hey there, live from the nasdaq marketsite on this cloudy friday evening the guys getting ready behind me here's what's else is coming up. ♪ up through the ground come a bubbling crude ♪ >> oil is social mediaing and the chart master says it's about to bubble even higher. he'll break it down. >> plus, are you ready for video game earnings. mike khouw is. he says there's one name about to level up he'll tell us what that is.

and -- >> i'm going to disney world >> so is dan nathan. he thinks it's about to wake up. he's got the trade time to risk less and make more. disney, it's been on a magical run. check this out shares have been up 20% in the last month alone as it unveiled the streaming plus service and broke records with the premiere of "avengers endgame." now the company is getting ready to report earnings next week the options market implying a move of 4% in either direction so let's get in the money and dan is looking at disney >> yeah, so like you said, they report next week this is going to be really interesting. i cannot remember the last time that we've seen a mega-cap stock like this gap the way it did and not basically on an earnings event but really on something that was structural to their business that everyone saw coming

and it was really about this over the top announcement from that investor day that they had on april 11th and they caught a lot of people off guard and look at the chart on a one-year basis. i'll let carter speak to it, and we see this consolidation that happened most of this year and an utter explosion and you back it out to five years when the s&p has been going up, skipping up about 15% on average per year and you see also this massive consolidation and just a massive, massive breakout above that 120 level i think it's going to take a major market sell-off to have that stock down there before this company has the opportunity to show their goods when they roll out this product at the end of the year if you missed this move, i don't think you want to buy it in front of earnings because a lot of the reasons why you want to own this stock are going to take some time to materialize into q3 and q4, but the trade could set up as a way to sell some near-term options and buy some longer data calls so financing it, we'd like to call that a

call calendar. you want to sell the short data in may and today when the stock was trading at $134, you can buy the may/september 140 call and sell one of the may 140 calls buying one of the september 140 calls for 525. that cost you four and a quarter and that is your maximum risk. what you want to have happen is the stock to continue to consolidate between 140 between now and may expiration and you can have the 140 september call for four and a quarter and at that point you may may want to turn into a calendar again or a vertical bu the most important point and the likelihood of the stock gapping again and to me especially above those highs in 140 in the next week or two are not likely. >> i like the fact that you chose a stock that's out of the money, if you will, and

you take a look at the stock these are levels actuall in terms of valuation and the earnings disappointment in august when we saw the sharp gap down but this is a stock that obviously i think everybody is familiar with the fact that they have a lot of exciting things going on and fundamentally it has performed very well over the course of the last few years, but i would agree with you, why it would gap upon right now when you have to have a wait-and-see approach and it makes sense to pull on a trade like this. >> the odds of gapping up again after the rating is we have the zero you can never have a zero. i would say this the setup, the rerating is classic and a conventional -- a convention is a stock at a well-defined tops and the chart dan had there, 120 was in play for four years and a classic breakout at this point it's been re-rated to where it belongs and the odds are that it backs and fills for

a long time, neither getting much better nor giving back an of the ground that they achieved on the netflix news. >> and because this is an options show, another trade you can consider, if you're the sort of person that says, you know, what that stock got back to 120 during the summer that's the level where i want to buy it and you can sell maybe the july or the september 120 put and you would get $2, $3, $4 depending upon what expert there is and you're basically setting up to earn it if it got down there and the strike is the premium. to me there are a lots of ways to play that and you want to lean it to the 120 level. from disney to drilling oil take a hit after the run of $65 a barrel surge in u.s. inventory number slamming both the commodity and the energy stocks and crude is now down nearly 7% from its april highs. the chart master know says there is a rebound brewing so, carter, why don't you head over to the plasma and break it down for us.

>> this is not about energy stocks energy stocks are a dead area of the market and i don't see anything but misery. the commodity, you have a sell-off that's viable, so crude oil, no drawings we know, o course, a fairly well-defined head and shoulders bottom and then it all took off let's look at this takeoff and put it in the context of where 43% and 57%. it just shows when you lose money, it takes a lot more to get back, but the setup about the rebound is what's important. watch this we've come back to a inherently difficult level there are a lot of dead bodies here over at supply. that's a ver important concept and it has stopped at that juncture, but where it's pulled back here is very orderly this little dip is in line with what's happened several times along the way. from the bottom, in fact if i were to put in percentages here, you can see this, right? so this is minus 6%. this is minus 8, minus 6, minus 8.

it's all fairly orderly, and the natural thing to have give-backs on the way up and the issue is, do you buy this most recent dip i think that's what you're wanting to do here here's the line and my bet is that we're going to respond, respond, respond to that line yet again. so normal to back and fill after having back to where overhead supply is. we're dealing with the overhead supply and i think you get your next rebound here and want to be long and the trade is uso. this is the etf that does it and making the bet again that these minor sell-offs all are going to give way and they have in the past to recovery moves so the sequence would call for a higher trade here, long uso. >> all right so, mike, what's your trade? >> you mentioned the fact we did see the inventory build that was just shy of 10 million barrels week on week that we saw, that does only take us to about the five-year average inventory at this point of the year, though, and obviously we

have a very strong economy we could potentially see some increased demand and so kind of as the charts are indicating i feel like this is kind of a pick 'em it could go either way which is why i wouldn't be inclined to sell puts or a downside an i think we'll play that it is going to make that move higher and one quick point i would make, uso represents wti and it's a little bit differently fundamentally than brent is. brent, we often take a look, not at these charts but the term structure and right now there's almost a little bit of contango. the front prices are lower not true in brent so i think what we want to do here, a way to take a bullish bet, i was looking out to july, 13 1/2 calls trading 42 cents when i was looking at this earlier. the idea here is that you're not risking a great deal i mean obviously as a percentage of the underlying it might seem like a lot, 40 cents versus 13 bucks or so but consider how much it can move, where we have

come from when we take a look at the highs over the course of the last year and the low, this will basically be a trend trade if it ends up working in our favor you could have an opportunity to roll it up and out or spread or do things like that >> it's interesting. mike was interesting to risk -- >> makes less, make more >> it's 2% from a stock that literally just got back to your line it could go either way, carter it did break down, and the dollar pulled back most important thing about thi trade and the break even is up 13.92 and the etf was trading two weeks ago. you could have it back at that level and what's been a very volatile sort of risk asset in a low volume sort of or low volatility market of late. >> that's right. we hit a high of 66.50 on w tfrment i and 61.86 playing for a small bounce

make some money. >> based on the chart of oil, though in uso, carter, could you extrapolate that will be the move in energy stocks. >> great periods of time where they're high an peers of time where they have nothing to do with each other and they've lagged the market and not so much as it relates to oil. it's right now not of interest to the investment community. if you're running a growth portfolio and tied to a benchmark energy is 1% and 2% of your bench which means you don't spend any time on it it's lost its import in the general construct of many portfolios. >> is that why you chose oil versus and xle trade. >> i already -- personally i have exposure to some of the energy stocks and favored oil service and my logic there's a lot of activity in the north american companies obviously have a lot of things potentially as a tailwind but that hasn't played out in the equity obviously there's some real concerns right there i think if you're trying to make a directional bet in oil you keep it simple and focus on

something like uso or trading futures, you trade those. >> for everything options action check out our website. mike reads our newsletter to his kids every night here's what's coming up next ♪ >> announcer: it's been game over for the video stocks. but mike khouw says there's one name in the blufrn that may be a one-up. plus, calling all "options action" fan, reach in your pocket and tweet us your question @optionsaction. if it's nice we'll answer it on air when option option returns ♪ >> announcer: "options action" is sponsored by think or swim by td ameritrade.

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i'm not really a, i thought wall street guy.ns. 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 welcome back to "options action." gaming stocks getting wrecked with the biggest games near the 52-week high agoty vision down 43% after tanking on earnings yesterday. electronic arts and interactive not far behind and mike says one name in the group is about to get a power up he's over at the plasma with his call action. >> >> i'm taking a look at electronic arts and i want to point out straightaway that this is a little bit of a contrarian bet and if we take a look at the last three earnings it's essentially been

an unmitigated disaster and it's been down three times in a row and one of the reasons for that is their competition here which is fortnite which is obviously a runaway success and their competition in the space apex legends in the "star wars" space, not keeping up with the first-person types of games at all and i will point out that as we've seen the stock come in, most of that is actually just a result of an improving valuation because the fundamentals, the revenues and earnings have continued to grow and basically when we've seen is a significant valuatio contraction going on in the electronic arts and the other thing i would point out too is whether or not we think they can compete with fortnite they do have interesting products with the madden football and the nba2k. i can say my own kids have a lot of interest in those things and that persists for as long as there's interest in those sports here we can take a look at the chart and we'll let carter speak to it and this is compelling and basically some of this weakness seems to have basically ended up with sideways tracking action and inclined to make the

contrarian bet and not risk a great deal of money by looking at a calendar spread this thing is implying an 8 1/2% prefecture on earnings what the short-dated options are quite expensive and i want to take advantage of that and looking here to sell the may 100 calls for $1.90 and buy the junes for $3.50 so net/net spending a relatively small amount of the current stock price to make a modestly bullish bet in the short term. trading around 3 buck, i have some upside if it should, you know, have a positive response coming out of earnings but own this slightly data call if there's follow-through and it is a situation where the fact that a lot of the price decline is a result of that valuation contraction i was talking about is one of the reasons why we might be inclievened to make a contrarian bet despite the fact we obviously saw weakness in their competitors this week and

the fact they've had kind of not a great track record during the course 69 last three earnings. >> carter, what do you think >> this is high octane stuff, right. talking about a stuff the low down around 51% and it too rebounded with a market and then had a quarterly report that was so bad consensus 1.94 came in at 86 cents and plunges and two days later put out news about this apex legend thing and the stock recoups all the losses, 150 million shares change hands. half the float that action often happens when you hit capitulation low even if it's bad it is somewhat or totally priced into the stock. >> you know, those bad quarters, it's not as 23 what we're seeing is contracting eps but what we're seeing is slower rates of growth and at some point the valuation and those/er rates of growth essentially align themselves and i think we might

be at that stage now. >> this is an opportunity to tell you two calendars, one in disney and one in ea that also has an event but i think it's a lot more controversial at this point. and i'll just make this point. i like doing calendars i especially like selling short-dated events into earnings because you're basically the odds are working in your favor in that scenario except for the fact here's a company that after it gapped down it rallied 30% in the week after it's got a $27 billion market cap. they have $5 billion in cash and it's a washed out i think a washed out story so to me i'm not certain you want to do calendars if you want to be so contrarian depending on your conviction because of the way this thing has the potential to move. >> it is a fair point and the options market is implying a big move and one reason why i decided to select strikes out of the money the same way you did in disney. the other thing for everybody watching at home in names like this, we did a similar trade in cmg to the downside before when you see these things move

you have to be very nimble you may not get a chance to wait until the next options action if you don't follow us on twitter you should because we'll probably provide an update but if that option rolls off and that second one ends up in the money consider, you know, adjusting your trades aggressively because as you point out this can move sharply very quickly. >> the wores you've heard, washed out, capitulation low that's -- no one wants to talk about it people think it's a disaster often that's the opportunity and i think there's more potential it surprises the upside than collapses again. >> all right, coming up, lyft shares cruising higher today but still down 1% since its ipo. how to play it into earnings and a question for the traders of course, you do. give us a tweet. options actions you may be lucky enough to get it answered. more "options action" right after this (indistinguishable mut >> announcer: "options action" is sponsored by think or swim by

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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. ♪ action." welcome back to "options action." a look back at the trade last week dan gave a look into apple into earnings. we started this year off

january 2nd with thi negative preannouncement from apple and we had not seen an announcement like that in ten years. and the stock had been up 45% and nearly a perfect 45-degree angle and it's up 30% on the year and you can sell the may 212.50 call at $2.15 and you can use the proceeds to buy the may 192.50 put paying $2.15. >> that stock up around 4% since the time of the call >> really interesting. that was a call or trade selling a call and buying a put versus long stocks hedge trade into a potentially volatile event it was 4 1/2%. it moved right up to that point so if you sold the may 212.50 at 215 with a stock just below 212.50 a week later it's basically up 20 cents. here's the most important part that put that you bought with the proceeds of the call has lost most of its value here so the stock is up 7. you've lost on the hedge age

make a decision with your position whether you want to keep that intact if the stock is above 212.50, your long stock would be called away a market call. keep it long you have to cover that call at some point and you have to make a decision when to do that and to avoid your stock being called away. >> the thing about apple it popped on its earnings and would appear to be up from that point but, remember, it had plunged going into the earnings so at 209 the prior week and here it is at 210. to go up a dollar with that kind of news is not impressive. i would say it's sort of a dull duck here. >> all right and one month ago mike predicted lyft could be headed for a breakdown. >> right now the options market is implying the forward price for lyft which was about $75 when i was looking at this today. it's actually closer to about 68.50 down in october. look at this range that's a little bit of upside. kind of a lot of downside. october 77.50 calls were trading

for about 7 bucks. the 60 puts in october were also selling for 7. if you sell necessary for 7 and buy for 7 net/net you're not laying out premium. >> lyft down 13% since the ipo and is the to report earnings so what do you do >> the reason we set it up it was a better way to take a long position in the stock because the options market was definitely implying it was going lower. a high short interest in it. if you put the trade on and short that put you ended up buying the stock at 68 closed at 62.50 and if you're expecting it to gap higher i'm not really -- one thing you want to do, continue to try to keep your cost basis low you own it at 60 now effective purchase price will be down around the 56 bucks. the idea to keep lowering your cost basis. >> really interest so it closed

at 62.50 implied move between now and next friday is about $7 in either direction that sometimes pretty rich i'll make the point high short interest is still there. uber is coming next week this is a really important week for this stock for uber and for lyft i think with that high short interest and what's likely to be good news lyft probably rallies out of it. >> up next your tweets and the final call i don't know what's going on. i've done all sorts of research, >> announcer: "options action" is sponsored by think or swim by is sponsored by think or swim by td ameritrade. 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 trach your tweets. ryan asks when would be the best time to use a butterfly strategy profess professor? >> you want to do it when option premiums are elevated. you want to keep those things relatively short dated and looking for situations where options might be looking rich. >> time now for the final call carter >> on the sell-off in crude from 66 to 61 uso, playing long

>> mike. >> i think you keep it simple in uso, kind of a pick 'em trade and buy call. >> dan. >> i think the lyft sets up interesting, though, for potential short squeeze and think disney probably consolidates but play for a breakout later in the year. >> that does it for us see you next friday at 5:30. "mad money" starts right now - [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. is all the clutter in your kitchen starting to look like an old junkyard? sick of spending hours cooking, only to serve mediocre meals lacking in flavor? wish your family would spend less time whining and more time dining? well, now they can! with the new bravo xl, the world's first digital smart oven with flavor infusion technology. it's a breakthrough in culinary creations! coming up next, you'll see how bravo's compact design cooks large family meals in record time!