obama: at a time when washington is divided in old ideological battles he shows us what can be achieved when we bring people together to seek pragmatic solutions. bloomberg: i'm mike bloomberg and i approve this message. welcome back everybody. a news alert now on the coronavirus. and meg tyrrell has the latest. >> tyler, getting reports of new cases out of hubai province, the epicenter of the outbreak in china. they are confirming 2041 new cases where to put it in the context we are getting number from china later tonight but this confirms the direction of new cases they had been declining for two day. for broader china this is a

chart by stat news the case count slowed np hubai that reversed not what public officials wanted to see. >> thank you very much, meg. it's time for "options action" we have a big show lined up. here is what's on deck ♪ >> get back get back you don't know me like. like the mode and the cars the tesla this week. mike khouw recaps where we've been and help us look both ways before crossing into this one. then. >> no coke pepsi. >> pepsi. >> one pepsi. >> hey. >> carter worth knows how he wants things and when he is 30see for a catch up trade there is only one soda he looks to pop. plus. >> appreciate the lift. >> if you also appreciate the lyft, stock that is, bono has

pennsylvania play to ride shotgun on it's time to risk less and make more "options action" starts now. welcome, everybody and lets get to it start with the biggest story of the week, that would be tesla, giving investors whiplash takingo taking traders on a wide ride surging out of the gates kicking off the week gaining nearly 50% over two days and adding more than $42 billion in market cap between friday's close and tuesday's weak what goes up and they caught a downgrade from canaccord. and tumbled. a bear market if you want call it that. it finished up 15% and filed on a total of $17 billion in market value. but this is a show about options. and if you think those numbers are eye popping, mike khouw is about to make your head spin, at

the plasma to break down the snant with the call to action. lead us through, mike. >> it's interesting because of course tesla does have the ludicrous mode and that's what we see in the stock and the option this is webb first of all lets look at the volume which i think was extraordinary. 5.3 million contracts traded this week. this is on a stock that ended up closing the week close to $750 5.3 million contracts by the way that represents 530 million shares of a $750 stock. really that's extraordinary. some other superla actives and we can bearly keep up this is a graph of the weekly 800 strike calls. you go backto last friday thes calls could have been purchased for 25 cents monday morning you could have picked them up for 80 cents. by the end of the day that was the most actively traded option traded for average of about $10. the very next day those were trading for over $100. so from 25 cents last friday to

over 100 on tuesday. today, they expired worthless. in actually highlights a couple of things. buying the stock obviously is a wild ride. trading the options is also extremely challenging. because you can have situations like this. you are up a lot of money down a lot of money very quickly. so price axe li action, ludicrous, the prices of option similarly ludicrous. is there a way to actually make a play in tesla right now without going out and buying 100 shares at $750 -- that's $75,000 or buying some of the expensive options without laying off the risk i think there is but here we are taking a quick look at how much the price of options has increased. when you get stocks moving this much, the options prices go up and you can see indeed they did. in fact going up with the price of the stock we can see here as the stock shot up so did the price of the options. so if you buy options with implied volatility this high if the same thing happens to those

ongss that happened to the stock you could see the implied volatility come back in. you need to use spreads. so more specifically, what i was looking at is a four legged trade. a bit more complicated than we normally look at you need to pay close attention. i was looking at selling -- in fact did this myself today, selling the february 800/850 call spread. that meant selling the february 80 oh calls. buying the february 850 calls. and then in ady addition to that buying as a hedge the june 800/850 call spread. buying the june 800s and selling the june 850s. at these prices that works out to $3 when i did i the trade mieds i ended up spending $3.60 to put on the trade. the idea is you get a big range of profitability one of the bets i essentially am making is that the stock stays below -- essentially the midpoint of the strikes. i'm guessing we had a blow off top this week. we can let carter speak to that.

the idea is we look for ways to sell premium and not spend a lot of premium to basically hedge that and i think this accomplishes that you get a big range of profitability if the stock basically lingers where it is right now or if it drifts even a couple hundred dollars lower. >> carter, what do you think. >> maybe bono why don't you address the structure of the trade. i can talk to price action. >> absolutely. i think what mike is doing makes sense. what you have td is you have to spread it out with stock prices around 750, $800, peaked upto 960, you have to be able to use what the is at your disposal to get exposure to the stock particularly as retail investor. you can't go out and outlay for a single share $850 and get access to this. it makes sense to define risk. what i like is that he is long to june. that gives him the optionality and the ability to trade around this position. >> in terms of the price action, what you heard mike use the phrase blow off that's the

element. meaning you have an exceptional run in june, $$170 stocks runs to a thousand and gives back a third in a day in a way you set goal posts, the flare up high of tuesday and now the give back. you should stay in a range for some time but not exceed the high that's unlikely on intermediate basis. goal posting if you will with i would say moredownside risk than upside potential. >> mike final thought to you. >> a lot of people talk about valuation with tesla you know when we talk about valuation in stock prices one of the things that's important this is all about the future. what is the future going to bring? we know cars are increasingly electric we know tesla lass market share right now. if they preserve that market share maybe you could make a case this is a $100 billion company maybe the case that chase the stock that carter recommended, toyota. but in the meantime i think it's fully priced here. and the price action to me definitely suggests that if anything it's probably more

downsaid but taking naked hort positions isn't something i recommend. >> complicated trade but makes sense. more options action on tap here is what's coming up next. >> mama needs another pop pop. >> if you are looking for another pop, too cart are worth will make his way down the aisle now we're at cruising altitude. plus calling all option action fans, reach into your pocket, grab your phone, and tweet us your question @"options action." if it's mice we answer it on air when "options action" returns. ♪ "options action" is sponsored by think or swim by t "options action" is sponsored by ♪

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action," everybody we are gearing up for another big week of earnings some of which you see on the graphic come up, the chart master says one of the names is about to see a pop. he will explain, carter at the plasma to break it town for us. >> obviously big names one reporting one hasn't coke is earnings out of the way and pepsi. you but i want to start with kpafrt charts. these are similar businesses and lines in the stock prices indicate that there is the two or three-year chart. go back further here is longer term, 10-years it's like frick and frack. >> chart back to 1980 same performance. but now here is the year to date chart for whatever reason, coke is ahead, pepsi lagging. in fact coke up 6 and pepsi almost 12. there is of an opportunity here and that is the trade. lets zero in on the pepsi chart.

no drawing or annotations put in a line piers what we have is the well-defined uptrend lined responded, responded, responded, responded to that line lets put the upper line in it's in a well-defined channel and just the thinking is we move towards the top of the channel, move towards the top and we have upside coke popped on earnings i think pepsi will do the same catch up trade. >> lets look at the trade and what is your trade on this, mike >> yes, this is an interesting situation. here we have the markets obviously we had softness today. but the markets are essentially at their all-time highs. pepsi is at its all-time highs essentially where it closed today. so it's really tough to go out and reach for stocks that not only are trading at all-time highs, trading above their historic valuation multiples which in stock is, going into an event we don't know whether good or bad but one of the things we want to look at is whether the options

market gives us an opportunity to make an inexpensive bet while mitigating risk. this is a stock up $10 in one month. i was looking at the april 145 calls slightly in the money. $3.75. i want to you think about that a second that's less than 3% of the current stock price to make a bullish bet going until aurp if you recognize there is a decent chance the stock moves $10. anyway, 7%, 8% we could call it over the course of 60 to 90 days that's probably the type of range you are looking at that's the order of magnitude of the moves we've been seeing. we can see optionality is cheap. and we are presented with an opportunity going to at thattist to make a bullish bet with little risk. the other thing i would say because there is time to go until expiration after earnings you don't get quite the same volume suck if the stock trades sideways the risk in that case is low injury the way to do that a simple trade. >> while at all-time high, as is

the case with so many stocks in the mechanic i want not extended in relation to where it's been if you look at moving average, pick your moving average, the s&p is further above its average price over 50 days or 100 days than pepsi yes all-time high but not stechd. >> bono, you got a thought on the trade. >> particularly as you jukts pose this to the last trade mike spug options are cheap you spend a fraction of the stock price. why cap gains here be discerning of when to cap and spread the trades and when to go ahead and put money on the table and bet 8:30 perfect example much that. >> that's a good point if you were looking to spread this why not use a call spread because if you sell out of the money calls you're getting fog for them why not wait until you see a move one way or the other and basically use these to trade against. again risking 3% of the current stock price, which is by the way probably than you'd risk if you bought the shares themselves. >> for sthur.

>> we stick with earnings ones coming up next week. uber up 9% today after the ride hailing service said on the conference call last night that it could be ebidta profitable as soon as this year. that's cash flow profitable if you don't like the acronyms. shares of the rival lyft catching a bid off the news. lyft reports results next week if you bet this takes off when he it reports one of our traders has a way to play p break it down. >> it seems the bulls have come tout to play in a marmg way on uber if you look at option volume calls versus puts, the last we can two to one this today post uber earnings three to one we expect a move to the upside in real volume here. if you look at the at the money straddle out to february 21st of february expiration. that's believing a 11% move on the high side.

granted there isn't a lot of history on the company yet given it ipoed last year but the average move is 6.57%. the highest south of 11. taking a step further and looking at implied volt tilt of options, the cost of options simply you can see around the 75th percentile we've had two previous examples where you might want to look at 8:30 or spreading the trade. given voles are elevated i would suggest spreading the trade so you are not 8:30 putting money on the table specifically what i like doing is a trade which is out to february, buying the 50.50 55 call spread. cast costing $1.63 at the money about 2.40 against that sell the 5 a strike at 8 oh cents the cash outlay is 1.60 break even at 3% north of where the stock is currently what i like about the trade is that you buy options but you are

selling this elevated implied move $ a a is about 11% higher than stock price process you consider the stock up 5% in tandem with uber you are selling a 16% move. >> mike. >> i definitely think that it makes sense to do that one way to think about trading convert calcium whether getting a sufficientment a of premium for the strike you are selling he is collecting a third of the premium he spends on the strike he buys. he has 10% worth of upside in the stock. a different situation than pepsi where you spend the same amount for a spread on the $150 stock when you go into situations options premium elevated that's we you look to spread. when the options preem upsets are low that's when you don't. >> does it give you a lyft. >> it does a little bit like copeo coke and pepsi the thinking is the this goes the same way. obviously a disaster since the ipo in late march has all the

elements of something bottoming, curling up i like it a lot. >> bonowin you get the last word because you presented. >> i will add if you look at lyft's core business they are more focused on profitable business don't have the tertiary businesses they are focused on ride share and ride hailing that's a real winner. >> gentleman, thanks we continue here in a minnesota by answering your smoldering options questions. send them to the twitter handle. you see it below and you might get your answer on air plus is the disney ride over, one trader updates his bet on the house of the mouse his sneakers on the ground in orlando. live from the nasdaq market site don't go anywhere. tethio aio rhtnsctn"ig afr is ♪ >> announcer: "options action" is sponsored by think or swim by td ameritrade.

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action." time to look back at open trades last week tony zhang made a bet on earnings magic from disney. >> if we look at options here one of the concerns i have here is i'm looking for upside move fairly quickly normally i'd 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. i'm looking at a simple structure here using a call vertical trading a 135-150 march call vertical paying about $6.90 for the march 135 calls and then collecting about $1.60 on the march 150 calls. >> disney up 2% since then as of now tony trade in the grown. he was kind enough to the sent us a post card from the road he writes i'm in sunny orlando right now. outside of disney world. good for him zpliet despite the stropping broegt time to take profits.

cheers from micky and the gang mike, do you agree it's time to get out of this one. >> absolutely. when you have a situation like this where you have a quick pop and gives it back and then some right away, that's an important coup if you had a bullish view you might want to rethink that i think he is very wise. some people following the trade may have done in. >> 138 a week ago hit 147. a lot of opportunity and it just happened to sort of fade post earnings. >> any thoughts on this. >> i will say a small win is a win nonetheless and i think it's praunt for him to take the money, continue and invest in another profitable trade idea. >> reap and sow. >> meanwhile mr. carter and mr. khouw teamed up on the consumer stocks. >> the thought is consumer discretion is outperforming. but equal weight, you are underperforming the market that's the real subject. moving forward, another way to look at it, the sector has

ascended but its relative performance is descending. >> g out to june, the 125 puts were trading for $4.35 when i looked at this earlier you can buy it against a long portfolio, spend it as a speculative bet to the shortside if you chose >> all right, the consumer discretionary etf faired well this week against market head winds. mike are you managing this or are you how managing. >> we have until june. and in the interest of full disclosure, i actually bought a couple more put spreads middle of the day today so obviously i am sticking with this one >> very much so. it's times on our side and exham on that's part of the premises premise amazon is one thing and we like that long. all of the stocks making up the consumer autos in particular retailers, not good. >> bonowin. >> if you look at the last economic data, gdp data that was

led by trade balance as opposed to core spending speaking of the consumer if there is weakness it's discretionary. very eligible logical and fundamental trade. >> today the jobs report good. incomes were up a. august you ares well for the consumer. >> the thing is all of the yous has been good. that's why it's doing well it takes a track any of that to see weakness that's what i anticipate. >> up next, your tweets and our final calls. >> announcer: "options action" sponsored by think or swim by td ameritrade 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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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 a little bit of news to tell you about on friday evening. bill ackman, the activist investor is selling a substantial portion of a stake in chipotle, 73,000 is a shares to be precise at $859 a share. the stock has been doing well lately any reactions on the desk to that >> i mean, chipotle is a big round trip over about eight years. >> yes. >> and here is titus i don't

think it's anything actionable. >> any thoughts. >> i would be kleined to sell for the reasons we articulated on consumer discretionary. i think it's wise to unload that. >> a minute left to do final trades shall we do it. >> carter go ahead. >> pepsi as earnings catalyst and i like it long. >> likes it long and mike next. >> pepsi options are inexpensive going into catalyst looking at the april call at the money calls are inexpensive way to make a bullish bet if you are looking for tesla and it's tempting you need spreads like the calendar call spreads we were talking about because the omissions are expensive right now. >> go back and check that out. what's yorp thought bonowin. >> xly. >> what is that. >> xly. >> a. >> and that's that's it for "options action. back next friday at 5:30 p.m tonight 7:00 eastern time, outbreak: the coronavirus. our special aires. there are more cases in hubai

and more deaths there. we will be covering that for you at 7:00 eastern time in the meantime, do not go anywhere because you know what happens now. a little madness will descend. "mad money" begins with jim cramer right about now. right a. 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 help you save some money my job is not to entertain but to educate never in my life have i seen such a strong employment number mean so little to the stock market once again we had growth with