it is friday, 5:30, here at nasdaq and that can only mean one thing, and that is that walgreens is open behind me. no, it's time for "options action." >> power is everything. >> yes carter worth, how to accelerate through the energy sector. then - >> softenens hands while you're doing the dishes. >> tony chang has a play to clean up your risk >> cover me! >> and mike khouw 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. >> welcome, i'm tyler mathisen it is the story of the 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 their highest level since last april today's move was not off the charts but could point to a bigger breakout coming carter spotted something like this just a few weeks ago. >> we have now moved above that downtrend line that's exactly what industrials looked like, and bangs, same downtrend, 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 warn to be long xle, capture 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 but the chart master sees a comeback ahead. >> i do. the contrarian play here is to look at this as the beginning of something that is a trade. and 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%, the lowest it's ever been in the history of the data. 28 stocks, market cap is 1.2 trillion, basically the same as microsoft or apple and of these 28, two stocks are half the weight. exxon and chevron. look at charts so first, it's weighting now right here, back to the level when cisco was worth more than any other company in the world, we're below that energy's historical weighting is

9.5, we're never going to get there again, i don't think at this low level of 4 and change, 5.5, 6% of the s&p individual charts on the sector, let's put some lines in it no judgments by me, no annotations. is it a downtrend? it is. has it broken above that downtrend? here's your zoom 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 head and shoulders bottom yes. can we put in our trend line and make the case it has broken above a thing? yes. it all implies higher. i think you want to be long this area of the market you can use xle as your vehicle. >> carter, that was really interesting. i actually even understood it. that was really good carter's 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. >> yeah, so i think a couple of things are interesting here as we take a look at the energy space. i mean, one of the things i think that's interesting is that 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 that i noticed today, as oil obviously demonstrated some volatility, irrespective of whether the underlying stocks rose or fell, is the fact that implied volatility, the price of options on xle, did not spice notably. i think they deserve to be a little higher. take a look at how to trade the sector, take advantage of the fact that options are very fairly priced and could likely be supported if we start to see increased volatility in the space. that said, as carter was pointing out, the integrated names, exxonmobil is the premier integrated company, trailed bp and shell 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 20 strike calls. those would cost $2.65 those are almost precisely at the money where xle traded today. here's the thing, if you get any kind of 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 are hedged inherently, because you only are risking $2.65, instead of $60 in change or so it would cost you to buy a share of xle here. >> tony, you've been quiet what do you think >> like mike said, implied volatility on oils, call options are the right ray to play, especially if you have escalation or rhetoric of escalation in the middle east with the current news events the only thing i will say is that i do think there's concern if you get a spike in oil

prices, xle may not be the vehicle that gets the best correlation. >> obviously bate tax oih. >> exactly. >> halliburton one of the themes here is independent of the spike in oil, the world is thinking the yields are going considerably higher, that is consensus. that is not my view. the yield on this sector, 3.8%, versus the s&p at 1.8%, almost 5% at exxon, all of which suggest that 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 potential -- >> the income. >> right that gives support for it and the beta potential if and as there's further escalation in the middle east. >> one thing to note is that xle's dividend yield is higher than xlu if we get a shift in defensive, i think you get more into xle than xlu. >> mike, last word. >> i think the quick point i

would make is exxon, again, the biggest integrated oil about company, has begun to start making more investments in their own business historically the time to stock hasn't been when they're buying the stock but when they're investing in their business. the fact that they're doing more of that is promising. >> moving on from energy, staples have been on a tear. the sector coming off its best year ever. still underperforming the broader market all at the opposite sides of the aisle, tyson foods the best performer up 67% beauty stocks, estee lauder and cody colgate palm olive has lagged. kraft heinz is down a whopping 27%. that's a soaking in ketchup. tony thinks one of these stocks is gearing up for a big staple smackdown. >> i'm don't get colgate palm olive here looking at a bearish stunt looking at 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 since then however, it has recovered just last week but got rejected to that level so this is a good opportunity, in my opinion, to start initiating a short if you also look at a relative basis, while the stock rallied during that last couple of months, the relative chart is actually going to make lower lows and printed a new 52-week low today. what this is telling me is there's likelihood this stock is going to continue to underperform the market going forward. however, the stock itself, the implied volatility, is quite expensive. to buy put options here are really expensive to help admit gate this, i have two strategies first, i'm going to look at buying a put spread. i'm going out to february. i'm looking at the 70, 62.5 put spread, buy the 70, purposely buying a put that's in the money to help offset some of that high

implied volatility, and selling a 62.5 put against to it offset the cost, collecting about 44 cents, paying net/net break-even $67.14, a dollar below the current price. no stock i'm looking for a downside move initial targets $65, and potentially extended targets to about $62, because there is an earnings catalyst here in about three weeks. >> interesting way to reduce the cost of the trade and maybe get more of the profit out of it your thoughts? >> yeah, first of all, implied volatility, how much options cost is a relative thing for some people who are watching, they may not think the options look that expensive but they are staple stocks tend not to move very much, so that's where tony is basically taking a look at the options. quick thing i 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, notable top-line decline. i think that's the story when you take a look at why the stock has performed relatively poorly lately from a fundamental standpoint, this is just not a growth stock, it is quite the opposite, in fact. >> so two things tony's targeting that november 5th low which is key 64.75. technically to go there and presumptively break below that, but at least there the first thing to talk about is relative performance it's a disaster relative to the market but that would be expected, the market's driven by apple and microsoft. more importantly it's a disaster relative to its sector, it is underperforming other alternatives, whether it's proctor or coke. its relative performance is 10, 12-year lows bad, headed lower. >> i'm looking for this, especially with earnings catalysts, on january 24th, i'm looking for that catalyst to break that 64.75 low down to 62.5 >> all right, we'll leave that there, think about how to play colgate palm olive

check out optionsaction.cnbc.com while you're there, check out our newsletter here's what's coming upnext. still to come -- >> apples, apples, more apples. >> yep everybody's got apple stock. mike khouw has a way to keep the returns coming even when that stock is fully priced. calling all options action fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air. ♪ ♪ ♪

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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." wall street sweet on apple the tech giant 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 if you insist on squeezing even more juice out of this name, mike khouw 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 you do, why is that, because apple is the most broadly held stock in the market

right now. one thing i would say, despite some of these brokers' increased price targets on the stock, this thing is looking fully valued to me, trading 24 times earnings, basically the upper end of its ranger on the course of the last decade i can understand a lot of people think this is justified by the fact that they've moved increasingly into services and it doesn't have as much of a hardware element still, priced over 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 portfolios, either in the form of dividends or by selling covered calls against it right now the price of options is such if we started to look at selling calls even with upside we'll yield 2% in less than two months, a rate of return i like. we're looking at selling at call options so that you would still have more than 7% upside from the current price of the stock if we take a look at the stock price, one of the things we can see is how far it has come but here's one of the things

that 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 looking at selling a call option to still capture some of that upside. then we can take a look at the valuation of the stock and what i was talking about before here we are, taking a look at it trading well over 24 times earnings we can see that you have to go all the way back to 2010 to see valuation multiples this high. where do they go they went lower. this is a situation where the price of the stock could be fully valued taking a look at the options we can see that the price of two-month options is getting towards the upper end of the range. we want to take advantage, try to collect premiums. what's the trade i was looking to february, sell the 315 calls, when i was looking at this earlier today, for about $6 let's call the stock 300 for easy math. if you owned it at 300, that $6 gives you a little bit of protection if the stock should

fall somewhat, collecting about 6% on the other side, if the stock does continue to go higher, you're going to capture all the gains in the stock up to 315 plus the $6 in premium between now and february expiration, you have the opportunity to make as much as 7.3% on the upside, you're going to mitigate downside risk. if the stock goes sideways, you're going to collect 2%, a nice, attractive yield over the course of the next 50 days. >> tony? >> i think mike's being a little tactical here with the stretch valuations of apple. the research that we do here at options place, usually suggests selling a slightly higher cover call mike has chosen a 30 delta call, a 30% chance apple would be above the 315 strike he selected by february expiration normally we'd go a little higher, about 325. because of stretch valuations, despite strong fundamentals, he's selecting a lower strike, collecting more yield. he still has about 6% upside before the stock gets called

away so i like this strike. >> it's a juggernaut what's remarkable, a couple of things up 86% is nowhere near its best year two years in its history more than 200, five years up more than 100, 150. but what we do know is this, that apple is fast approaching a 5% weighting in the s&p. if you look throughout history, general motors was able to do that, big steel, u.s. steel at its height, ibm, exxon at one point. you never get much more than 5%. >> the tale of those stocks that you just mentioned yeah. >> we're reaching the point where the profits trim, is it steep, it's all of those things. take some measures options as great way to do it. >> one of the things you pointed out, mike, for many years as you implied, 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 this company would have to be by the time it would get called away from you here representing more than a 7% increase we're talking about an increase in the market capitalization of apple over the course of the next 50 days or so of $100 billion. that would actually be a larger increase in 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 that, as good a company as it is, maybe it's going to hit the pause button, or even if it doesn't, you get to capture some of that upside the question investors ought to be asking themselves is, if i was going to try to collect more yield on a stock that i own, doesn't this look like a good opportunity to try to do that? >> my broader thoughts on technology after what was by any account a spectacular year >> what it really gets down to is the market is so dependant on a handful of names the top five stocks are basically more than the bottom 300. though berkshire in there, you're getting more than the

bottom 320 microsoft and apple right now as a combined weighting in the s&p are fast approaching 10% that is higher than any time in the history of those two stocks as a basket. and they are quote overowned, so to speak at some point in any great trajectory you have give-backs and they come out of nowhere >> they can be painful. >> and they can be painful. >> all right, folks. coming up, one beaten-down dow stock seeing a bit of a rally of late we'll tell you why that is good news for one of our traders. plus it's friday, so you know what that means send us your burning questions to our twitter handle, @options action ♪ ♪

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♪ ♪ ♪ ♪ ♪ welcome back to "options action just a moment last week tony said there could be big gains brewing in small caps. >> we've gotten a breakout on an absolute basis, we've also started to get a breakout a relative basis ibw against the broader market, it's underperformed the last two years. it's started to bottom 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 january expiration. >> since the time of the trade, etf down slightly, still above the break-even line. what do you do >> this trade is working the way i expected looking for ibw to move lower toward that 164 level. the reason i sold this put is i would like to own this stock going into 2020. if it 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, no, i think this is the right play one of the things that we have is the advantage of low options prices when you have low options prices you should be a net buyer of them and make your directional plays that way. >> two weeks ago mike and carter said one dow stock was gearing up for a breakout. >> textbook rounding bottom, you could call it a head and

shoulders bottom of sorts. any way you cut this, 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 58.5 and then to enhance the yield further you would look out to january and sell the 60 call for $1.20. >> 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, try to enhance that by selling a call that's a bet that it's going to make an orderly progression higher that's exactly what it's been doing since we put this on i would have to defer to carter from the technicals here. >> very much, we're in a good spot, we've got time, and the bottom action is in place. day to day the relative performance is tremendous. so stay the course. >> stay the course walgreens is right there.

>> yeah, walk over. >> step on over. >> remind yourself remind yourself how well this trade is going. next your tweets and our "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. ♪ can be a sign your feeling digestive systemhed down isn't working at its best. taking metamucil every day can help. its psyllium fiber forms a gel that traps and removes the waste that weighs you down. it also helps lower cholesterol and slows sugar absorption, promoting healthy blood sugar levels. so, start feeling lighter and more energetic

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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 jordan asks, with ces, consumer electronics show 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's implying a move about 3% for amd next week. usually i prefer to give myself more time for things to play out because this is really a binary bet. >> next from josh who says he's right here in times square, about 10,000 people here, we're not exactly sure who he is, watching from downstairs 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 of weeks broke out about that 1550 resistance level, could climb up to 18. >> that does it here on "options action." catch us again next friday - [narrator] the following is a paid presentation for body coverage perfector, brought to you by westmore beauty ultra. are you unhappy with how your skin looks? - [jill] this is the area that i don't like. - [narrator] are parts of your body making you look older? - [julianne] i have these spider veins. - it's just very embarrassing. i wanna cover up all the time. - [narrator] don't be embarrassed for one more minute by those dark age spots. it's time to erase the appearance of veins and blotchy, uneven tone. don't let sun damaged skin stop you from wearing the clothes you love. now you can have the confidence to show off your beautiful body. introducing body coverage perfector, the first of its kind,