happy friday options action fans i'm tyler mathisen in for melissa lee. we've got a big show on deck here's what's coming up. >> to infinity and beyond -- >> stocks soar following today's jobs report. if you think there's more room to run in this record rally, mike khouw has the perfect way to play it plus, guy adami is finding some much-needed zen for your portfolio. how he's trading lululemon into next week's earnings and later -- >> you know what can really help you sort through these important

issues >> what. >> orange mocha frappuccino. >> dan nathan says starbucks is brewing up a big breakout. how you can avoid getting roasted in this piping hot trade. it's time to risk less and make more "options action" starts right now. welcome, everybody it was a big day for the markets. the dow surging more than 330 points the s&p 500 erased its losses for the week the rally following a better than expected jobs report. and there were records across the board including big tech names like apple and alphabet. both of those stocks hit all-time highs and added to the sector's red-hot run this year if you're betting on an even bigger tech takeoff, we've got a way to play it let's get in the money with mike khouw. take it away, sir. >> it's interesting. so we got this payroll report today. obviously, the markets responded very favorably to that but i think we got some clues that we had some significant

strength in the market earlier this week when the trade news which was definitely not positive didn't knock the market down much further. we were talking about this before we began the show that was news if you consider that that was one of the keystone elements that was basically propelling the market higher and pull that away. you would have expected the market to get pulled sharply lower. it closed all things equal relatively strongly that day so then when you add positive news on top of that and you get some sense maybe that internationally things aren't as weak as everybody said, that creates all of this strength in the midst of this, we continue to be, despite this week's movements in a relatively low volatility environment options prices remain relatively low. when we're looking at the tech associate on a valuation basis we look tat on a price to earnings basis, it's getting heady here if i was going to worry about anything i'd look more at a

price to sales basis but i think because options are relatively cheap i think because every new high was preceded by new highs. that can't be a reason to sell just because we're at new highs and a lot of optimism going into the holidays you can keep trades in the space relatively simple. i was looking out to january buy the 88 calls for $1.65 we're not looking to take material down side risk. if the market does pull back we want to define how much risk we're taking this is not a considerable amount of risk we're taking about 2%. this was close to at the money you may very well have an opportunity to monetize this trade prior to expiration. all it takes is for it to rally through that strike. >> get up above $89.65 >> yeah, by expiration if it runs above 88 in the meantime you'll see gains on

this >> that's a lot of optionality >> xlk is an interesting etf microsoft and apple the top earnings apple up 70-some percent followed by visa and mastercard, some people just think that's a nice little thin tech play when you think about it the xlk to me is an interesting instrument if you like the idea of playing for continued up side in these mega cap names, then this is a great way to do it defining your risk to a couple percent of this etf price. the biggest drivers are up so massively. some of the fundamental drivers are still very much intact >> it's interesting. you can make an argument that there's some names inexpensive but texas instruments to me is the poster child for what's going on no earnings growth a couple quarters of a lousy report yet the stock still commands a 23 times forward

multiple and people seem impervious to any bad news going on in the space. so i'll was a dan nathan line. knock yourself out if you want to continue to buy these stocks. and volatility is cheap enough it makes sense but we're five or so days away from president trump pulling the rip cord and going forth with these tariffs and a name like texan if he does this, that stock will be -- people are turning a blind's eye to all the negative things out there. makes people like me look really stupid on a nightly basis but it doesn't mean the problems don't exist. one big coffee stock has been on ice for a few months starbucks got a caffeine boost to all-time highs over the summer since then, the buzz has worn off. but dan nathan says something big could be brewing for this stock. >> they make new highs seemingly

every day and massively outperform the broader market here starbucks when this was in july at all-time highs, up 55% on the year let's tell this story through pictures that chart is basically january 2019 through late july 2019. that was the day july 26th the stock went up 9% to an all-time high nearly kissed 100 on better than expected global same-store sales. it was about as good as it gets. this stock also trades at a premium multiple this chart here is from the next day, july 27th the stock almost had a 20% peak to trough decline from all-time highs. investors were thinking about what is the implications of slowing global growth. u.s. recession more focused on valuation. these were hitting the stock market back then here's the thing let's look at the chart now. put them together and see that it just bounced off a couple of

times from the up trend from the december lows. it's now resistance right below 90 or so that looks like a really constructive chart to me and so i just think about this with option premiums where they are, not too different than what mike was discussing. short dated in starbucks nearing 2019 lows. people who want to make directional bets in individual names like this, this is the way to do it with defined risk much like mike's trade today when starbucks is trading at $86.30 look out to january expiration and buy the january 87.50 call for $1.50 that breaks even at 89 bucks it's up 3% risking 2% of the stock price and you have about six weeks i think that even with the stock up 35% on the year which is pretty remarkable. it's outperforming the s&p, you

could see a push back toward the highs into the end of the year or possibly the end of the year. earnings are to be the end of january. i chose january expiration because you have a run-up into it back to mike's point of optionality, there's a lot of things to do spread it, roll it out, but i like starbucks as a setup. we'll take a pause here because we have some breaking news on the defamation case against elon musk. jane wells is in l.a. with the details. a lightning fast resolution. >> yeah, only took an hour elon musk is not liable for defamati defamation he wins the case he said my faith in humanity is restored unsworth has a uk attorney and has talked about filing suit in thailand as well but here in los angeles federal court, elon musk wins. he's found not liable for defaming unsworth. mike, let's go back to the starbucks trade that dan just

outlined what do you think? >> i think this is the right way to play this there are times when selling puts makes sense when you see entry points you mind really attractive, when options points are elevated none of those things are really true here. if you're going to commit new capital to the market, you want to do that by buying stocks after they've had this kind of a run or do you want to take advantage of the fact that options are relatively cheap, get near side participation. participation to the up side if it continues to rally. if this proves to be the zeenith for stocks, you're risking a relatively small amount relative to going out and buying the stock here this is absolutely the right way to play it for everything "options action" check out our website, optionsaction.cnbc.com while you're there, check out our newsletter in the meantime, here's what's coming up next >> shares of lululemon stretching higher this year. and our mike khouw and guy adami are teaming up to give you a

namaste-way to tray thid stock into its earnings next week. calling all options actions 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. ♪ ♪ ♪

wthat's why xfinity hasu made taking your internetself. and tv with you a breeze. really? yup. you can transfer your service online in about a minute. you can do that? yeah. and with two-hour service appointment windows, it's all on your schedule. awesome. so while moving may still come with its share of headaches... no kidding. we're doing all we can to make moving simple, easy, awesome. go to xfinity.com/moving to get started.

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." every sports dynasty has to deal

with some adversity on the way to the top so has this sportswear stock after a year of big headlines, nike broke out to an all-time high today on the heels of an upgrade from goldman sachs but there's another big name in the athleisure world that's coming for nike's crown. it's up nearly 90% this year, and the company reports earnings on wednesday so you know what that means. ♪ >> come on, ty >> the tag team? we've sent the bad boys over to the corner of the ring guy and mike are at the plasma take it away, guy. >> we were listening to eric clapton in the break he wears lululemon he's amongst many men and that's one of the reason to own lulu. what's going on? growing menswear that's in the middle what else is growing we talk about china all the time look what they did last quarter in china china growth, 68%.

68%! that's a real number also, margins are improving in this environment operating margins better than expected comps crazy, up 17% last quarter. i don't mention valuation because it's very hard to make a cogent argument about valuation but this is a stock that in earnings continues to go higher. with that said, i'm tapping in mike khouw >> all right so, yeah, let's think about that valuation for a second obviously, we were just talking about it the stock has had a 90% run so far this year. and it's obviously very challenging to go out and commit new capital. the stocks that not only have had such a profound move but also are trading at such a high multiple the other thing right now, options prices are actually also pretty high. we've got earnings coming up next week. the stock is implying a move of a little over 8% so going out and just buying call options, the idea we were talking about in starbucks not

probably going to work so well here the other thing in a situation like this, there's obviously, based on the price action, the valuation, and based on the options premiums, we know there's some very high expectations maybe there's a way we can participate on further gains in the stock without risking a great deal this is what i was taking a look at trade the december/january 250 call spread. an out of the money call spread. bee the january 250 call spread. sell the decembers against it for 315. net/net you're spending $1.85. consider that relative to the price of the stock here's the idea. this is going to see the best profits if the stock migrates right up to this 2.50 area and actually will remain profitable as long as it doesn't blow out past 2.83 the average price analyst is about 2.47 that would represent a good move we're talking about 230-ish is about where we closed today. 8% move to the up side gets you

right into this neighborhood and if it falls below that, how much are you risking $1.65. so that's the kind of thing that we like when we're looking at this >> come on back and assume pigeon pose over here. >> pigeon pose in the chair. >> i'm not sure what that means. >> this is the sort of trade mike likes i love this trade. i'll tell you why. mike is using some really simple and smart math here. he's taking the implied move in the options market between now and next friday about $20. that's why he's choosing that 2.50 strike and risking less than 1% of the stock price there's a lot of ways this trade can make money between now and december expiration without mike having to kind of thread the needle the way you might think so so this stock has rallied 20% in a month. and now you're giving it another 8.5% room to the up side and if you get that right you'll end up seeing that january call that you own appreciate it i really like the trade setup. >> the challenging thing in a case like lulu

a lot of people go out and buy the products my wife is a huge fan of lululemon products the products are fairly pricey the stock is fairly pricey both in terms of valuation and its absolute dollar price. you buy 100 shares of that, it's 23 grand you can buy this call spread which each contract represent 1s 00 shares but you'll be asking $165 to put this trade on and it could be worth considerably more than that if it migrates to the up side. on the down side, that's how much you're risking and the whole idea here with the market having rallied, with this stock really having rallied, how can we still participate at this late stage >> am i getting in too late? >> risk less, make more. >> that signs like a line out of hamilton >> no, that's options action that's what these guys say barclays initiated november 25th, 257 price target it gets there.

that, tyler, is the sweet spot. >> we'll take a break. remember that big market sell-off earlier this week seems like forever ago one of our traders is still spying some choppy trading into the year end we'll break down the action on that one don't go anywhere. much more "options action" is coming up next ♪ ♪ ♪ ♪ ♪

♪ ♪ ♪ ♪

♪ welcome back to "options action." time too look back at one of our open trades. the last time this air showed was probably last friday >> no, we had thanksgiving that's why the show was usurped. it was two weeks ago >> well, dan nathan two weeks ago laid out a way to protect your portfolio into the end of the year listen >> 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 are saying to yourself, how can i protect my portfolio or how can i profit from, let's say, a decline, an unexpected decline in the s&p 500 between now and year end you can look out to december 31st expiration options they have them here. they call them the quarterlies the etf trading at 310 today you

can buy the december 31st. 310, 295 put spread paying $3 for that >> the market has seen some big swings since that trade. the s&p falling hard to kick off the week before surging back toward all-time highs today. but there's plenty more time for volatility before this trade expires. so, dan, what are you doing? >> this is exactly what you put this trade on for. the price action we had this week it was interesting that peak to trough, that decline about 2.5%. a lot of declines over the last 18 months from all-time highs have been a little steeper to the tune of 5% that's really what this trade was targeting. for me, i think you hold on to it it's lost one-third of its value. you want to be careful here what you don't let it all erode and put a premium stop at some point on a trade like this some of you may have different views. >> let's ask one of them right now. let's talk about dan's trade joining us is xp investment's

bonowan. the market just handed in a big week what do you think of what dan is proposing? >> a lot to like about the trade. i've heard a few people refer to it as insurance. it's insurance i say insurance and watch his eyes roll. mine do, too no one likes to pay insurance premiums, but it's a cheap way to insure your portfolio very well laid out trade >> two things to think about when putting on insurance on the market am i looking for near side protection which is what i think dan is getting here. or am i looking for the disaster protection if you're looking for disaster protection, sometimes you're looking for cheaper optionality that has a bigger payoff but isn't going to provide you near-term insurance. this provides near-term insurance. >> what do you expect between now and the end of the year? >> you know, i think it's pretty binary situation we have the trade deal overhang, a lot of other news coming out i think either we continue to grind higher or i think we actually do see some real down side risk here

and i would think about maybe moving the strikes around here to mitigate that >> if the higher tariffs go into effect, a week from now? >> yeah, he makes a really good point about moving strikes when we talk about these trades, the hedging insurance sort of trade, you want to do this tactically not frequently and one thing i would say is today, you know, with the stock near 315 or so, it's about $5 out of the money right now, you want to kind of hang out for a little bit but to his point if you thought there was going to be downward volatility, you may want to move the strikes and get yourself in the position where you would basically get the max of sort of insurance. >> i make another quick point, too, when you have a trade like this, it's also possible to trade around it. earlier this week i had a big drawdown i had some put spreads on and took them off. if you follow us on twitter, i mentioned i took some of them off. i've since put more back on again. in the situation like this where you get a market pullback where there's a lot of things propelling it higher, don't be afraid to take some profits when

you have them and look for other tactical opportunities to reinitiate trades. especially when dealing with put spread which aren't going to continue to pay off big in the market goes much lower >> i don't want to sgoets the 400 series of options but this was a perfect week to trade your whip you had a great opportunity this week to trade against that initial put position that's inside baseball stuff but dan's nodding his head bonawyn. go to the oa website and read about that >> i'll have to be one of the people that does that. we'll take a quick break when we come back, we'll have the final calls 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." guy, what's on your radar for next week?

>> it's an interesting week but it's next sunday, the 15th of december when the potential for these tariffs come into play all next week you'll see tweets pro, tweets con. i think volatility in this environment is way too cheap and i think the down side risk still outweighs the up side. my opinion, i've been wrong, though >> have you ever gone into a fed week with more anti-climactic fed week than this one >> i don't think the fed is the issue. to your point, no. i don't think people are watching that at all i think people are watching to see what these trade headlines are. let's move to our final calls. dan? >> if you thought you want to look at december premiums, move your strikes up and get some protection >> mike? >> if you are thinking xlk, it's a lot easier to go out and buy call options lower risk in this environment >> mr. adami, the last word. >> i'll see you tuesday. >> i think it's tuesday. >> yes you'll not be here monday? >> i'll not be here monday >> my final call is -- we talk a

lot about trading. enjoy the weekends they're so few and far between, ty we should go grab a scotch right now. that's my final call >> i'm all in on that. that's my option action. >> lululemon >> thank you very much that does it for "option action." back next friday at 5:30 "mad money" right now. the following is a sponsored program paid for by my pillow do you find yourself sleeping too hot or too cold, not getting the support you need to help relieve painful pressure points or struggling just to get comfortable? then get ready for a revolutionary, new sleep experience. introducing the my pillow mattress topper, the next generation in sleep innovation from the company that brought you the world's most comfortable pillow. [applause]