happy friday, everybody. it's time for "options action"s. here's what we've got tonight on the show >> coming up on the big show tonight. controversy after a report about a big bet from the world's biggest hedge fund dan nathan outlines how to play it from home then >> therenergy >> carter worth is looking at one stock from that sector that could be coming back from the dead plus -- if you thought that was a crushing scene, you should have seen what happened at the tesla cyber truck debut.

mike khouw has the strategy to capitalize on that sipgsing feeling. it's time to risk less and make more "options action"s starts now >> we kick things off with the head line that rocked wall street the hedge fund that just had a million dollar pull back the whole back and forth got us thinking if you're betting on a pull back, what is the best way to play it right now? dan has got some ideas >> it really depends on time horizon. i'm sure bridgewater is involved in lots of trade options all the time it could be hedging, directional, who knows what the heck it is the when you think about a head line like that, a lot of traders and investors were talking about, it gets me thinking about, let's look at the prices

of options right now u with the stock market teetering at all-time highs we have a little more than one month left in the year there's a chart of implied volatility in the spy, the you s see that it's trading near one-year lows. i think viewers will understand that those spikes correspond with declines in the s&p and values of the index. i don't know what's going to happen between now and the end of the year. it seems like the trade war at least is off the headlines for now, but who knows the market is not reacting too negatively to that sort of thing. we do know there's a november 15th tariff deadline we made a series of high or lows and i think i used the line that carter may like. i used the 150-day moving average. isn't that your number

>> that's the number >> and it corresponds right with that uptrend, down to about 295. the way i'm thinking about this, if you enjoyed really nice gains in the stock market this year but you also have the memory of the q4 decline last year, and you're saying to yourself, how can i protect my portfolio, or how can i profit from a decline, an unexpected decline in the s&p 500 between now and year end, you could actually look out to december 31st expiration options. they have them here. they call them the quarterlies here and with the stock, the etf trading at 310 today, you could look to buy the december 31st put spread, buying one of the 310 puts for 450, selling one of the 295 puts at $1.50 you break even down at 307 and make up the 12 again, 295 is the technical

support level that corresponds with the uptrend and the 150-day moving average, and the way i think about it, that's some pretty cheap protection, about 1% of the etf price for the next five weeks if that headline today got you thinking about how do i protect the portfolio or things are too complacent, i think this is one way to do it >> there's two things i would say about the trade. first of all, it obviously is a fairly attractive level to get in we are obviously close to these all-time highs if you're coming in monday thinking when do i want to hedge, from a tackical point of view, hedging should be a tactical you are ensuring your equity portfolio. you are kind of hoping it doesn't pay off. you're spending 1% if the market declines, it can be worth as much as 5% if you think about it this way, let's say we had a 7% decline by the end of december. what has happened is you have

saved yourself 4% of that 7% decline. so most of it. obviously, if you have a really big washout, like we saw in q4 of last year, this is really not what you're looking for. you look for something with a bigger is sort of a payoff premiums are low, the market has been pretty unabashedly bullish. it's not a bad time, i would think. i am long put spreads in december i am long put spreads in january as well. >> hows do the chart look, given seasonality. >> if you look at all two-four data, does that moon we should re rest s&p's up seven weeks in a row, and this week it was down. apple was up eight weeks in a row and this week it's down.

it's from a hugely overbought circumstance that you either rest or you sell-off meaning you resolve a two far too fast condition you either back in fill time or you give back. but either of those seem likely rather than a third scenario which is tick higher ten weeks in a row, 15 weeks in a row? it doesn't work like that. >> you don't want to continue every five weeks paying 5% that would be a huge drag. if you think you're going to have the garden variety selloff that we've had over highs which have been about 6% or 7% then you want to use a spread if you think we're going much lower would you not sell that down put >> i mean, it's just not that big of a deal. but to me, i think what the selling the down side put at a level where there's good technical support, you're basically going to offset some decay that would you have with that near the money put.

>> moving on, energy may be getting a bump this month. a rough year for the space energy is the worst-performing sector in 2019 it is only up around 5%. our chart master, carter here has been drilling down on one big bright spot. why don't you tell us what it is >> all those things, of course, this is an unmitigated disaster, everybody knows it energy is basically down and to the right day after day, hour after hour, month after month, and yet there's a bit of developmental action, certain stocks one of them is conoco. here is a 18 month chart of conoco, no drawing, annotations, judgments by me, but i think the following lines, which are by me sell the case. now when you have a down trend like this and you fail at the line, fail at the line, fail at the line, fail at the line and then if you're actually able to push above but fail again but hold and then start to pivot back above the line, that

sequence suggests that we're in the process of putting in an important bottom let's look at another chart. is it head and shoulders has all the look and feel of this kind of thing with the prospects of something very important even as we press a little higher. let's put them both together there's your head and shoulders. it all suggests this kind of action good week this week as well. one or two more. now, you can draw the lines that way, meaning we're working into the point where something's going to give. i think that something is going to be up, not down and then finally, this here's the same conoco chart that we just looked at over and over and over, and here's its relative performance to the energy sector. we have this prior high and we've yet to exceed it we're still a little bit below that but look at the relative high. we just made a new relative high this week. that's r that's very, very important.

that is, well, i like it a lot conoco on the long side. >> mike, what's the trade. >> in is this is an interesting situation. lurking around the corner is the issue once it's ever taken place, which is the aramco deal, if it ever happens, which it looks like it's going to be more local. to me, that's one of the reasons why you might not see sort of the top get blown off of this necessarily, but this does seem to have found a little bit of a base here. so the trade i was looking at is not one we talk about a lot, but it has some characteristics i like specifically, i was looking at the january 60, december 62 diagonal call spread you're going to buy the january call that was around $2.65, and sell the december 62s up against the $1 net-net $1.65 at the time i looked at it, the stock was

trading about $60.40 if we come in where we printed on the last, this thing will cost you a little bit less here's how this works. the decay on that option is funding the purchase of the longer-dated one unlike doing a straight calendar spread, hough, becauwever, thise that will be profitable no matter how high the stock goes up it will also be profitable if the stock just simply stays right here because that near dated option is going to decay completely and you're still going to own the longer-dated one if the bottom fell out of the stock you could lose all of the premium you spent. the nice thing about that is to get similar characters is to buy stock and sell calls, but then you're taking more risk, because you're buying a $60 stock, not a $1.65 spread >> so i never argue with carter's charts. obviously. what is interesting, this stock

is still down on the year. marrying your technical setup and your trade makes a lot of sense. you could see energy outperform in the new year. it might muddle along a little bit. might be long in january, in the near the money call, but selling out of the money premium to help finance maybe a late year rally or into the new year i think makes a lot of sense energy is a left for dead sort of thing and you may see action in january. >> it's not at 45. it's kind of hanging in there at one. and two, just long term. we now know the sector is 4.2% of the s&p when we're below the level you're not even talking about a sector you're talking about two stocks, exxon and chevron at 40% of the sk tor weight. it wouldn't take a lot to move it

because people have abandoned it >> there are only three things that can happen to conoco. it can go higher it can stay here, in which case the trade is profitable. or it could go down, in which case you would risk less than would you have if you had purchased the stock. two things are good, one's less bad. >> for everything "options action," check out our website you cancheck out our super coo newsletter in the meantime, here's what's coming up next tesla's new cyber truck revealed, failing to impress investors today. and if you're betting on an even rockier road ahead, our mike khouw is rolling out a more bulletproof way to call the stock. plus, calling all "options action" fans reach into your pocket, grab your phone and tweet us your question, if it's nice, we'll answer it on air, when "options action" returns. ♪

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if you're looking for a way to play the stock now that the big reveal is out of the way, lucky you. mike is over at the plaza with his call to action >> we're going to take a look at selling a call spread on tesla why would we be looking at a trade like this? the first reason might be that tesla as it is currently price is fairly fully valued even net up today is declined. we put a check mark into that circle it's about a $70 billion enterprise value the second thing is i don't need to tell anybody who saw the big reveal, but it was a little bit of a mixed bag shall we say. the styling isn't for everybody and obviously, the windows might need to be replaced under warranty finally, if you're going to lean against tesla shares, it's a really dangerous stock to short. anybody who has tried to knows that exceptionally well. now the reason the pickup reveal is so important, is it is an

immensely large market there were about 3 million sold in 2018. very high-margin vehicles many that's important for tesla they need something where they can make some money and sell a lot of them. it is an important segment for them electricity drive trains which have different advantages with battery weight are well, well suited to that segment we can see obviously the stock came very, very close to approaching those highs that we saw back here. remember the take private at 4:20 we420 week but net of what we saw we have a near term top in here. i would point out that this is a trade that we are going to be talking about here i was looking at december. you could sell the 350 calls, collect $14.40 for those and hedge your upside in case in some way you got another tweet that got the stock going markedly higher for $11.10

you're collecting $3.30 for a spread that could potentially be worth as much as 10. the stock is well below that right now. so to lose money it actually would need to rise if it stays here or goes lower it's a trade that will be profitable i was short the and am still, the 365 calls and i came in short call spreads going into last night's announcement. this is a situation where if tesla did everything right they could make money, you could make $20,000 a truck, sell 300,000 trucks per year, 10% of the u.s. pickup market. that would justify the market pretty close but we're probably not going to see that happen, i think, based on what we saw last night. >> dan, what do you think of mike's trade >> the trade's really interesting when you think about this stock hundred a cha

you had a chart up there it's rallied it came in a little bit today many what does that mean all that volatility means pumped up options he's playing for this thing to go sideways or a little lower. i like the risk reward of taking a third the width of the spread. and a lot of good news is in this stock i expect to digest a little of that news. >> the word moon shot comesto mind you are talking about going from 175 to 380, more than a double and stocks that go too far too fast give back, whether it's the news of a broken window or not, at some point, and the time is now, the point is to do something and that's the point of this trade. >> there were a lot of innovative characteristics of this truck >> you like this, you like this truck. >> i ordered one i ordered one. i think we know some other people, maybe your household ordered one, too i loved what elon musk is doing. and i love their prurktoducts

that doesn't mean i have to love the stock. i want this company to succeed i want to see them sell some trucks this is an important thing for everybody to see happen. but that doesn't mean the stock has to go to 400 >> we'll tell you what it means for one of our trade eshs, and it is friday tweet us your burning questions and you might just get your answer on the air. we're live from the nasdaq over looks times square ♪ ♪ ♪ ♪

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♪ ♪ ♪ welcome back to "options action"s many time action"s last week, dan bet on target missing the earnings >> i expect that level in the mid- mid-80s is going to be significant technical support for a while. they're not going to be able to guide up the way they did in august that reset investors' expectations a little bit. paying $2.50 for that.

>> well, target's up about 12% this week after smashing expectations and raising guidance, so how do you manage this trade >> it was flat out wrong on direction, flat out wrong on fundamentals, this is a company executing very well. if you think about two consecutive quarters they had like in august, where the stock was up 20% and be able to do it again a quarter later is astounding this was targeting a $10 move lower. the stock rallied 13 when you're trying to be contraryian and be directional, i think it makes a whole lot of accept sense to define one's risk >> you said it just like that. sometimes you just get it wrong. we have buds, duds, personally this is the third week in a row, down, big hits in home depot, and here comes target.

so you move on >> two weeks back, carter said the consumer discretionary sector might take a dip. >> what we have here, and you can see it very clearly, we have consistently come to life off this line, and now we have broken below that relative line, and i think what's going to happen ultimately is that we break on an absolute basis as well >> i was looking at the january, 121, 131 put >> the xly's down about a percent. what do you do in. >> it can mitigate a lot of the decay. that strike puts about 250 the lower one is about 60 corrects wh cents we really haven't spent anything

yet. so the real question is, do we stay in that protective posture? >> i think we do and that it was able to go down with target going up supports the premise that something's not right. >> up next we have your tweets and the final call this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. i see best-in-class platforms and education. i see award-winning service, and a trade desk full of experts, available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪

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." time to take some of your tweets our first one asks thoughts on halbur to halliburton, what do you think >> we know as far back as 2014 it was, i would take a shot on the long side. >> i'm reminded of 2001's space odyssey, but i'm still in halliburton. >> there are so many things to

do but the truth is, probably the best thing if you want to be contrarian is to short the spy >> short call spreads in tesla >> i'm kind of with carter there. >> mad money starts right now. - [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer, sponsored by nuwave. live well for less. we all love fried foods, but yuck that means scoops of grease, blobs of butter, or gallons of oil just to fry. this adds up to a lot of unhealthy fat in your diet year after year. stop! now you can cut out all the added fat, and still keep all the flavor with the new brio digital air fryer by nuwave, the world's first digital air fryer with flavor infusion technology. coming up next, you'll see how brio's compact design makes mountains of crispy wings