approximately

where it was at christmas of 2013 the company has made $35 billion since then and will sell 10 billion cars in 2017 i like it as a valuation story people discount autos far too much the call calendar, i like that structure just for this season in particular, for the reasons dan outlined in general, because the stock is so cheap, i would rather just be long longer dated calls here because you might have some, you know, tax gains selling in january, the call calendar might actually make some sense here. >> carter? >> if one were to look at the general theme of autos, there's a lot of talk of peak sales and quality of lending going down. what we do know is there's an etf that captures all of them, symbol carz, "cars." tell tesla is in there, ferrari, everything he's got it dead to rights, if you break it out and check back

to the point from which you broke out, it's the definition of what a reset or a repivot is, where you then get the initial breakout plus some and it's much better than ford, at least from my seat. >> does it look better than a lot of the others? >> some are better than others toyota is particular gooly goodi like that one. it's case by case. gm is as good as any >> the main fundamental reason i'm looking at gm, investors are at a point where they want to find value but they also want to find some sort of thing that will increase value. they've just invested in lyft, this is gm, they're going autonomous investors may rerate the stock higher if they see some big plan where they could be a leader in autonomous or autonomous fleets or ev. it sets up as an interesting trade, we're defining our risk, it's 1, 1.5% of the stock price, it give us me optionality as we head to january. it's been a record year for

records, as the dow sits near all-time highs the classic dogs of the dow theory could point to big games for the index in the new year. breaking it down is a man who knows a dog or two, cnbc's dom chu. >> reporter: melissa, i have two dogs of my own, lucy, 15 pounds, and a tibetan terrier named bogey. some investors are taking stock of who the dogs of the dow will be in 2018 the dogs of the dow is a screen slash investment model you take the ten highest yielding stocks in the dow, buy 'em, and hold 'em for a year, rinse and repeat the thinking is that the highest yielders are up in stocks that have gotten beaten up and might be due for a bit of a bounce while collecting a better than average dividend as things stand right now, here is how the new dogs will look for the new year in the number ten spot, it's general electric, which is

yielding 2.75% after its dividend cut number nine is procter & gamble, cisco systems a hair above it. coca-cola, 3.2%. merck at 3.4 persian chevron at 3.5%. exxonmobil a little north of that, 3.7% pfizer comes in at 3.8%. ibm, big blue itself, 3.9% and then the top of the heap in terms of dividend yield, verizon at 4.4%. so there you have it, melissa. any of these stocks may become the best in breed, maybe that's a question for traders and investors next year. back over to you >> thank you, dom. >> reporter: by the way, merry christmas. >> oh, merry christmas to you, dom chu in the newsroom. the hardest working man, he was on at 5:30 this morning. carter, head on over to the plasma >> so obviously you can only

pick from those names that have the highest yield, which typically means they've been bad performers but let's look at the investment results of this premise. this is the dogs of the dow, 1989 to present. and this is kind of quite remarkable, actually $10,000 invested in the dow, you've got yourself a nine bagger, and you've got this, if you simply went after that stock or the one you picked with a very high dividend yield half of all returns since 1928 are because of dividend returns. that's the heart and soul of this, income is as important as appreciation anyway, what i'm going to do is pick chevron just to show you again, this is an epic kind of thing. you've got the dow versus dogs of the dow over the last several

decades. it's not even close. while you might want to pick the one i picked, you also can pick among all of these dom was just talking about them, marquee names, names everyone knows, and they're all offering decent yields. i want to show you actually the actual stats on this, these dogs this is their current dividend yield, as a basket, versus the market or the dow. you've got 100 basis points more on yield look at their yield to date performance, this is pretty telling. you're talking about the dogs, right, in a big year the dow we know is up 25%. so if you believe in mean reversion, that's what a lot of this is, that's the bet that one is making by going after losers because that's what this group is you go for when the dow is up 25%, that's a loser. chevron, the year to date, wipeout, chevron's done this, dow has done this, let's keep going. here is over the last five years, you can see the numbers

chevron lagging. here's ten years well, ten year's not there let's go to the absolute chart how to draw the lines? chevron itself, i think you can draw it this way cup and handle cup and handle formation to be resolved by up and out let's clear it you can draw it this way, a nice wedge. a little bit of a breakout, a checkback. now you -- and we're already seeing it, you pivot higher. long term chart, going back to its all time peak, 135 i think you could say this here's the wedge just to get back to the high give us about a 10% move i think you could draw it this way. again, this is a five-year you've got the heavy shoulders just to get back to the high, good momentum here this is my dogs of the dow pick for 2018 >> so let's go to mike

how are you trading chevron? >> so it's interesting, this is a relatively low volatility name, although obviously it's had a good move off the mid-year low. i think you want to buy a call spread, if you're looking at the march 125, 135 call spread, you can buy that for $3.25 i would like, as dan has done, to try to find some options to sell but frankly they're just a little too cheap to sell any downside to this one this is a way to basically risk less than 3% of the stock price to make a bullish bet through march. >> dan >> first of all, that charting was surgical it just showed you how you have to look at different time frames too. that's why we use so many charts to help inform our strikes mike is using a 125, that's a nice support in targeting 135. to mike's point, that call spread that cost $3 is 2.5% of the stock price, to have that exposure for the next few months here i think that makes sense, that was a great looking setup, whether you like oil stocks or

not. >> in the context of dogs of the dow, how does it compare to other integrateds? >> chevron has been the better performer than its competitor exxon. you can pick your dog of the dow pick and get itwrong every year the principle here is what matters. as an aggregate, those who have performed poorly but have a high yield have a way of catching up, having lagged by so much >> mike, last word to you. >> i think it's obviously one of these issues were a lot of these integrated oil companies have not necessarily been replacing their reserves they're not interested in investing, it gives us some doubt. if we do get news that could result in a dividend cut like you got in ge, that could present a downsize risk. this is a way to make a bullish bet without risking a great deal for more information on "options action," sign up for our super cool newsletter, like a dickens christmas carol but perfect for puts and calls meantime, here's what's

coming up next >> tomorrow morning, 10:00 a.m., santa's coming to town >> santa, oh, my god >> yep, santa is coming to town. in honor of the big guy, we've got a festive way to get long micron for under five bucks. plus calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air. when "options action" returns. >> 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. ♪ it's the most wonderful time

of the year ♪ welcome back to "options action." it is the most wonderful time of the year we have a very special gift for all of our fans. mike khouw, as you've never seen him before >> announcer: it's the greatest gift money can buy your favorite holiday tunes sung by the voice of an angel mike khouw "options action" presents the third installment of khouw's holiday classics experience yuletide favorites like the cal calendl calendar >> it's tough environment where you actually get to collect. you do own options but those longer dated ones won't decay as rapidly. >> announcer: the put spread >> often things like put spreads are the way to make the direction play because they don't have the idiosyncratic risks that single stocks do.

>> announcer: and the timeless classic, the christmas trade >> the march 22, 2018 christmas trades >> announcer: but wayit, there' more order now and get mike's signature creation, what the heck did he just say >> two times the average daily put volume today most affect for the 145 puts traded for a price of 192 options traders are expecting the stock to fall by the end of the week >> announcer: all together in this timeless collection pick up the phone and dial 1-800-risk-less or order online. special delivery charges may apply. >> it is like christmas came early, isn't it? and the gifts keep on coming, because mike is going to serenade us once more with your signature christmas tree strategy, mike how does it work >> yeah, so this is an

interesting one. we break it out but once a year. this is actually a good trade to use in certain cases i'm looking at micron technology and the christmas tree i'm looking at is the april 40, 55, 60 christmas tree. i'll buy one of the april 40 calls, sell three of the 55 calls, and buy two of the 60 calls. that structure would cost me $4.65 when the stock was trading about $44.80 earlier today what's interesting about this, i am risking about 10% of the stock price. i get upside to 55, which is very close to the average analyst price target, those will trail off as it goes upwards of $60. of course this is a highly cyclical business. the implied volatility in micron is relatively high this company has made 7.5 billion bucks or so, it's expected to make 11.5 billion in the fiscal year ending next august it's highly cyclical this is a way you can capture

significant upside and risk a little over four bucks to do it. >> you know who's getting a fruitcake for christmas, mike from his broker. there are so many legs to that thing. mike is trying to take a high volatility trade that's up 100% for the year and do it cheaper for me that strategy makes sense, especially three days before christmas >> look, we know these are high flyers there's one semi that's rolled over, if you will, amd the others are all up and to the right and quite steep. amu had a nice checkback >> that doesn't concern you, it gapped up, it's still about 10% from its high. >> sure. but one of the things about filling the gap is that you've sort of limited that risk. checkbacks limit half the checkback risks, so to speak

listen, i'm not sure there's anything idiosyncratic about amu. it's high stakes poker if you want to gamble in this area, amu is as good as any. one of our traders says boeing's run is just getting started, we'll break that down got a question out there of course you do send us a tweet, if it's nice, we'll answer it later in the show if it's not nice, santa will bring you a lump of coal much more "options action" after this t 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. welcome back to "options action." time to take a look at some of our open trades. two weeks ago dan said costco's big run was done >> when you look at this earnings event next week, i think it sets up, given this massive ramp in costco over the last month and a half or so as a good short opportunity from a trade. and i think that to do it with the defined risk here makes a lot of sense today the stock was trading at

188, you can buy the january 185/175 put spread, paying $2.50 for that >> since the time of the trade, costco has rallied to a new high but has since pulled back. how are you managing the trade >> here is one where i got the fundamental situation wrong, it made the all-time high, carter was correct on the breakout. it didn't hold there the stock is lower than when i put the trade on the trade that i paid 254 for a $10 wide put spread, yesterday it was trading at 185 and you could get out unchanged. i closed this thing, i think you want to move on, i think i had the fundamental story incorrect. i could see this stock back at 180 in the near term let's head over to boeing. mike said two weeks ago that the stock was ready to soar even higher >> the move especially most recently has been particularly sharp. i've been looking at this level from whence it moved, when i

look at the february 265, 285, 305 calls. you'll buy the 285 calls, sell the 305 calls, and sell these 265 puts against it. that whole trade costs you about $3.30. >> that was a good call. since the time of the trade the stock has risen nearly 5%, trading near record highs. mike, what are you doing with boeing next? >> so i still like the stock here actually we don't have that much more room to that upper spread that we're short what i would do is adjust it this is an unusual situation implied volatility in boeing has actually gone up as the stock has gone up. that sets up really well for trades like this if you want to initiate them now. i would close this one and actually put on a 280, 300, 320 or even broader strikes than that out to march. >> carter? >> it's come a long way. micron is up 100% for the year boeing is up 90. this is a different animal, an industrial company

i would be inclined to sort of reduce if i were a long term holder, write calls, do something in the sense that this is always at risk for a checkback. >> would you also take profits >> yeah, it was a great trade, to me these guys got the direction right, they gottette chart right, they gotht e fundamental story right. up next, your tweets stay tuned 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." our first tweet is from edward who asks, any thoughts on selling a put spread into cat earnings in january? mike >> i like these types of plays for moderately bullish moves but this stock has had a huge run and might be a little bit extended, you're probably better off taking a punter with some calls. >> and because it's christmas, marco had to ask, have the traders finished their christmas shopping dan? >> i've been shopping for hanukkah for weeks here. i'm all set. >> all right

time for the final call. last word from the options pit >> merry christmas tree. >> carter? >> merry christmas, by chevron >> trades make sense, use calendars to do it. it with gm. >> "mad money" is up next. my mission is simple to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to make you some money my job isn't just to entertain you but to educate and teach you. call me at 1-800-743-cnbc or tweet me @jimcramer. i'm constantly telling you the discipline always trumps conviction i say it over and over and over again. in other words,