it is friday, 5:30 at nasdaq that can only mean one thing that is that walgreens is open behind nee, no, time for options action here's what's coming up on the big show >> power is everything >> yes, carter worth continues his preholiday listen on how to accelerate through the energy sector then - >> soften hands while you do the dishes >> it could also soften any portfolio that's soaking in palmolive stock. finally -- >> cover me. >> you're covered. >> and mike has all you apple

shareholders covered too, with a plan to squeeze a little more juice from the most widely held stock. it's time to risk less and make more options action starts now. >> and welcome, everybody. i'm tyler mathisen it's the story of a day. a u.s. air strike takes down iran's top military leader the attack sending jitters through the market oil prices up 3%, to the highest level since last april today's move was not off the charts, it could point to a bigger breakout coming carter spotted something like this just a few weeks ago. >> we have now moved above that down trend line. that's exactly what industrials look like and banks, same down trend before they came to life this will not come to life the way banks did, industrials, but it has the elements of legs here i think you want to be long xle. the whole group, even though it isn't a group. it's only a handful of stocks.

>> energy stocks did not exactly follow crude higher today, but the chart master still sees a comeback ahead for 2019's worst performer sector he's at the plasma to break it all down carter >> the contrarian play here is to look at this as the beginning of something that is a trade i think this current spike in crude is quite different than the impetuous one associated with the missile strikes on september 16th a few factoids about the sector. we know it's very small at 4.4%. that's basically the lowest it's ever been in the history of the data going back to '89 it's 28 stocks it's cap is $1.2 trillion, basically the same as microsoft or apple of these 28, two stocks are basically half the weight. exxon and chevron. let's look at the charts and see what we can figure out so, first, it's weighty now. right here, we're back to the level when cisco was worth more than any company in the world. we're below that energy is 9.5.

we're never going to get there again, i don't think but here at this low level of 4 and change, we'll move back toward 5 1/2, 6% of s&p. individual charts on the sector, let's put some lines in. no judgments by me, no an oitations. is it a down trend yes, it is has it broken above the down trend? you're darn right, it has. let's draw the lines a different way. has it come out of this sort of wedge to the upside? yes. can we call it a certain formation? a little double bottom yes. can we call it a held and shoulders bottom yes. can we put in our trend line and make the case that it has broken above? yes, it all implies higher i think you want to be long this yaarea of the market and you can use xle as your vehicle. >> that was really interesting and i actually understood it that was really good carter is going to make his way back here to the big boy table mike, why don't you give us the trade that you see in what carter just outlined there

very interesting >> i think a couple things are interesting as we take a look at the energy space one thing that's interesting is for a long time, the bear thesis has been things like the china trade talks and things like that but actually, the economic data hasn't supported that. our economy has been relatively strong all things considered, and one of the things i noticed today, as oil obviously demonstrated some volatility, irrespective of whether the stocks, inunderlying stocks rose or fell, is the fact that implies volatility, the price of aungz options on xle d spike noticeably and when we take a look at how to trade the sector, we want to take advantage of the fact options are fairly priced and could likely be supported if we start to see increased volatility in the space. that said, as carter was pointing out, really is the two biggest integrated names that make up the bulk of the index, exxonmobil is the preeminent oil company in the world it's trailed bp and shell over

the last two years they have the benefit right now of having complex refining operations that will benefit for imo 2020 which has to do with the sulfur content of crude. i was looking out to april the 60 spot, 21 strike calls, though would cost you $2.61. those are precisely at the money where xle traded today here's the thing, if you get any kind of a pop between now and april expiration, you're going to have the opportunity to turn this into a spread or to roll further up and of course, if there is any kind of a meaningful pullback, you're hedged inherently because you only are risking $2.65 instead of the $60 and change or so that it would cost you to buy a share of xle here. >> tony, you have been very polite, very quiet what do you think? >> like mike said, the implied volatility on oil, xle is quite low. the call options are the right way to play, especially if you have an escalation or rhetoric or escalation in the middle east with the current news event. the only thing i will say is i do think there's a concern if

you get a spike in oil prices, the xle may not be the vehicle to get the best correlation. >> you want to use the beta, but one of the themes here is independent of the spike in oil, the world is thinking the yields are going considerably higher. that's consensus that is not my view. the yield on this sector, of course, at 3.8%, versus the s&p at 1.8, and almost 5% in exxon, all of which suggests in the event that yields don't really move higher, which is the consensus, you're going to have that nice tailwind for this investment in addition to the beta -- >> income? >> yeah, that gives you support, and the beta potential if there is further escalation in the middle east. >> one thing to note is that xle's dividend yield is higher than xlu if we do get a shift to defensive, i think you get more into xle than perhaps into xlu >> mike, you get the last word >> yeah, i mean, i think the

quick point i would make is that exxon, again, the biggest integrated oil company, has begun to, again, start making more investments in their own business historically, the time to buy the stock hasn't been when they have been buying the stock but when they have been investing in the business the fact they're doing more of that is also promising >> moving on from energy, staples have been on a tear. the sector actually coming off its best year ever but still underperforming the broader market call it the opposite sides of the aisle. tyson foods, the best performer in the past year, up 67% with beauty stocks, estee lauder and cody, not too far behind you have colgate palmolive which has lagged the sector, while kraft heinz is down a whopping 27%. that's soaking in ketchup, but tony thinks one of these stocks is gearing up for a big staples smackdown. what's the name and the trade. >> i'm looking at colgate palmolive because i'm looking at a bearish opportunity, looking in late october. this stock broke below its

200-day moving average not only did it break below the long term moving average relative basis has started to deteriorate. however, it's recovered back to the 200-day moving average last week but got rejected at that level. this is a good opportunity to start initiating a short if you look on a relative basis, while the stock rallied in the last couple months, the relative chart is actually continued to make lower lows, and actually printed a new 52-week low today. so what this is telling me is there's going to be a likelihood that this stock is going to continue to underperform in the market going forward however, the stock itself, the implied volatility is quite expensive. to buy put options are really expensive. to help mitigate this, i have two strategies first, i look at buying a put spread i'm going out to february and looking at the $70, 62.5 spread, and buying the $70 put that's costing me about $3.33 purposely buying a put that's in the money to help offset some of the high

implied volatility, and then selling a $62.50 put against it to offset the cost of buying the long put, collecting about 44 cents, which brings my break even price to just $67.14, which is only about a dollar below the current price. on this particular stock, i'm looking for a downside move, initial targets of about $65, and potentially extended targets to about $62, because there is an earnings catalyst here at about three weeks. >> interesting way, mike, to reduce the cost of the trade and maybe get more of the profit out of it. your thoughts? >> yeah, first of all, you know, implied volatility, how much options cost is a relative thing. for some people who are watching, they might not think the options in colgate palmolive aren't that expense, but they are relative to how much the stocks move. they tend not to move very much. that's where tony is basically taking a look at the options premiums a kwug thigi would say is this is a stock that made about $17.5 billion in sales five years ago.

it's going to do $15.5 billion this year. that's a pretty notable top line decline. i think that's really the story when you look at why the stock has performed relatively poorly lately from a fundamentals standpoint, this is just not a growth stock. it is quite the opposite, in fact >> carter. >> time-out things obviously, tony is targeting the november 5th low which is key at $64.75 to go there and presumptively break below that, but at least there. the first thing is relative performance. it's a disaster relative to the market, but that would be expected the market is driven by apple and microsoft. more importantly, it's a disaster relative to its sector. whether it's proctor or coke its relative performance to its sector is at ten and two-year lows bad, headed lower. >> with earnings catalysts on january 24th, i'm looking for that catalyst to break that sdl 64.75 low to about $62.50. >> we'll leave that there. so think about how to play

colgate palmolive, tony's argument for that. for everything options action, check out our website, and while you're there, check out our newsletter here's what's coming up next >> still to come - >> apples, apples, more apples >> yep, everybody's got apple stock. but mike has a way to keep the returns coming even when that stock is fully priced. >> 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 sw ianert on air when options action returns. ♪ ♪

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and welcome back to options action wall street getting sweet on apple today. the tech giants getting a price target raise to $330 implying a new record high for the tech giant both from rbc capital and b of a securities happening today shares of apple more than doubled, more than doubled over the past year. and it was the best performing dow stock in 2019. dizzying run, but if you insist on squeezing even more juice out of this name, mike has a safer way to play with his call to action mike, it's all yours >> sure, so if any of you happen to own apple and there's a decent chance if you own stocks that you do, why is that because apple is most broadly held stock that we've got in the market right now one thing i would say, despite some of these brokers' increased price targets on the stock is this thing is looking fully valued to me it's trading about 24 times earnings that's basically the upper end of its range over the course of the last decade or so. i can understand a lot of people

think this is justified by the fact they have moved increasingly into services and that it doesn't have as much of a hardware element still, pricedover the market for a company this size, that's something we want to be aware of secondly, a lot of times we're looking to collect yield on our portfolios in dividends or by selling covered calls against it right now, the price of aungzs is such that if we started to look at selling some calls even with some upside, we're going to yield about 2% in less than two months that's at a rate of return that i rather like. and we're taking a look at selling a call option so you would still have more than 7% upside from the current price of the stock. so as we take a look at the stock price, one of the things we can see is just how far it has come here's one of the things you should pay attention to. the increase has been fairly orderly. so even if the rally in the stock continued, basically up to around this 320 level in about 50 days, i'm going to be looking at selling a call option so i can still capture some of that upside then we can also take a look at

the valuation and what i was talking about before we're taking a look at it trading well over 24 times earnings we can see you have to go all the way back to 2010 to see valuation multiples this high in it where did they go from here? lower. this is a situation where the price of the stock could be fully valued finally, taking a look at the options. right now, the price of two-month options is getting towards the upper end of the range. we want to take advantage of that and try to collect some premiums what's the trade i was looking out to february. you could sell the $315 calls, i was looking at this earlier today, for about $6. let's just call the stock $300 to keep the math easy. if you owned it at $300, that $6 gives you protection if the stock should fall from here because you're collecting about 6% on the other side f the stock does continue to go higher, you're going to capture all of the gains in the stock up to $315 plus the $6 in premium. this is a situation between now and february expiration, you have the opportunity to make as much as 7.3% on the upside,

mitigate some of the downside risk if the stock goes sideways from here, you're going to collect 2%, which is a nice attractive yield over the course of the next 50 days or so >> tony, what do you make of that >> i think mike is being tactical here with the stretch valuations of apple because the research we do here at options play, usually suggested selling a slightly higher cover call mike has chosen about a 30 delta cover call, meaning there's only about a 30% chance apple will be above the $315 strike by the february expiration. normally, we would go higher, about $325 because of the stretch valuations, he's choosing to be more tactical, selecting a lower strike, collecting more yield. he still has about 6% upside before the stock gets called away i like this strike >> carter? >> look, it's a juggernaut what's remarkable, a couple things one, being up 86% is nowhere near its best year two years in its history has been more than 200 five years up more than 100, 150. what we know is this, apple is fast approaching a 5% waiting in

the s&p. throughout history, general motors was able to do that, big steel, ibm, even exxon at one point. you never get much more than 5%. >> the tale of those stocks you just mentioned - >> so we're reaching the point where profits trim, is it steep,ilitieser all of those things take some measures, and options is a great way to do it. >> mike, one of the things you pointed out, for many, many years as you implied there, apple was a value priced growth stock. in other words, it sold at below the market multiple. and you just pointed out that it's now above it. >> yeah, i think that's quite a significant fact here's something else i think is interesting. let's take a look at what the value of the company would have to be by the time it would get called away from you here. that would represent more than a 7% increase. we're talking about an increase in the market captization of apple in the next 50 days of so

of $100 billion. that would be a larger increase that just this one company's market capitalization than the majority of constituents of the s&p 500 right now. that's a lot to ask of any company, and we have a lot of reasons to think as good a company as it is, maybe it's going to hit the pause button. even if it doesn't, you still get to capture some of the upside the question investors ought to ask is if i was going to try to collect more yield on a stock i own, doesn't this look like a good opportunity to try to do that >> carter, any broader thoughts on technology after what was by any account a spectacular year >> what really gets down to is the market is so dependent on a handful of names, the top five stocks are basically more than the bottom 300 you throw berkshire in there, and you're getting more than the bottom 320 microsoft and apple right now, as a combined waiting s&p are fast approaching 10% that's higher than any time in the history of those two stocks as a bacsket, and they are overowned, so to speak at some point, you have

givebacks, and givebacks come out of nowhere >> and they can be painful >> they can be painple >> we'll leave it there. coming up, one beaten down dow stock seeing a bit of rally of late we'll tell you why that is good news for one oufr traders. >> plus, it's friday, so you know what that means send us your burning questions to our twitter handle at options action and i might just let one of the traders answer it on air we'll be right back. ♪ ♪ ♪ ♪ ♪

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♪ ♪ ♪ ♪ ♪ and welcome back to options action last week, tony said there could be some big gains brewing in small caps >> we've gotten a breakout on an absolute basis, but we have also started to get a breakout on a relative basis if we look at a chart of the iwm against the broader market, it's underperformed over the last two years and it's started to bottom over the last few months i'm looking here to sell the january 164 puts, collecting

about $1.32. this allows me to purchase iwm stock if it's below 164 by the january expiration >> sin the time of the trade, the small cap etf down slidely but still above the break even line what do you do from here >> this trade is working out exactly the way i expect it to i'm looking for it to move lower towards the 164 level. the reason i sold this put is because i would like to own this stock going into 2020. if the stock goes below 164, i own it at 162.5, around that level. which is a level that i'm comfortable owning the stock at. >> mike, any thoughts on this one? >> yeah, i think this is the right play here. one of the things we have is the advantage of low options prices. and when crudo have low options prices, you should be a net buyer of them and make your directional plays that way, i think. >> two weeks ago, mike and carter said one dow stock was gearing up for a breakout. >> textbook rounding bottom. you could also call it a head and shoulders bottom of sorts,

meaning any way you cut this, and it's this dip back that should give you the pop all setting up quite well. this is the dog of the dow pick for me buy. >> you would actually be buying wba here at about $58.50 and then, to enhance the yield still further, you would look out to january and sell the $60 call for $1.20 >> so walgreens is up nearly 2% since the trade. so mike, what do you do here >> yeah, this is basically setting up perfectly for us. the whole idea is you want to own the stock that has a high yield and try to enhance that yield still further by selling a call that's a bet that it's going to make an orderly progression higher that's what it's been doing, and i would obviously have to defer to carter on the technicals from here >> we're in a good spot. we have time and the bottoming out action is in place and day to day, the relative performance is tremendous. so stay the course >> stay the course and walgreens is right there.

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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 it's time to take some of your tweets the first tweet comes from jordan he asks, with ces on monday, what do you think of amd 49 strike calls for next week mike >> yeah, so i think it's interesting. when you have a catalyst like this, one of the things that typically follows is higher options prices the options market is implying a move of about 3% for amd next week usually i prefer to by longer dated calls, give myself more time for things to play out. this is a binary bet >> next tweet comes from josh who says he's right here in times square about 10,000 people here, so we're not exactly sure who he is he's watching the show from downstairs and he asks thoughts on how to play snap calls into

the first quarter. >> so i think this is pretty constructive the stock has moved significantly higher over the last couple weeks. broke out above the $15.50 resistance level this is continue to climb up to t8. >>hat does it fo "mad money" right now. my mission is simple -- to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to make you some money. my job isn't just to entertain but to educate s call me at 1-800-743-cnbc. or tweet me @jimcramer. after terrific performance in the final weeks of 2019, what can i say? the averages, they got hammered