hey, there, we're live at the nasdaq market site the guys are behind me while we're doing that, here's what's coming up in the show ♪ >> thanks, pat we've actually got a better way to get long shares of gulf of mexico, and we'll show you how plus a classic investment theory is flashing a sign for one dow stock and here's a hint.

♪ who lets 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. it's just mike's signature option strategy and we'll show you how to 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. >> yeah. so as of like six months ago, 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 2018 setups 67 >> 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 so today when gm was trading at 42 bucks, i bought the january/february 43 strike call calendar i sold one of the january 43 calls at 60 cents, and i 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 43 call for 60 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 million 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 c-a-r-z, carz 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 particularly good, i like that one. you know ferrari is in a bit of trouble, tesla is too. 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 actually increase that value. to me they just invested in lyft -- this is gulf of mexico. 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 into january.

let's move on. 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, a habanese, 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,

close to around 3% cisco systems right around that 3%, maybe a hair above it. coca-cola, 3.2%. merck at 3.4%. 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. >> oh, 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 >> let's try to pick one 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 year-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 now, how to draw the lines this is 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. you've got this little bit of breakout and a checkback now you're -- and we're already seeing it, you pivot higher. long-term chart going back to the peek, 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 head and 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? >> say so it's interesting. this is a relatively low volatility name, although, obviously it's had a good move off the midyear 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 looked at it earlier today 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, what do you think? >> 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's 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. i think the thing is this. you can pick your dog of the dow pick and get it wrong 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. >> yeah. i mean i think it's obviously one of these issues where a lot of these integrated oil companies have not necessarily been replacing their reserves. if 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 with puts and calls, perfect for the christmas holiday. in the 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. and 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. you traded options. i'm not really a wall street guy. >> logical ou 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 call 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 wait, there's 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 stockings to fall below 143 by the end of this 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 >> how does semis look, carter >> 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 versus other semis 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 @optionsaction 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 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 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 a new 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 set to soar even higher. >> taking a look at how the stock has behaved, one of the things we've seen is 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 its record highs. so, 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 strike 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. so i would close this one and actually put on a 280/300 cal spread risk or even broader strikes than that out to march >> carter? >> what we know, 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 got the chart right, they got the 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

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." 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 expended here. you would probably be better off taking a punter with some calls. >> and because it's christmas, marco had to ask, have the traders finished their christmas shopping i'll go to dan for that. 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 mike >> merry christmas tree. >> oh, gosh. carter >> merry christmas, buy chevron. >> trades make sense, use calendars to do it >> have a great christmas. don't go anywhere. "mad money" is up next - [narrator] the following is a paid advertisement for the 3 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 the symptoms of menopause from a to z, i have them. - my body is changing. - i'm not as flexible as i used to be. - i'm anxious, i don't sleep.