happy friday "options action"s fans we have a big show lined up for you tonight. here is what's on tap. >> forget bond it's really about. >> q. >> q. >> q. >> carter werth spies something lying in the corners of the nasdaq. >> you got the point. >> are you familiar with the ge trivection oven. >> he has an options recipe for you to follow. >> and sticking with all things electric. >> i can't see tesla. >> why >> mike khouw has some jolting

observations and only to insulate yourself. it's time to risk less and make more "options action" starts now. well, let's get right to it. markets gearing up for the busiest week of earnings of the season that includes some of the biggest tech names, apple, microsoft, amazon, all gearing up they're the largest holdings in the nasdaq 100 etf carter said there's trouble in the charts for some of the high flying names he is at the plasma to break it down what are you seeing? >> sometimes something so good that perhaps there is trouble. no trouble in the charts but that maybe is the trouble. they're priced for perfection. we'll look at the top five stocks as perfection four of the top five report next week let's move forward and look at some lines top five stocks, what are they they are 18% now of the s&p. more than the bottom 300

if you look at a chart of their weighting, and this is what this is, the peak -- the top five ever reached was in 1999 at about 20%. while we're not 20% now, we're 18.5, crowded is the word that comes to mind. so let's look at the qs. here is a channel of the qqq the etf that you can trade that is dominated by those top five names and it's been in a virtual perfect 45 degree angle. we're at the top of that channel. my thinking here is that this is a little hot. now let's look at it arithmetically in relation to 150 day moving average here's the qqq since 2015. here it is on a shorter term basis. i want to point out the checkbacks this checkback, this checkback just a simple checkback to the line

8, 10, 12% depends how quickly you come down. we're due for that if i just remove all of this, little too far above the purple line take action. >> those things have been stretched very far thank you, carter. come on back to the desk mike, what's your trade on this? what are you thinking? >> it's interesting. karen was kind of eluding to this at the end of "fast." she was talking about although we did see a bump up in the vix, measure of implied volatility, the price of options didn't mean it was a complete buy right here it's interesting if you take a look at the implied volatility which is the price of options and realized volatility which is how much the margins move around, that gap still remains exceptionally wide while the temptation might remain to run out and buy at the money puts, they're not quite cheap enough to do that. he's looking for a checkback, 8 to 10%, something in this kind of range not an absolute collapse so looking into the earnings

season, trying to make sure that i capture most of it, bearing in mind the fact that options, while cheap maybe not cheap enough to buy them outright now, i was looking out to march the 220, 200 put spread on the qqqs. you can buy the 220s for 4.55, sell them for 1.20 net net you're buying at 3.35 to buy the put spread the out of the money puts are going to minimize some of it but obviously if there's going to be any form of a catalyst, we're going to exclude all of the virus concerns and things like that if there's going to be fundamental factors, earnings would obviously be one of the potential catalysts. the top names obviously have outsized impact on the index right now. >> unbelievable impact in fact what do you make of the strategy, carter >> this is what one has to do. just staying and believing and hoping it gets a bit dangerous

i would point out if you look at how far above or below trend anything can get, we know commodities, they become explosive. an individual stock like a tesla, but the point is when you have an aggregation, the qqq, this is 15% above the 150 day moving average it's only happened in january of 2018, what happened in january '18? we sold off 12%. >> what do you think of this, tony do you like the nasdaq 100 do you want to go after individual tech components >> i like this trade for two reasons. first of all, because you're using the qs the five names, there's a concentration of 40% in the five names in the qs. you're using the qs as a proxy to take a bearish weight the genius part from my perspective is the fact that if these stocks miss on earnings and qs move lower, the implied volatility elevate unlike if you were buying a put where you get

the volatility crush i like this particular trade. >> what about just those components, tony i know you like this trade in particular is there any other action you would take on some of the individual tech names reporting? >> out of those five names i'm skewing more on the bearish side i think you have a mixed bag apple i particularly like but amazon, google, i'm not as sure of i'm skewing towards the bearish side and i like the qs. >> one of the points that tony is making is we very often on this show talk about trying to take advantage of elevated options premiums on individual stocks going into earnings that's a very tough thing to do. if you went out and bought puts on google, bought puts on apple and all of the big names in these indices going into earnings, you would pay a very big price for doing that over time you want to do this more tactically and where you have an opportunity to do it in an index like this, that's the way to play it. speaking of earnings, ge gearing up for its report next week this stock has been lighting up the past few months.

in trading the highest level since october of 2018. tony says this electric rally is far from over. tony, how are you trading ge into next week's earnings? this has been an interesting one. a lot of people talking about ge. >> this has been on my radar since january. it broke out above the $11.5 resistance level if we look at ge from a relative perspective, it's starting to outperform its sector. not only do i like that relative strength going into earnings, the industrial sector itself having spent most of 2019 going sideways broke out in november and i think there's a lot more up side, especially going into an election year here. with general electric looking at the earnings, it's implying a 7.5% earnings. that falls in line with the 7%

because general electric implied volatility is at the lower end of the range is a fairly simple strategy of buying a call spread i'm going out to march i'm buying the march 11 calls by 1.05 and i'm selling the 13 calls for 20 cents net net i'm here paying 85 cents for the call spread bringing my break even to $11.85 which is only 15 cents higher than where it closed today. i have a 12% up side by the march expiration. >> what do you make of this strategy seems like a good one. >> i like the strategy general electric, although the options are fairly priced relative to the kinds of moves we've seen over the last few quarters, you can see the options, going into earnings, that would be an expensive way of playing it. using a spread is a much more expensive way to play it

it's a way to make a directional bet and mitigating that extraining sie extrinsic premium. >> it has all the marks of a bearish to bullish trend 30 down to 5.6 it has been basing and bottoming. you get gaps on 2s and 3s. another beat, tip top. >> this is a name that has fallen pretty far but potentially has some nice up side there thank you, gentlemen for everything "options action." check out our website optionsaction.cnbc.com here's what's coming up next >> there they are. cracks in tegs lsla, and they c be bigger than these. plus, calling all "options action"s 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. ♪ ♪ ♪

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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." shares of tesla up 33% just this month and trading at all-time highs. our mike khouw is betting that

the stock's hot rally could hit a speed bump next month. he's over at the plasma with his call to action take it away. >> sure. tesla has been a very difficult stock to bet against if you have been short this stock over the course of the last six months, you understand how painful that can be. a lot of shorts have been taken out as a result. if all you've been doing is going out and buying puts, you have felt a great deal of pain this is a stock where you see expensive actions. we're going to look for ways to bet against the stock without spending quite as much money over time or taking the kind of risks that you would by naked shorting the stock let's take a look at it right now. the options market is implying a move of 12%. that is quite considerable when you consider how expensive the stock has gotten we're considering $100 billion market cap $12 billion swing one way or the other. there is some down side if you see some cracks in the story for this we actually had a note up from jpmorgan they were suggesting the stock

could potentially be cut in half however, the short interest is still high that's important when we think about what the stock could do near term when they report earnings so let's just take a quick look at what's been going on. since the beginning of the year obviously we've seen a sharp increase in the price of stock we've also seen a sharp increase in the price of options on the stock. these are not the options that just capture earnings. we're talking about 90 day options here usually what you will see is when stocks rise is that that implied volatility remains relatively static or in some cases fall as the stock has risen, so has uncertainty. we take a look at how the stock has historically behaved we've seen some very, very large moves. where we see a significant concentration of those moves is right here that is representing a move of down 10 to 15% from friday to friday capturing the week where they report earnings we're going to target that price right there. the trade that we're taking a

look at right here is a diagonal calendar i was thinking about the june puts and then selling the weekly 500 strike for $11.40. notice where the 500 strike is at the time i was looking at the strike it was about 560. this is a trade that will make some money if the stock stays right here it could even rise a little bit. we're still going to be okay it's going to see peak profits if the stock declines biff 500 a week from today. if the stock does linger here, if the 500 puts we're short are going to expire worthless and we put more against it to continue to advance it. >>tesla shares closed today just under 565 thank you. carter, what do you make of tesla and this strategy? >> sure. i mean, this is extraordinary. not so much that stocks can't do this, but typically it's almost

something binary it's a biotech where something can literally change and that's not the case here. we know that they are changing the car industry a lot is priced in being outright short, that's not something i would do, not to imply that that's what you're doing, but this has animal spirits and it's on its own now. >> it is such a cult-like stock. it is in its way binary like a biotech. you've got lovers and you've got haters. >> i'm not a tesla hater i don't hate the cars, i don't hate the company there is actually a case you can make for its earned price believe it or not. if you look forward to 2030, the conservative estimates figure that we're going to see annual electric vehicle sales at that time north of 3 million a year what is interesting here is the theory has always been for tesla is that they own the electric vehicle market now, as they got

into the space they would displace it. when audi came out with the etron, that didn't happen. when chevy came out with the volt, that didn't happen tesla as the electric market has increased their share has remained constant. if you look at it that way, you can say if they get into the light duty truck market, class a truck market and maintain the market share, they're going to be one of the big automakers ten years from now i think that's what the bulls would probably argue there's a lot of other things they're looking at. >> $100 billion market capitalization gets you close to toyota companies like bmw, that's a lot of good news priced in already. >> the chart is pretty unbelievable what are you thinking? >> i completely agree here i'm not bearish but i'm not bullish anymore. i think the way to play it is working out well you're not using the weekly

options. they're around 110 and if you sell this -- these weekly options for just a few weeks, you're going to recoup the costs of buying a long-term put. if you get the drop, you can take advantage of it sell a call credit spread to the up side and defending a level to the up side. >> what is remarkable, day to day, today, tesla barely budged, right? a big week >> that's a tell that for now it's on its own. >> mike, i'm going to give you the final word to wrap this up for us. >> it's interesting selling credit spreads, that's a strategy i typically like. it is a strategy i've talked about in tesla i've done it and been punished for. i did that when the stock was 300. i did that when the stock was 350. low and behold here we are all i can say, elon musk, bravo. you build a good car, you've got a great stock and the balance sheet is self-correcting they're well on the money. >> i think the cyber truck is

really silly but you don't. >> i ordered one. >> you ordered one. >> so i don't think it's that silly. >> just me. >> it's silly looking maybe but i actually think -- you know, it's completely different than anything else that's on the market and that actually is where elon musk really has turned tesla into the success. he's willing to do things that nobody else is willing to do if you are going to be unconventional, that's the way to do it he is unconventional and that is why he's breaking into this industry. >> those windows are still breaking so i hope that gets fixed, too anyway, shares of intel surging to a fresh high. that's great news for traders. plus, have a burning options question of course you do tweet it to @optionsaction we're live from the nasdaq market site in times square. much more after this ♪

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." look back at some of the open trades chip maker intel was said to break out into the earnings. >> this stock certainly has underperformed the market and the semiconductor group.

however, that has stabilized a little bit over the last couple of months. this recent relative strength is typically what i like to see going into an earnings release the break-even price is $58.35 as long as the stock stays above that level i'm profitable. if the stock gets a little pop on earnings, i get to take profit on this by this time next week. >> break out it did. intel surging nearly 14% since the time of that trade hitting a fresh 52-week high tony, what due think of the stock here >> i love the stock. i didn't think it would move this far this fast but for the trade, we sold it for about $1.15. it's trading about 9 krengts i would close this out, take property on this particular trade and move on. >> carter? >> that's right. it's such a big move you have to sometimes take the money and run, fully exploit it. there's also this, the semis particularly good. semis had a big outside reversal day closed in the red. at some point you've consumed

all of the fuel. it might just be that you rang a small bell semis great. inputs are great that's it. >> mike khouw said netflix was going to stream higher on its unks results >> we've seen an increase in price of 30 plus percent when we take a look at earnings, moves of less than 3% or so are quite uncommon in the stock. specifically the trade i was looking at was just going out and buying the weekly 3.40 calls. this isn't a strategy we normally look to because that is kind of expensive. in this case they aren't cheap they're $11.45. >> in fact, netflix is up 3% since the time of that trade how are you managing it from here >> there isn't much to manage when you trade weekly options. one week later they expire, but the stock did move in the desired direction. if you had this on earlier today

they got to almost 20 bucks actually this morning. the stock gave back a little bit of its gains earlier on, but if you owned them all the way up until they expired today, you saw profit of 2.5, 3 point $5. >> tony, what do you think of this one >> i think it's time to take the profits and run. you've made about 30% gains. weekly option. time to take profits. up next 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.

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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 is time now to take some of your tweets. our first viewer asks, would you hold a tlt 139 call with january 31st expiration going into earnings next week >> obviously tlt is more of a rate bet you're betting rates are going to drop. you made a bet at the 139.

i would indeed hang on. >> another fan asks are you still holding the xle $60.21 april call >> got enough time but the shirt hasn't been happy. stick with it a little longer. >> what do you make of that? >> the reason we bought the call, we recognized there wasn't down side risk we have time hang onto it. time now for our final call. carter, what have you got? >> qqq vulnerable to profit making. short selling. do it before someone does it to you. >> mike? >> netflix i think we can use diagonals here i like the company but the price is just too high. >> too high for netflix. tony >> ge looking for a pop on earnings >> we will see what happens. going to be a very busy week next week. that does it for us here on "options action." we'll be back here next friday at 5:30 p.m. eastern don't go anywhere. "mad money" starts right now

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