we're live at the nasdaq in times square on expiration friday look who stuck around for "options action. mr. guy himself. we've got a big show on deck here's what's coming up. ♪ got to stay high >> 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 on lives. he'll dell 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 stocks are in rally mode the dow soaring 400 points, closing out its eighth straight week in the green sending dow stocks to 52-week highs. boeing, cisco, nike on a tear. some of these stocks, dan says, have run too far, too fast. >> one of the things i want to focus on, the market, why it rallied almost 2.5%, s&p 500 closing above its moving average this week for the first time since that first week in december right after the g20 meeting when the president declared that he had some sort of deal with china we didn't have that deal and the market flexed. this is the one-week charger we closed on the high of the week

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 g20. you saw what happened, a flush in the s&p 500 we're back towards these levels. i know a lot of people are tagging that 2,800 as a resistance level some of these stocks have more than made up from early december highs. and they're all the way back to their prior highs. and one of those names is nike nike is interesting to me because back in the throes of that sell-off, december 20th, mike released earnings that were kind of eye-popping. their growth in china, revenue growth, was 31%. better than expected 14% in europe, and 9% in the u.s. the stock that was in the high 60s, so we're talking about in here, it obviously went lower as the market made lows but it's kind of ricocheted all the way back here. it caught a little technical resistance here today. one of the reasons i want to look at this stock is the reasons for why the market is rallying right now

obviously we reverted to government shutdown. the next is a hope of a trade deal or pushout of march 1 tariffs. let's focus on a let's bit some of the names that might actually benefit from that. and you'd say mike would be one. obviously china is a big growth area it hasn't held the stock up. one of the things that i think, just like we had in early december, you could have a sell the news even if they just push out these tariffs, these future tariffs. we might see mike, 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. mike's trading on a p/e level at a 10-year high, 32 times obviously this is a company that is growing faster than s&p earnings are expected to grow in the mid teens. 18% next year. it trades 32 times this year, 27 times next year. even if we have a pushout of this tariff thing, we're going to still have tariffs and we're still going to have some

headwinds to global growth that's one of the reasons why i think you could see nike maybe 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, applied volatility, nike short dated options have come down to about 22%, more than half 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 mike has the potential to be rejected in the mid 80s, maybe move its way back toward 85 using earnings as that catalyst in march. obviously we have no idea what the outcome is going to be of this trade situation i don't think we're going to have a clean deal any time soon. i want to look out to april expiration when nike was trading at 85.25 pay $2.50, buy one of the april 85 puts for $3.10, selling one of the april 75 puts a the 60 cents. it cost you 2.50, break even

82.5, make up to 750 between 82.5 and 95. i like the risk/reward if the stock is back in the mid 70s where it was just a month ago. and i like the risk/reward. >> why don't you come back over. >> yeah, bring him back. tremendous job 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 plaza what do you think of dan's trade, mike? >> yeah, i think he actually was really 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, nearly 10% he's spending about 3% of the current stock price to make a directional bet. so you can think about it this way. if you're going to make a directional bet, right or wrong, right now the price of options actually is indicating that you're much better off doing a trade like this one rather than either 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 you would see over comparable period of times. >> makes sense, less than 1% of the stock price. it's so far out of the money here it's just kind of giving me that nice symmetry of risking 2.5 to make 7.50, thanks for calling me out. >> he's not calling you out, he's saying, are you getting paid enough to take the risks associated with it

i understand i watch the 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. >> all right, guy. what do you think of nike? >> i happen to agree with everything dan said at the 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. last quarter, december 20th, that quarter seemingly came out of nowhere inventories up 1%. 9.5% sales growth. margins hung in, buying back stock, took everybody by surprise the stock was correctly rewarded for it went from 67 to where it is now. you have to ask, can they do it again? i believe on march 20th? 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 sort of do a back and fill at some point. high flyers like nike won't be a safe place to be, in my opinion. >> yeah, one thing that really struck me about that nike guidance and the commentary about china was that two weeks

later, apple just gave this guidance that was atrocious. revenue guidance they really spoke to china weakness in particular so 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 in this option trade has a good risk/reward to the downside. from sneakers to gaming. electronic arts getting a boost as it hits its new apex legends game, gives the stock new life the video game stocks have gotten wrecked the last six months take activevision, it's about to level up? >> interesting term, level up. that's what i'm looking for, looking at activevision, which is probably better known to a lot of people watching because they do candy crush, call of duty, well-known games fortnight 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 a little bit of restructuring and some layoffs they're actually forecasting revenues for full year 2019. they're going to look a little bit more like what they did in 2016 so obviously in order to achieve essentially the same income, they're going to have to do -- it's a 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're going to see a pull-back maybe to around the 40 level. the trade i was looking at, not one that we talk about that often, one by two put spread the 42.5, 40 strike, one by two put spread in april, spend $1.85, then sell two of the 40s against it for $1.05 net-net you'll collect a 25-cent credit here's the thing of a trade like this, trying to take advantage of the fact that options premiums are expensive if the stocks levels off it's

going to decay where you're going to get paid over time to own the trade here if the stock were to pull back to about 40, which gets you to the 2016 valuation, we're looking for comparable revenues, that would be essentially the peak profits you would see worst case, if the stock actually fell, you're going to own it at 40, your net cost of purchasing it is going to be they've 37.25. so you have an opportunity potentially to to buy at a discount, you could get paid if the stock basically 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 basically to level off. we'll let guy speak to this. i think the charts don't look particularly enticing and that's one of the reasons why we might do a trade like this >> is it dan's turn? >> you said guy, then i heard my name

>> i've been watching ten years friday, i think i get the trade. >> mike's idea is interesting. you took something that had this massive move over the last few months it's got a lot of news out the guidance was actually atrocious. expectations could be low enough now. mike is pairing this fundamental view with an options trade that makes actually 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. i would mention this, the way that electronic arts, ea, ricocheted after its really bad guidance, this trade almost sets up decently or a similar trade if you're inclined to sell puts, a risk reversal, buying calls, paying for a ricochet move higher mike's trade does well in a lot of different scenarios especially because he's taking a credit if it goes higher he has that credit in the worst case he's down below the market >> it's my turn. nobody said i wore my oa jacket. >> you look great. >> 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 activevision took off from around 37.5, the number mike just gave you and the took has not traded particularly well going from basically 80 to 44, with fanary a bounce. if you want to play from it the long side in the space, look what take two has done over the same period of time. bottomed out, the same level we saw in march on huge volume, the same we saw in march if you're looking for a pairs trade, if you want exposure in the space, long equity and take two. you put on this brilliant options trade that both mike and dan spoke to in activevision. >> last word commentary on this pair trade? >> yeah, well, i like that idea. even more complicated than the things we normally try to come up with here. >> i'm sorry. >> i like that idea. here's the thing, i will say to

dan's point, to the risk/reversal idea, you're looking for a catalyst, you're going to get one, but after the expiration of this trade that would be the follow-on trade going into earnings which are going to report in late april after this trade expires. >> check out optionaction.cnbc.com. sign up for our newsletter guy has studied it all night to prepare for today's show 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 owl 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. i don't know what's going on. 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.

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everybody loves disney if you love disney at 15.5 times, give cbs a shot at 8. number two, the point i made earlier. traded well on bad news. yes, it wasn't a greaterings release. didn't say some of the things you wanted to heavy. the initial reaction of the stock was lower. look where it traded today it traded extraordinarily well you're going to say, wait a second there, wise guy, market was up 400 points. yeah, i know that, i was around today too. i caught that move guess what cbs was trading well long in advance of that. when it trades well on bad news, that's a tell as well. last one, i think this is pretty obvious to everybody we talk about it all the time. there's huge potential out there in the environment that we find ourselves in for m and a i think you're going to see it there. i don't know what cbs looks like a year from now but i think it's going to look 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, options thing, mike, are you there? >> i'll here, and guy, i've got a question looking at that chart, it looks to me like 60 could be a potential area of resistance would you agree? >> 100%. if you get 60 here, that's a nice trade i think 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 50 cents. the reason i'm willing to sell those calls is to me it looks like it would be quite a stretch for the stock to breach that level. looks like there's resistance around 59.75 the other thing i would point out here too, the stock was over 50 when i was looking at this. so these 50 strike calls were

actually slightly in the money when you take a look at this, you're spending $2.80 for a trade that's already 50 cents in the money. and 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 amount of the stock price. this is a way you can commit less capital, take less risk, but still get participation essentially to the upside for all i think the stock would be capable of between now and june expiration. >> grade the tag team and the trade. >> i'm in a bit of a mood. professor khouw called me out. here's talking about mna, cbs, you're selling a call that you own for 1% of the stock price? mike, come on, buddy. >> wow, okay, yeah well, first of all, take a look at the strike, a $60 strike

versus a 70-odd dollar strike. we're both selling premium around the same levels the other thing is this is a situation we've identified a specific area of resistance. we're trying to keep that options premium that we're spending the extrinsic premium is down. $3.30 option, that's not all extrinsic premium. we want to think about that as a function of how much out of the money premium we're spending this is getting a little wonky but it's an options show this is the idea here, we're trying to mitigate some of the decay the option has, mitigate some of the downside risk the stock has, and identify essentially an area we would be looking to exit at if we get this right, a 20% move to the upside, pretty strong. >> i think guy's valuation call, for the potential catalyst, makes a lot of sense to define your risk makes a lot of sense a lot of the bad news is in the stock but a lot of uncertainty i like the width you've defined to play this thing any positive catalyst you will have this in the mid 50s pretty

soon. >> good experience another good tag team. >> tremendous. the first one i think we worked out extraordinarily well i don't remember what it was i'm sure the crack staff will tell me in my ear. coca-cola shares falling flat mike khouw will hell you how to turn that frown back inn a smile. stick around for his coke recovery trade 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, just a moment take a look back at a couple of open trades last week mike and carter predicted coca-cola would deliver a sweet earnings result. >> if you leave the bottom trend line on andput 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. it obviously represents a relatively small percentage of the current stock price. >> instead of bubbling up, the stock fell flat, sinking around 9% this week you may have noticed 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, he sent a postcard coke pulled up lame droppings in 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, we lost about $1.35 on those calls versus the $4.25 you would have lost on the stock. blow it out, that's the only thing we can do. >> last month dan said u.p.s. could get a boost from the latest trade talks between the u.s. and china. >> there will be some sort of announcement that pushes out further or something that works on the trade balance that should be good for u.p.s. buy the february, march 105 call calendar, paying $1, 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. >> this is a good example of kind of having a these sister fundamentally. getting the direction right. kind of getting the trade wrong.

this stock did go to 105, the level i was targeting prior to february expiration. here's the thing, the stock at 110.87, the short february strike, basically trading at caps you're short, you're assigned 100 shares the trade was 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, at this point, now that we've gotten the warning from xpo logistics >> i think the stock did well. fed ex, the news today -- u.p.s., cheap stock, it's well positioned if you get some decent news and some reaffirmation of the potential for global growth in the second half of this year to be better than the first half, this is a stock that should benefit. up next, your tweets and the "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. ♪

"final call. mike >> cbs is cheap, june 50, 60 call spread is cheaper. >> i like april put spreads. >> it's an honor to be here -- >> great to have you. >> carter's in the caymans, i hope he's watching have a nice long weekend. >> see you back here next friday the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym.