hey there. live in times square look who stuck around for "options action" we have a big show on deck here's what's coming up. >> stocks are flying high. but dan nathan says there's one stock that may have run a little too far too fast he'll break it down. plus, video game stocks have been glitching, but mike khouw says there's one name that is about to re-up online. he'll tell us what that is and later, it's the ultimate tag team

guy adami and mike khouw coming at you with the ultimate play on one soaring media stock. you don't want to miss it. it's time to risk less and make more the action begins now. let's get right to it because stocks are in rally mode the dow soaring more than 400 points today, closing at its eighth straight week in the green. the surge off the low sending a number of dow stocks back to their 52-week highs. boeing, cisco, nike, merck all on a tear but dan says one of these stocks have run a little too far too fast he's at the plasma breaking it all down dan. >> mel, one of the things i want to focus on is why the market rallied. the s&p 500 closing above its 200-day moving average for the first time since that first week in december right after the g-20 meeting when the president declared that he had some sort of deal with china we didn't have that deal the market flushed we obviously closed on the high of the week. let's go to the s&p 500, the one-year chart

there's the 200-day moving average. this is when we declared some sort of victory after the g-20 you saw what happened there. we had a flush in the s&p 500. we're back towards these levels. i know a lot of people are tagging that 2800 as a resistance level one of the things that caught my eye are some of these stocks that have more than made up from those early december highs and they're all the way back to their prior highs. one of those names is nike nike is interesting to me because back in the throes of that selloff december 20th, nike released earnings that were kind of eye popping their revenue in china was 31% better than expected, 14% in europe and 9% in the u.s the stock then was in the high 60s, so we're talking about in here it obviously went lower as the market made lows, but it's ricocheted all the way back here it got a little technical resistance here today. one of the reasons i want to look at the stock is the reason the market is rallying right now. we averted the government shutdown and the next one is

another hope of a trade deal or a push-out of those march 1st tariffs. so let's just focus on some of the names that might benefit from that and you'd say nike would be one china is a big growth area but it hasn't held the stock up. one of the things that i think just like in early december, you could have a sell the news even if they just push out these tariffs, these future tariffs, and we might see nike, who gave guidance on december 20th, we may see them temper that guidance when they report in the third week of march. right here, this is really important. i know guy will speak to this in a little bit nike is trading on a pe level at 32 times this is a company that's growing faster than s&p earnings they're expected to grow in the mid-teens and 18% next year. but it trades 32 times this year, 27 times next year even if we have a pushout of

this tariff thing, we're still going to have tariffs and still going to have some headwinds to global growth. that's one of the reasons that you could see nike give a slightly more cautious commentary than they did back in december okay, lastly, let's move on right here this is the price of options, implied volatility in nike short dated options have come down to 22%. obviously more than half of where they were in december. this makes long premium directional trades kind of attractive if you have an inclination on a move. here's the trade i think nike has the potential to be rejected here in the mid-80s and maybe move back towards 85 using earnings as that catalyst in march obviously we have no idea what the outcome will be of this trade situation. i don't think we'll have a clean deal any time soon so i want to look out to april expiration when nike was trading at 85.25

you could buy the april 85-75 put spread paying $2.50 for that buying one of the april 85 puts for $3.10, selling one of the april 7th puts you could make 7 respond 50. i like the risk/reward, risking $2.50 to possibly make $7.50 if the stock is back in the mid-70s where it was just a month ago. i like the risk/reward of this trade. >> why don't you come back over. >> bring him back. that was five minutes of magic there. >> we do want to go to mike khouw to see what he thinks about dan's magic at the plasma. what do you think of dan's trade, mike? >> yeah. i think he actually was hitting on the key point here, which is the price of options relative to how much the stock could potentially move around between now and expiration, the period which does capture earnings, does capture some of the tariff uncertainty, and by the way, let's bear in mind that some of this growth story coming as it does from china, even if you don't have any kind of a

trade-related issue, what you do have also is you're hinged to the global growth story. even as u.s. consumers might be strong, you also have to rely on strength overseas. this is a stock that typically moves over a comparable amount of time encapsulating earnings 10%. he's spending 3% of the current stock price to make a directional bet. think about it this way. if you're going to make a directional bet, right or wrong, right now the price of options is indicating that you're much better off doing a trade hike this one rather than buying the stock or shorting the stock. the one question i would have for him is that lower strike put, i wonder whether it really makes sense to sell that given how cheap options are relative to the price moves that you would see over comparable periods of time. >> mike, that makes sense. obviously it's less than 1% of the stock price. it's so far out of the money, it's just giving me that nice symmetry of risking $2.50 to make $7.50 thanks for calling me out, brother. >> he's not calling you out. he's saying are you getting paid enough to take the risks associated with it i watch this show religiously now for the last ten years now is it my turn?

>> yes. >> i don't know how it works i don't do this show. >> go ahead, guy. >> i happen to agree with everything dan said they top of the show valuation at 28 times forward earnings you have to say how is that justified in this environment. i don't think it is. but you go back to last quarter, december 20th. that quarter seemingly came out of nowhere inventories up a percent, 9.5% sales growth their margins are hanging in there, they're buying back stock and the stock was correctly rewarded for it. it went from 67 where it is now. you have to ask yourself can they do it again i believe on march 20th and my answer is no, especially if you believe, like i do, we are absolutely due now for a change in the market tone. the market needs to do a back and fill at some point and high fliers like nike won't be a safe place to be in my opinion. >> one thing that really struck me about that nike guidance and the commentary about china is two weeks later, apple just gave this guidance that was atrocious, revenue guidance, and really spoke to china weakness in particular.

to me, i just think there's a good chance since they last reported that the tenor has changed a little bit, the stock has performed. it's trading very rich to its peers and the market i wouldn't be buying this stock for a breakout and the option trade has a good risk to reward. electronic arts getting a boost as its new hit game gives the stock new life video game stocks have gotten wrecked over the last few months mike, though, says there's one name in the group that's about to level up. what are you looking at, mike? >> yeah, it's actually interesting to use the term level up because that's what i'm looking for. i'm looking at activision who is probably better known to people who are watching because they do candy crush, call of duty, some of those well-known games. fortnite and some others have taken their place.

one of the things we're seeing after a prolonged period of increasing revenues, they had a disappointment the company is talking about doing some restructuring and layoffs and they're forecasting revenues for the full year that will look more like they did in 2016 obviously in order to achieve the same income, they're going to do to do some pretty good downsizing essentially to accomplish it. that said, i think some of the worst may be in if you look at the valuation that you saw back in 2016. to do that, we'll see a pull back to maybe around the 40 level. the trade that i was looking at is a 1 by 2 put spread, the 42.5-40 strike you would spent $1.85 to buy the puts and sell 2nd of the 40s against it for $1.05 net-net you'll collect a 25 cent credit you're trying to take advantage of the fact that options premiums are expensive you're going to get paid over time to own the trade. if the stock were to pull back

to about 40, which by the way would get you back to that 2016 valuation, and we're looking for comparable revenues, that would be essentially the peak profits that you would see on this trade. worse, if the stock fell, you're going to own it at 40 but the net cost of purchasing it is down near 37.25. so you have an opportunity to buy it at a discount where it's currently trading. you could get paid if the stock sits right here taking advantage of elevated options premiums i would also point out earnings comes after april expiration so that's the other reason why we might expect it to basically level off here we'll let guy speak to this. i think the charts don't look particularly enticing and that's one of the reasons we might do a trade like this, even though we think valuations are starting to get compelling. >> is it dan's turn? he said guy and then i just heard my name.

>> is that like a pavlovian response >> mike's idea here is really interesting. you took something that had this massive, massive move over the last few months. it's got a lot of news out the guidance was atrocious expectations could be low enough now so mike is pairing this fund mental view with an options trade that makes a lot of sense. look at the range in which the worst case scenario is you own this stock in two months down at 37.50. the way that electronic arts, ea, ricocheted after its really bad guidance, this trade almost sets up decently or a similar sort of trade if you're inclined to sell puts is selling puts, buying calls and paying for a ricochet higher. mike is taking into credit and if it goes higher, he has that credit worst case he's way down below the market. >> guy. >> nobody said i wore my o.a. jacket i got outfitted with this earlier today. so i get to talk now

>> yes >> so i actually agree with mike khouw, surprise, surprise. go back to the beginning of 2017 and look where activision took off from not surprisingly around 37.50, the number that mike just gave you and the stock has not traded particularly well. it's not like it's bounced all that much. the stock has gone from basically 80 down to 44 with nary a bounce. i think there is further downside however, if you want to play it from the long side into space, look at what take two has done, bottomed out the same level we saw back in march, on huge volume, the same type of volume we saw in march. if you're looking for a pairs trade and want exposure in the space, long the equity in take two and put on this brilliant options trade that mike and dan just spoke to in activision. >> mike, last word maybe commentary on this pair trade. >> i like that idea that's even more complicated than the things we normally come up with here. but i like that idea here's the thing to dan's point. to the risk reversal idea,

you're looking for a catalyst and you're going to get one so that would be the follow-on trade going into earnings which report in late april after this trade expires. >> go to our website, optionsaction.com. sign up for the newsletter guy said he did all night just to prepare for today's show. here's what's coming up. mike and guy are best pals, and they're teaming up to give you a trade on one media stock they think could break out even higher. plus, calling all options actions fans reach into your pocket, grab your phone and tweet us your company @optionsaction if it's nice, we'll answer it on air when "options action" air when "options action" returns. i don't know what's going on. air when "options action" returns. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis.

is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪ (coughing) need a change of scenery? kayak searches hundreds of travel sites and filters by cabin class, wi-fi and more. so you can be confident you're getting the right flight at the best price. kayak. search one and done. ♪ ♪ our new, hot, fresh breakfast will get you the readiest. (buzzer sound) holiday inn express. be the readiest.

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if you love disney at 15.5 times in my opinion you've got to give cbs a shot at 8. number two, traded well on bad news yes, it wasn't a great earnings release, didn't say some of the things you wanted to hear. the initial reaction the stock was lower, but look where it traded today it traded extraordinarily well you're going to say wait a second, wise guy shall the market was up 400 points yeah, i know that. i was around today too, i caught that move. but cbs was trading well long in advance of that. when it trades well on bad news, that's a tell as well. the last one, we talk about it all the time, there's huge potential in the environment we find ourselves in for m & a. i think you'll see it there. i don't know what cbs looks like a year from now but i think it looks like two things, higher stock price. two things, right, there you go. so with that, i'm going to tap my friend, mike khouw, on the other side of the country in san francisco and see if he can sort of push back, have a trade, a little options thing

mike, are you there, i hope? >> i'm here. guy, i've got a question for you because taking a look at that chart, it looks to me like 60 could be a potential area of resistance would you agree with that? >> 100%. if you get 60 here, that's a nice little trade. if you're looking for a bounce like i am, i think 60 would be a tremendous exit point. makes sense for a lot of reasons. not only in terms of valuation, but in terms of technicals as well. >> so that was the level i was sort of identifying. right now i think you could look to the june 50-60 call spread. when i was looking at this earlier today, those june 50 calls were about $3.30 you could sell the 60s against it for just 50 cents but the reason i'm willing to sell those calls is because to me it looks like it would be quite a stretch for the stock to reach that level it looks like there's some resistance around 59.75. the stock was over 50 when i was looking at this, so these 50 strike calls were in the money

you're spending $2.80 for a trade that's already 50 cents in the money. the reason you would look to options rather than just buying the stock, we can see what the market has done and more specifically what cbs has done lately it has made a very sharp move if for whatever reason we happen to get this bet wrong, you're betting a relatively small amounting of the stock price this is a way to commit less capital to the trade, take less risk, but still get participation essentially to the upside for all that i think the stock would be capable of between now and june expiration. >> grade the tag team and then grade the team. >> first, you can tell i'm in a bit of a mood here because professor khouw sold me out and he's talking about m & a and cbs and you're selling an out of a money call against a call that you own for 1% of the stock price. mike, come on, buddy -- >> wow. >> okay, yes first of all, let's take a look at the strike. that's a $60 strike versus, say, a 70 some odd dollar strike so we're both selling premium

around the same levels the other thing is this is a situation where we've identified a specific area of resistance. we're trying to keep that options premium that we're spending, the extrinsic premium down that premium is not extrinsic, we want to think about that as how much out of the money premium we're spending here. this is a little wonky but it's an options show, we should be allowed to do that we're trying to mitigate some of the decay the option has, mitigate some of the downside risk the stock has and identify an area we would be looking to exit it if we get this right that would be a 20% move to the upside that would be pretty strong. >> i think guy's valuation call and i think for the potential catalyst makes a lot of sense. most of the bad news is likely in the stock right here but there's still a lot of uncertainty. so i like the width in which you've defined to the upside to play this thing. any positive catalyst and you'll have this in the mid-50s pretty soon.

>> guy, another good tag team. >> the first one we did worked out extraordinarily well i don't remember what it was i'm sure the crack staff in d.c. will tell me in my ear. coming up, coca-cola shares falling flat this week how to turn that frown back into a smile. for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪

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i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

welcome back to "options action." time to take a look back at a couple of our open trades. last week mike and carter predicted coca-cola would deliver a sweet earnings result. >> if you put in a descending upper line, you have the setup that i think is ultimately the breakout. >> i'm just looking at the may 49 calls you could spend $1.60 for those. when i was looking at this earlier today, that obviously represents a relatively small percentage of the current stock price. >> instead of bubbling up, the stock fell flat, sinking around 9% this week now, you may have noticed that carter isn't on the desk tonight but we were able to track him down in the cayman islands here's what he had to say. >> come on. >> seriously coke pulled up lame this week dropping on earnings instead of popping as we anticipated. first loss, best loss. close out and move on. got milk

mike, what do you do from here >> sometimes we try to make more, sometimes we try to risk less we did risk less, that's the only good news here. we lost about $1.35 on those calls. veries the 4.25 you would have lost on the stock. blow it out, that's the only thing we can do here. let's move on. last month dan said u.p.s. could get a boost between the latest trade talks between the u.s. and china. >> there will be some sort of announcement that pushes out further or something that kind of works on that trade balance that should be good for u.p.s. you could buy the february-march 105 call calendar paying $1 for that selling one of the february 105 calls at $1 buying one of the march 105 calls for $2 >> so u.p.s. is up around 9% since then and the first leg of this trade expired today what do you do, dan? >> this is a good example of having a thesis fundamentally, getting the direction right and getting the trade wrong. this stock after earnings did go to 105 that's the strikes that was the level in which i

was targeting prior to february expiration so here's the thing. the stock at 110.87 today. that short february strike is trading at cash. if you're short one of those, you're assigned 100 shares but the trade was also long one of the march 105 calls so the trade is basically a wash here you had an opportunity to take some profits right after earnings, but this is a trade that needs to be managed prior to expiration. >> directionally, though, at this point now that we've gotten the warning from xpo logistics, what would you do? >> you look at fedex and saw the news today, you know, u.p.s. cheap stock. i think it's well positioned if you get some decent news and kind of some reaffirmation of the potential for global growth in the second half of the year to be better than the first half, this is a stock that should benefit that's a big if. up next, your tweets and a final call 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

what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪

mike. >> cbs is cheap. june 50-60 call spread is cheaper. >> dan. >> nike i like april put spreads. >> guy. >> it's just an honor to be here on set. >> it's great to have you. >> carter is in the caymans, i hope he's watching have a nice, long weekend. >> see you back here next friday - [narrator] the following is a paid program for luminess silk sponsored by luminess air. watch this revolutionary touchless makeup that appears to erase flaws like magic. it'll transform the way you look in minutes. - see this here? gone. - see these blemishes over here? all gone. - you can see all the sun damage that i have in here. you're gonna see it just disappear. you see that? gone. - [narrator] people are leaving ordinary foundation