it is friday evening here at the nasdaq, so you know what that means it is time for option action and we have a big show on deck here is what's coming up ♪ >> no! >> stocks sink hard as global concerns collide but like a beacon in a storm, the options action team has identified a possible shining safe harbor. then -- >> hakuna matata it means more worries. >> we're getting animated about a way to play disney's quarterly results next week.

plus -- >> discretionary >> that could be one of the market's problems, too, but it doesn't have to be yours it's time to risk less and make more "options action" starts now. let's to it. fear gripping the markets with the coronavirus outbreak shaking up stocks this week and today the s&p having its worst day since october. down 58 points or nearly 2%. the chart master says fear not time to turn to one of the oldest protection plays in the book he's at the plasma to break it down carter >> or fear much and turn to one of the oldest play books in the book. >> right. >> so, utilities are a place to be, rates are collapsing and can't just be because a few people have the flu. there's a message going on and obviously gold, utilities the way things are acting one has to listen to the message. in any event, a chart of gold

over the past two years. what we do know, gold had tight consolidation and pop. tight consolidation and pop. look at the lines and do it a different way. the point is that after a period of pause and rest, reassertion of strength, pause and rest, reassertion of strength. i want to look at the current move in relation to the prior move and what we know is that it doesn't have to besymmetrical, after this pullback, 20% pop this pop, as of now, is only 7%. were we simply to achieve a 20% move or how about even 10 or 12, implications are much higher the chart itself has this kind of look all quite good a 20% move, similar to that one, would take you to about 165 or 1650 an ounce in gold.

i think that's reasonable price objective as any what we know is a big move, consolidation, a big move a consolidation, a big move all within the context of what everyone knows a massive bottoming out formation. >> so, mike, the charts suggests, says kaert, the idea that we're in the early innings of a move upward for gold. is that what you snee. >> early innings we were at 1,300 bucks an ounce before the beginning of the summer and now we're close to 1,600 we actually had a pretty good move off of that we closed on the highs today for gold basically and that's one of the few things it did, right so it's fairly clear there is some demand for it the other thing i would point out, we heard tim on the earlier show talk about reflation, oil and copper weren't doing well. something else that didn't do so hot today was the dollar you think about gold, it is often a flight to safety

it is often an inflation hedge so for those reasons i think it is a decently safe haven there are people who are watching the show who may already have it in your portfolio. if you're thinking to yourself, okay, now that it had this better than 25% run off of last year's lows, howky look to get into this without being exposed to the potential for a decline of 300 bucks an ounce if it goes back to those lows and actually i think we can do a couple of things one is take advantage of the fact that commodities often see elevated implied volatility as you start seeing new highs that's what we're seeing here. right now february options in gld, the etf that tracks gold are relatively high. the other thing we have is the longer dated options are cheaper. we can look to use options to bet on some further upside while taking relatively little risk. i was looking specifically at the march 149, february 152.5

call calendar, a diagonal spread, buy the march 149s for 160. net net you're spending $1.90 a trade that will be profitable if gld rises. we're taking advantage of that elevated premium in the near dated optioning. people often say they don't like gold because it doesn't have any cash flow, yield when you use options in this way it does have a little bit because we'll be collecting premium in the form of shorter dated options and mitigating risk because we'll be owning the 149 strike calls everything we saw this week suddenly reversed and hard to imagine how that can happen very quickly, if it did, you're taking relatively little risk here. >> any reaction? >> love it and also, it's worth noting, of course, if one wants to be more aggressive, you own the equities, which is gdxj where you get a lot more torque than you would out of the commodity. >> i actually just took profits on my long gld position

yesterday morning, but i think you may have convinced me to get back in. partially because 149 resistance that struggled at that level over the last few days which is part of why i took profits, but the breakout today and the fact you're able to take this long position risking only 137.3% of the etfs is in my opinion a trade that i would trade. >> quick thing i would just say, we're well off of the all-time highs in gold. in terms of resistance, it's not like i see any immediate lines just above us here. >> let's move on here. things have not been quite so golden for shares of disney this year the stock is sitting in a correction down more than 11% from its 52-week high, but one of our traders is betting on a magical rally when disney reports earnings next week tony, what you got >> so, taking a look at disney, i like the fact that this stock broke out about that 143 level on last quarter's earnings traded up to 153 over the last few weeks it's pulled back right to around that

135 breakout level now, the pullback over the last few weeks is concerning to me. this weak relative strength going into earnings, but if i look at the analyst's revisions over the last few weeks, it certainly currently pointing towards a modest beat in my opinion going into earnings next week we look at options here, one of the concerns that i have here is the fact that i'm looking for upside move fairly quickly normally i would like to use a call option to place this type of trade however, if you look at the implied volatility of options for disney, it's very high you look at the term structure, one of the ways i can actually decrease the implied volatility or the cheapness of the options i pay is to go out to march. i'm looking at a fairly simple structure here using a call vertical, trading 135, 150 march call vertical paying 6.90for the march 135 calls and collecting about $1.60 on that march 150 calls. net/net, $5.30 on the $15 wide

debit spread allowing me to take a fairly large directional upside move in disney risking $5 to the downside. >> how much could you make on it >> almost $10 on this particular trade if you get that jump above 145, 150 on disney. >> we often talk when we look at vertical spreads that you're buying about how much of the distance between the strikes you're paying. usually that's because we're talking about vertical spreads out of the money that's not what tony is doing. the calls 135s are well in the money. it was closed 138.30 i think today. those are $3.5 in the money almost and that's an important thing to think about because by selling that upside call and also by using in the money call options, he's getting more immediate exposure to the stock and also reducing the decay that this is paying using those in the money options is another way he's seeking to mitigate the high cost of options here i like the trade because i'm not really in favor generally of fading stocks that have done well in proceeding earnings

events one of the things we know is that generally company's fortunes aren't dictated every 90 days. so if we see good traction and we have with disney plus, reason to think there will be some follow through. >> tony spends a lot of money on charts, it's bounced off a trend line four times. the relative strength issue is really an issue if you have a bad stock. the absolute pattern is good and the presumption is that the earnings cause it to go up, not down. >> for everything options action, check out our website, options action.cnbc.com and sign up for our news letter here is what's coming up next -- >> announcer: stocks rocked on wall street, but we found a rare green arrow in today's sea of red. what it is and why one of our traders says enjoy the good times while they last. plus, 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 when "options action" returns. ♪ ♪ ♪ of course i'd love to take an informal poll. i used to be a little cranky. dealing with our finances really haunted me. thankfully, i got quickbooks, and a live bookkeeper's helping customize it for our business. (live bookkeeper) you're all set up! (janine) great! hey! you got the burnt marshmallow out!

(delivery man) he slimed me. (janine) tissue? (vo) get set up right with a live bookkeeper with intuit quickbooks. the easy way to a happier business.

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. ♪ ♪ and welcome back to "options action" everybody. a major selloff hitting wall street today, all three of the major averages down hard, but there was a rare green arrow in today's sea of red

consumer discretionary holding up, the xly finishing the day in the green. why? well, basically because of amazon's monster earnings beat last evening that stock makes up 25% of the etf. but if you think amazon's arms are getting a little tired holding up a whole sector, mike and carter have a way to play it as the plasma to tag team the call to action carter, you first. >> you bet there is this thought, what do you mean a thought, it's actual, consumer discretion is outperforming. i have the consume discretionary sector as we know it influenced by amazon, 25%, mcdonald's, nike and support. this is the equal weight index, this has made no progress in the better part of two, three years. if we were to move forward here -- >> take a look, gentlemen, could i cut in we have breaking news. i will get right back to you on the impeachment trial and the vote that is just taking place

in the senate. >> reporter: the senator has just voted against calling witnesses in the impeachment trial of president trump the vote was 51 senators against 49 senators in favor along largely party lines. the senate is now heading into recess as they try to figure out how to wrap the trial up earlier today, there were several senators who had said they expected that final vote on the articles of impeachment would not happen until some time next week. likely on wednesday. but now it seems that time line is up in the air we saw majority leader mitch mcconnell and minority leader chuck schumer huddling on the floor just a little while ago where they tried to hash out some sort of compromise. now they're going back to their respective caucuses to try to talk some more and figure out a way to land this plane as one senator put it and we will have to see how the final chapter of this saga plays out. >> the final vote was what, 51, 49 with romney and collins the

only republicans who broke ranks with the party >> that's exactly right, tyler so that was the vote on whether to call witnesses, but the final vote on acquitting the president that has not happened yet. we're still waiting to find out when exactly it might be scheduled. >> elon moi at the capitol for us sorry to have to interrupt you that was important news. carter, mike, go back into your argument and recap. >> you bet so three lines here at this point. we have the s&p the middle the thought is that consumer discretion is outperforming. if you do it equal weight, you're underperforming the market that's the real subject. so, moving forward, another way to look at it, sector has ascended but it's relative performance is descending. now, let's keep that and make it the equal weight on top. take a look at the bottom line now. this is the true performance of consumer discretion if you don't have the overinfluence of amazon and a few other names.

again, having been stuck with no results for the better part of two years. in any event the chart itself of xly, well defined trend line, let's put it in and i think it's only amazon that's actually keeping this thing from breaking we just heard from amazon and now i suspect that it gives way just as some of the other things have given way >> mike? >> yeah. so interesting we'll keep this up for one second. you'll notice basically that that trend line runs almost exactly to 125 in the xly. that's the level i'm taking a look at. the trade we're looking at is relatively simple one for a couple reasons right now despite the fact that we have seen all the turmoil in the market and some options premiums have gone up as a result, xly, they actually still remain reasonable. we'll see a chart of that. right now we still remain relatively close to the all time highs. finally the point i would make, we'll look at buying a longer data put that gives us a great deal of flexibility. you can do things like go into a vertical spread or sell near

dated options against it, use this as a hedge against the discretionary components in your portfolio. we'll take a quick peek here this is how the june 125 puts were priced at the beginning of the week and at the end of the week you can see that although we did have a dip the middle in terms of implied volatilitvolatility, right back where we started. very simply go out to june the 125 puts were trading for about $4.35 when i was looking at this earlier today, and like i said, you can buy this against a long portfolio you can spend it as basically a speculative bet to the short side if you chose to do so if you're looking to take advantage of higher near-dated premium, look to do calendar spreads and things like that as well. >> as they work their way back, what do you think of mike's trade? >> i like mike's trade from the perspective of buying optionalty out to june. a lot can happen between now and june you look at the constituents of the particular sector, there are some names that look particularly ugly right now. look at starbucks broke below

the 200-day moving average has a lot of exposure to china, gm or ebay broke below major support levels over the last couple days. these are not -- this is not a sector that i particularly like at the moment. and given the fact that if you look at 2019 the economy was driven predominantly by consumer. >> by the consumer, absolutely. >> look at the numbers i've been following fairly closely, the spending has still been very strong you look at some of the employment, wage growth, payrolls, these are starting to tick lower and some of the cracks that i'm starting to see. >> yeah. there's a couple things that are going on here. we have strange things going on in credit. for example, they'll change how ficos scores will be calculated. to the extent the consumer had the support of easy access to credit, people who have been taking credit card debt off by getting personal loans to pay them may see declines in their credit scores. lot of things that could pressure consumers

not just things like viruss that may migrate to the united states and things like that combine all these factors, there's reason to think this is about as far as we're going to come right now. we'll take a quick break coming up, one industrial stock is lighting it up this year and we'll tell you the name and why it's great news for one of our traders. stick with us. we're live from the nasdaq market site in times square. much more options action right after this ♪ ♪ ♪ ♪ ♪

♪ ♪ ♪ ♪

♪ welcome back to "options action." it's time to look back at a couple of our trades that remain open last week tony said ge could power higher after earnings. >> i like the stock because it broke out in january above that $11.5 resistance level and coming back to retest that as support. 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 i'm going out to march and i'm looking at the 11 by 13 call vertical i'm buying the march 11 calls for about $1.05 earlier today and selling the 13 calls for 20 cents. >> tony said it would outperform

and look what happened, ge up more than 6% since that trade. how are you managing this now, tony >> this trade i took profit the day after ternings announcement. if you did that as well, you would be looking at 70, 80% gains. still holding on to this, ge pulled back a bit since then, still up about 43, 44% i do recommend taking profits on this particular trade. >> any reactions, guys >> also because industrials are themselves in trouble. industrials are making new seven-year lows relative to the s&p. ge grab it when you get it like that. >> that manufacturing number out of chicago today confirms that the manufacturing sector remains a little bit weak. mike, last week said tesla might put the pedal to the metal but don't expect the gains to stick around too long. >> we can see some very, very large moves. where we see significant concentration of the 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 so we're going to target that price right there. and the trade that we're taking a look at here is a diagonal calendar i was looking at buying the june 475 puts then selling the weekly 500 strike puts for $11.40 >> and what happened with tesla? well, they saw double digits it is now up more than 13% since that trade what are you doing, mike >> yeah. this is an interesting situation because obviously my expectation was not the tesla was going to rocket to new all-time highs but by using that diagonal spread, we spent $23 to put that on and right now the puts that we still own closed about $20. so we're fairly close to unchanged in the total value 475 is pretty remarkable decline here two things you can do, take the trade off right now and say that you're not really interested in speculating on tesla one way or the other and seems to

demonstrate so much strength the other is you can sell near dated puts against it, maybe the march 500. carter >> stocks gapped up such as this have have given back those gains. this one stuck its landing, gap was up today that is a testament to incredible relative strength and implications are more to come. >> we'll take a quick break. up next, 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. ♪

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." we have some i guess you call it breaking news out of europe. you're looking live at london at number 10 downing street there's a countdown clock there 1:46 until the uk officially leaves the european union after years of negotiation brexit officially happening at the top of the hour. that is midnight london time the saga of brexit will end. let's turn back to options

it's time to take your tweets. our first viewer says eem took a huge hit is a long call still a good play carter >> it's not. it's opper, oil, high corallation with commodities and eem and looks like there's more downside. >> mike? >> i think if you were going to make a bullish play, calls would be the only way to do it implied volatility is trading around the two-year average so they're not overly expensive. >> i wouldn't mind take a stab. final call, carter, lead us off. >> speaking of commodities, there's a commodity, gold. good place to be. >> that's how we began the show. >> mike? >> i like gld diagonal call spreads as a way to make the bullish bet and june puts in xly are not overly expensive and give you a great deal of flexibility. >> tony? >> disney, i'm looking for disney plus to give us another big earnings announcement here

looking to buy a call spread on disney >> thanks, guys. really appreciate your being with us tonight. that does it for us here on "options action. we'll be back next friday at 5:30 p.m let's go back to london the last 20 seconds of the uk in the european union "mad money" starts right now - [narrator] the following is a paid advertisement for the hoover smartwash. when your throw rugs need cleaning, you toss them in the washing machine, easy. if only you could do the same for your carpet. instead, here's what carpet cleaning looks like for many of us hauling around heavy, bulky rental machines. they're a hassle. and do you really want to bring someone else's dirt into your home? and then there's all the mixing, soaking, waiting forever for your carpet to dry. no wonder we sometimes give up and call in a pro, but that's a whole other level of pain. they're all over your house. you're left with a damp carpet and it costs a fortune.