>> captain dan nathan has ha combat plan if this retailer takes a dive around earnings >> plus. >> i thought you might put a volatile psycho path on the job. >> we put a level headed make

khouw to work. but he plan to prepare for volatility it's time to risk less and make more "options action" starts now. >> let's get to it, health care getting a boost as president trump announced a new plan eamon javers has the latest from d.c. >> melissa, the president spoke in the roosevelt room at the white house today to rollout what this administration is doing on health care transparency the president views this as a political win because a lot of people around the country agree with him that this is a kind of a shady area pricing at hospitals you don't have any idea what all the different procedures you're getting necessarily cost the president wants to change that here is what he would do president saying that hospitals will now have to reveal discounted rates that they negotiate with insurers. they have to disclose prices on about 300 different services that you would schedule in advance. so in theory patients would be able to then look at prices and pick and choose what they want and compare prices among hospitals.

most health care plans would be required to reveal the rates within and out of network doctors and if there are differences between the rates people would be able to see it the hospital industry says it may challenge the changes today. we'll see whether there is a legal fight here the administration today, melissa, said they believe they're on solid legal footing, making the changes and they say they are prepared to weather any legal challenge from the hospital industry. >> eamon thank you eamon javers joining from us the white house tonight. as this was going on as the president was unveiling the new rule, the proposal of health care was staging a rebound the sector up in today's session. up 6% over the last month. the second worst of the year the chart master says it the single best opportunity in the market so make the case, carter. >> right, i think a couple of things first of all what you led with, it is the worst performing sector because energy isn't even

a sector energy is only 4% of the s&p and two stocks exxon and chevron are half the weight of the sector. if you look at real sectors, it's the worst performer that's the opportunity and yet it's now a recent out performer, as you also said, melissa, meaning it's on a longer term basis underperformed. i think this is the single best opportunity in the market. >> mike, what's the trade. >> i think the health care sector is interesting for a couple of reasons. one of the things we can look at, valuation, it has been a weak performer possibly because of some political reasons.

that would be a reason it would be under pressure from a valuation perspective that means it has not necessarily seen an increase in valuations concurrent with the market both on price to sales, price to earnings however, like the rest of the market, options premiums are exceptionally cheap. i think the way to make a play here is keep it simple i was looking at the january 97 calls just out of the money looking at them earlier today. $1.65 is what you would pay. less than 2% of the level of xlb looking at that. this was a situation where going into a spread wouldn't make a great deal of sense because going and buying that outright call is a very reasonable price. i think a reasonable way to make a bullish bet here. >> do you like health care here? >> i like the way they lay it out. you think about the xlv, you look at johnson & johnson, the largest component at 10% and you say it wouldn't take

many of these to go higher for this things to break out meaningfully as far as mike's trade, the idea of the long base that it's been and buying a call that's near the money two months out, i think the risk reward is favorable here i think there is a lot of ways you win. if the market goes higher you will see laggards like this participate. about but may act defensive or people may think about things differently setting up into 2020 that's why i like this thing playing into january. >> you mentioned johnson & johnson. typically a defensive stock. typically a very stable stock. it's not one that moves a lot. moved close to $4 today. one of the larger moves we have seen in johnson & johnson in quite a long time. that i think is pretty interesting. the other thing is just reaching out and trying to make a bullish bet of any type, in any sector right now has to give almost every investor a little bit of pause here we have seen an incredible rally, sitting at all-time highs. and to reach out and chase

stocks by going out and buying equities at this stage when they're relatively expensive rather than using options right now, which are relatively cheap is just -- i can't imagine why anybody would do that. >> this is a short-term trade do you believe that the political influences on health care we have seen dominate earlier they can creep back in as we approach the election >> as the election approaches, i think that's certainly possible. however, i would say both the way that health care performed this week and the way the market performed this week, suggests that maybe we're going to see some other political affects coming in. i mean without getting too far into it. let's say there are some candidates that are less friendly to health care and the market and some candidates who might be better. the market is behaving like it's going to see better candidates. >> we know that one of the important characteristics of investing and trading and frankly any part of capital exposure to risk is that often after something has moved money looks around to find the next thing that's going to move we see it all the time could be ge off the bottom or

craft heinz. as a group because it's second biggest, because as both offensive and defensive characteristics, i think money is going to seek this out. it's not new today although today was big it's been going on three, four five weeks that's a big tell. >> a slough of big names set to report earnings next we can home depot, lowes, macy's and target. check out target up a whopping 71% this year. inches from all-time highs but as the retailer gears up to report earnings dan bets it may be off target. break it down. >> i think it's important, like you said up 71% on the year. a massive outperformer in the retail and the big box guys are doing a lot of heavy lifting in retail wal-mart is outperforming the s&p. home depot and costco obviously significantly outperforming the s&p. but this one, the big one. there is the line in the middle in august. you see where the stock went up 20% in a day

they reported the fiscal q2 earnings, guided up for the year showing good comps and great results in their omni channel strategy that would be online and off line working well together but i think as we go into the earnings report, the options market implies a hefty move about 6.5% moving about 11% over the last four quarters. last quarter's 20% move skews that a bit but look at the move since that breakout i think it closed that day august 21st at 103 it's held the gap and trending upward that's generally constructive. but that's interesting to me also especially if you are a bull on the name look at the five-year base it broke out of i suspect that that level in the mid-80s is going to be significant technical support for a while. but my trade thinking about next week in particular is that they are not guiding up the way they did in august. i think that reset investor's

expectations a bit but i would play over the next month for a pullback some of the consumer data and intentions we have had about buying into the holiday season seems a little depressed the idea in my mind if they give disappointing guidance it should pull back a bit to just above oh 100 where it gapped to last quarter. i would look at december expiration, option premiums fair into the print i know that implied implied move seems high but considering the stock is up 71% on the year i would look to a put spread targeting as the 100 level. today when it closed at 113.25 you could buy the december 110, 100 put spread paying $2.50 buying one of the december 110 puts for 3.50 selling one of the 100 at a buck. breaks down at 107 and a half down to 100. we have a month we have the s&p petering here at all-time highs every new day. i think a combination of

disappointing guidance and pullback in the market you have the stock at 103. >> i was just going to say and big day today, green who was down wal-mart was down. amazon down. wal-mart put up a big number what you'd call a classic key reversal flares up and closes on the low. that's a tell. >> target at two-year highs in valuation if it traded at mean valuation where would it trade about $100 that's interesting. the put strike you chose something else interesting about the strike if you look at the last 44 quarters where target reporting reported earnings and how it behave one month following the earnings result you would find out of 44 reported quarters it fell more than 10% only two times. 100 bucks is down 10% from where the stock closed today by selling that you mitigate the cost of putting on the traded considerably almost 30% of premium on the higher strike put. but the likelihood it drops below that put you are selling very low if historical performance is any guide.

>> for everything options action check out the website. while there check out the supercool news letter. here is what else is coming up next >> announcer: it's been a great month for stocks with all the major indices sitting at record highs. but if you're worried the recent run is about to roll over our mike lays out his volatility protection playbook. plus calling all "options action" fans reach into your pocket, grab your phone and tweet us your question at "options action. if it's nice, we'll answer it on air, when "options action" returns. >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪ ♪

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♪ it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your...

uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." check out the bright shiny all-time highs across the indices. beware, our chart master says there could be a vicks explosion ahead. carter with more. >> take a look what we know is that this is one month that's transpired. and every day, every hour, the every tick the market making new highs. yet the vix not making new lows. it's holding in principle. one might think as the market goes higher the vix would make new lows but for whatever reason it's holding. i want to focus on this level. take a look over the past month. and basically watch what happens

when i draw lines here we have held this level just as we did here, just as we did here and we're starting to do this again. now, i've got the arrows drawn does it have to be you get a big explosion? is it that the bulls say no, no carter you have to do this but the setup, the triple bottom, pull it back further. here is going back there is the collapse in december in equities, spike in vix. the key level again. and even as we have ticked higher, the market continued to sort of at the volatility level not make new lows. my hunch is that this could well be the setup for that kind of thing. i would also point out that you've got near record short positioning in vix as reported by the commodity commission. and that often is the setup for something going the other way. >> all right so, mike, you have a call to action from this. >> yes, obviously if you think

the vix is going higher, that's a corollary to saying you think the market is going to go lower. trading the vix is tough today because the vix index itself not tradeable. there are vix futures, options on the vix futures but this is something i think to think about as a hedge so here are some things you want to think about if you do that. number one hedge tactically, i think we identified a reason you might want to hedge tactically we have had the period, seen that off of similar setups in the past we have seen the market draw back as a big spike in volatility make sure you size the trades appropriately. don't spend too much premium making the bearish bets. finally think about it as an insurance play the market is strong here. when you spend insurance premium one of the things you do is pay off hopefully the car doesn't crash but if it does you have that if you need it. obviously we pointed out that stocks and volatility move in

opposite directions. you can see that in this chart where where mapping the vix over the s&p. corresponding to the drawdowns in the s&p let's take a quick look at spx options. this is what the vix is based on it's the reason why when the market rallies typically the vix drops. because you migrating towards the higher strikes where when the market declines you go to the lower strikes where the implied volatility is higher that's the reason you see that ante correlation one of the things we could point occupant is that we're basically at the base level of volatility meaning options are inexpensive. one way to play this, i was looking to january, the 300, 280 put spread looking at this earlier. $3.25 you could spend for the january 300s sell the 280 against it.

that would represent a 10% decline from the current level think about it it's a $20 put spread spending $2.15. about 1.5% right now of where the s&p is currently trading you're spending relatively small amount relatively to where spy is you get a big pay off in the event of decline that's a setup you get simply because you have this current condition in volatility. where options premiums especially at the money are exceptionally low. >> yes, talking about at the money options premiums, another way to chart it look at implied volatility the price of options spy and if you look at that chart is it looks like the vix banging on the bottom around 10% or so. usually we see upticks involved from that point. what does that mean, the spy goes the other way goes down. i like mike's trade. break even down what 3.5 or 4%

but the whole idea of a 9 to 1 payout is attractive i think it makes sense in these periods. we're going into thanksgiving and christmas and new year's what do options do when they don't tray the idea of this as a spread makes sense. because if you buy the outright put that thing might decay faster than you think in a normal trading period. >> what is a corollary in terms of the markets. >> we had a flattish top over the last six, seven, eight sessions but it's still a rising tick by tick circumstance whereas that's not reciprocal for vix not making new lows. that's a foreshadowing of what may be coming or as i point out the bear would say no, the vix is about to crash to 10. >> actually i would make a quick point about that if you see the market make new highs and volatility also rise realized and implied that's a real warning sign. we have seen -- we saw a bit of a precursor to that in the last quarter of last year we saw that absolutely in some of the big significant market draw downs we have seen. we saw implied volatility rising

before the credit crisis into the tech. if you go back in history you see the anxiety level rises when the market is stretched and they spend premium. not willing to call the top in the market but willing to say look how much farther can we go? you start to see that confluence of events, then i would be more anxious than i am right now. >> how long does it have to last before you are concerned, before you say maybe we are headed for those periods. >> you should be keeping an eye on it -- in the tech wreck it was a prolonged stretch of time. the vix was in the mid-20s extended period of time. months before the market rolled over in march of 2000. last quarter of last year actually it was relatively sudden you started to see implied volatility rise as the market reached the zenith only lasted three or four days. >> up next next a bond breakout we tell you that's why that's great news for one of our trader don't touch that dial if you have a dial.

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time to look back at open trades just last week dan said the bond breakdown might turn into a breakout >> i think the big story this week on wall street was that move up in yields. we saw the 10-year u.s. treasury bounce back to the breakdown level. i think the breakdown level is really important there just below 2% when the prices of options in the tlt go up it's been this year they have been going up when the tlt is going up when the tlt traded at 135 today you could buy the march 135-150 call spread paying $3.50. >> the tlt up 2% since that trade. what are you doing now, dan? >> interesting bounced off the level 135 is what we were looking at didn't seem like there was tremendous upward pressure if anything it might have hit resistance as far as the yields. i like the trade. i used march specifically in a which had range to the upside

because i think this is taking some time. but this was also very near the money. now the trade that cost 3.50 last week is worth about $4.50 you stick it out and want to see it play out over the next couple months. >> also last week mike laid out a way to play cisco into earnings. >> you if you look at october lows in the s&p alone up 7% from the lows in that first week. this obviously even though it's had a bit of a bounce lately is certainly underperforming the market over a similar time frame. so the trade we were looking at was the november-january 50 call calendar we were buying the longer dated january calls and then selling the november 50 calls for 55 cents. net-net you spend 70 cents to put this trade on. >> this actually fell more than expected after earnings. how are you managing this one? >> a trade like this obviously you bet for a move that's within the implied move it was larger than that. one of the things we said was don't catch the falling knife. good thing not to do that.

actually the day they announced -- i rolled into the 45 calendar. i'm now into the december-january 45 calendar but at this point if you get the direction wrong which we clearly did why you want to use a trade like this. had you took the stock you would have taken a lot of pain here if you open the longer dated call it's not a lot of premium in it i wouldn't recommend selling. but personally i happen to be in the december january 45 call calendar. >> and what a disaster to be doing that in a market like this with tech in particular doing what it's doing. it's tempting to think, okay it's so bad it's good. just walk away. >> dan any hope for cisco? >> not right now i got to tell you i thought the change in the guidance in the last quarter was very profound, the fact that they disappointed two quarters in a row that tells you something about enterprise network spending >> terrible. >> up next, the final call >> announcer: "options action" sponsored by think or swim by td ameritrade i see an unbelievable opportunity. i see best-in-class platforms and education.

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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 time for the final call. carter.

>> health care the long side you can use the xlv to do it. >> mike. >> january spy put spreads pay nine to one. >> okay dan. >> there you go, target december put spreads two to one but i like them. >> that does it for "options action." see you next friday at 5:30. don't go anywhere. in the meantime "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!

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