welcome back, everybody. we have a news alert now on the coronavir coronavirus. meg has the latest. >> we're getting reports of new cases out of hubei province, the epicenter of the outbreak in china. 2841 new cases and 81 additional deaths to put this in context, we'll get more numbers out of all china later tonight, but this is, unfortunately, turning directions in terms of the direction of new cases they had been declining for two days you can see for broader china, this is a chart made by stat news, during the last two days, the case counts slowed

in hubei province anyway it's reversed and picked up. not what health officials wanted to see. >> thank you very much everybody, it is time now for "options action. we have a big show lined up. here is what is on deck. ♪ get back, get back ♪ you don't know me like that >> tesla's stock has been ludicrous this week. we recap where we've been, and we look both ways before crossing into this one then -- >> no coke, pepsi. >> pepsi. >> pepsi >> one pepsi >> come on >> carter worth knows how he wants things, and when he is thirsty for a ketchup trade, there's only one soda he is looking to pop plus -- >> appreciate the lift. >> if you also appreciate the lyft, stock, that is, we have a

play to ride shotgun on. ty time to risk less and make more. "options action" starts now. >> welcome, everybody. we start with the biggest story of the week, and that would be tesla, giving investors whiplash, taking traders on a very, very wild ride the stock surged out of the gates to kick 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 peak what goes up often must come down, and tesla caught a downgrade on wednesday that didn't help tumbled into friday's close down more than 23% from its highs a bear market, if you want to call it that the stock finished a week up, 15%, and piled on a total of $17 billion in market value. this is a show about options if you think those numbers are eye-popping, mike is about to make your head spin. he's at the plasma to break down the insanity with this call to

action lead us through it, mike. >> sure. interesting because tesla has the ludicrous mode, and that's what we're seeing in the stock and options this week. the volume 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, represents 530 million shares of a $750 stock it's extraordinary some other superlatives, and we can barely keep up with all of these. this is a graph of the weekly 800-strike calls if you go back to last week, last friday, these calls could have been purchased for 25 cents. monday morning, you could have picked them up, and some people did, for 80 cents. actually, by the end of the day, that was the most actively traded option. they traded for an average of $10. the very next day, those were trading for over $100. from 25 cents last friday to

over $100 on tuesday today, expired, worthless. this highlights a couple things. buying the stock, obviously, is a really wild ride trading the options is also extremely challenging because you can have situations like this yo you're up a lot of money, down a lot of money very quickly. price action, ludicrous. the prices of options, similarly ludicrous. is there a way to actually make a play on tesla right now without going out and buying 100 shares at $750, for $75,000, or buying expensive options without laying on the risk i think there is we'll look how much the price of options increased. when you get stocks moving around this much, options prices will go up indeed, they did in fact, their going up with the price of the stock we can see right here, as the stock shot up, so did the price of these options if you buy options with implied volatilities this high, if the same thing happens to the options that happened to the stock, you can see the implied

volatility come back in. you need to use spreads. more specifically, what i was taking a look at is a four-legged trade. this is a little more complicated than what we normally take a look at, so you need to pay close attention. i was looking at selling -- and, in fact, did this myself today -- selling the february 800 850-call spread. i was selling the february 800 calls, buying the february 850 calls. then, in addition to that, buying, as a hedge, the june 800/850 call spread. i'm buying the june 800s and selling the june 850s. at these prices, it'd work out to $3. when i did the trade myself today, i spent about $3.60, to put the trade on the idea here is you're going to get a pretty big range of profitability. one of the best its i'm essentiy making though is the stock is going to stay below essentially the midpoint of the strike i'm guessing we had a blow-off top this week. we can let carter speak to that. the idea is we're trying to look

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

you have an exceptional run in june runs to almost 1,000 and gives back a third in one day. in a way, you've set goalposts the flare up high of tuesday, and now the give back. you should stay in a range for quite some time but not exceed that high. that's unlikely on an intermediate basis so goalpost, if you will more downside risk than upside potential. >> mike, final thought goes to you. >> one of the things a lot of people talk about is valuation with tesla when we talk about valuation and stock prices, one of the things that's important, this is all about the future what is the future going to bring? cars are going to be increasingly electric. tesla has considerable market share right now. if they preserve the market share, maybe you can make the case it is a billion dollar company. maybe it can be chasing the stock carter was recommending, toyota the price action, to me, definitely suggests that, if anything, there's probably a little more downside, but taking

mature positions isn't something i'd recommend. this is the way to get it done. >> complicated trade but makes sense. more "options action" is on tap. here's what's coming up next >> another pop soda. >> if you're looking for another pop, too, carter will be making his way down the aisle now that we're at cruising altitude. plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question at options action if it is nice, we'll answer it on air when "objections acti"options as >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪ ♪ ♪

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welcome back to "options action." we're gearing up for another big week of earnings, some of what you see on the graphic the chart master says one of these names is about to see a pop. he will explain. carter is at the plasma to break it down for us >> obviously, big names. one reported and one hasn't. coke earnings out of the way pepsi. i want to start with comparative charts these are similar businesses, and these lines in the stock prices would indicate that there is two, three year chart let's go back further. this is a longer term chart. ten years. i mean, it is like fraternal twins. 1980, literally the exact same performance. now, here is the year-to-date chart. for whatever reason, coke is

ahead. pepsi is lagging in fact, coke up about 6, and pepsi almost at 12 there is a little bit of an opportunity here, and that's the trade. let's zero in on the pepsi chart itself no drawings or adaptations by me let's put in a line first. we have a fairly well-defined uptrend line, and it has responded, responded, responded, responded to that line let's put the upper line in. it is in a well-defined channel. so just the thinking is that we're going to move toward the top of the channel, move toward the top, and we have upside. coke popped on its earnings, and i'm thinking pepsi will do the same a little bit of a catchup trade. >> let's take a look at this trade and what is your trade on this, mike >> yeah. so this is an interesting situation. here, we have the markets. obviously, we had softness today. the markets are essentially at their all-time highs pepsi is at its all-time highs it is essentially where it closed today so it is really tough to go out

and reach for stocks that not only are trading at their all-time highs, trading above their historic valuation multiples, which this stock is going into an event, we don't know whether it'll be good or bad, but obviously, one of the things we want to take a look at is whether the options market is giving us an opportunity to make an inexpensive bet while mitigating a risk. this stock is up 10 bucks in one month. i was looking at the april 145 calls. it's less than 3% of the current stock price to make a bullish bet that goes all the way out until april. now, if you recognize that there is a decent chance the stock could move maybe 10 bucks anyway, 7%, 8%, we could call it over the course of the next 60 to 90 days, that's probably the range you're looking at, that is also basically the order of magnitude of the types of moves we've been seeing.aloptionalityp we have an opportunity to make a bullish bet with relatively little risk. the other thing i'd say is

because there is time to go until expiration after earnings, you're not beginning going to ge the same out of these. the risk in that case is also fairly low the way to do that is a simple trade here. >> while it is at an all-time high, as is the case with so many stocks with the market, it is not extended in relation so where it's been. a moving average, pick your moving average, the s&p is much further above its average price 50 days or 100 days than pepsi is all-time high but not stretched. >> do you have a thought on this trade? >> particularly as you juxtapos this to the last trade, you're spending a fraction in terms of premium of the stock price why cap the gains? be discerning in when to cap the trades and when to put a little money on the table and bet outright perfect example of that. >> really good point if you were looking to spread this, why wouldn't you use a call spread? if you're selling out of the

calls for pepsi, you're getting almost nothing for them. why not wait until you see if you have to move one way or the other, and basically use these to trade against you're risking 3% of the current stock price. by the way, it is less than you'd be risking if you bought the shares themselves. >> for sure. shares of uber up more than 9% today after the ride-hailing service said on its earnings conference call last night it could be profitability as soon as this year that's cash flow profitability, if you don't lik acronyms shares of the rival lyft catching a bit off that news if you think that stock will take off when it reports, one of our traders has a play. >> on the back of uber earnings, it seems the bulls have come out to play in a major way if you look at option, volume, calls versus puts, last week, it's been 2-1. most uber earnings, 3-1. we're expecting a move to the

upside in real volume here if you take a look at the at the money straddle, out to february, 21st of february, to be exact, it is implying an 11% move, which is on the high side. granted, there isn't a lot of history on this company, given it ipo'd last year the average move is 6.5% the high is south of 11% taking it a step further, looking at implied volatility of options, the cost of options, quite simply, those are around the 70th to 75th percentage. we had two previous examples where you want to look outright or spreading this trade. given that vols are elevated, i'd suggest spreading the trade so you're not outright putting money on the table a trade out to february, buy the 50/50 five-call spread it'll cost about $1.60 buy the 50-strike call, which is

at the money at $2.40. against that, sell the 55 strike at about 80 cents. cash outlay is $1.60 break even is 3% north of where the stock is currently what i really like about this trade is that you're buying options but you're selling this elevated implied move. $55 is about 11% higher than current stock price. if you consider the stock is up about 5% in tantum with uber, you're selling a 16% move. >> i think it makes sense to do that one way to think about when you're trading verticals, whether you're getting a sufficient amount of premium for the strike you're selling, he's collecting a third of the premium he's buying on the strike it is a different situation than with pepsi you'd be spending the same amount for a $5 spread on a $150 stock. when you're going into situations, options premiums are elevated, that's when you look to spread. when you're going into premiums when options are low, you don't.

>> does it give you a lift >> it does like the coke and pepsi. you heard from uber, the thinking is that this will go the same way obviously, a disaster since the ipo in late march. it has all the elements of something that's bottoming, curing, curling up i like it a lot. >> you get the last word because you were the one to present it. >> i'll add if you look at lyft's core business, they're more focused on profitability business they don't have the uber eats and other tertiary businesses. they're focused on ride-share and ride-hailing it'll a winner. we'll continue in a minute by answering your smoldering options questions. send them to our twitter handle. you see it below 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. we're live from the nasdaq market site. don't go anywhere. much more "options action" right after this

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♪ ♪ ♪ ♪ welcome back to "options action." time to take a look back at a couple of our open trades.

last week, tony made a bet on some earnings magic from disney. >> if we look at options here, one of the concerns that i have here is the fact that i'm looking for an 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 is very high. i'm looking at a fairly simple structure here using a call vertical, trading a $1 135/150 call collecting about $1.60 on the march 150 calls. >> disney is up 2% since then. as of now, tony's trade is in the green. he couldn't join us tonight, but he was kind enough to send us a postcard from the road he writes, i'm in sunny orlando right now outside of disney world. good for him despite strong disney plus growth, price action after earnings has not been compelling it is time to take your profits. cheer from mickey and the gang

mike, do you agree it is time to get out of this one? >> absolutely. look, when you have a situation like this, where you get a quick pop and then it gives it back and then some right away, that's an important cue if you had a bullish view, you might want to rethink that i think he is wise here. by the way, some people who follow this trade may have actually already done this. >> a week ago friday, hit 147. a lot of opportunity it just happened to sort of fade post earnings. >> any thoughts on this? >> i will say, a small win is a win nonetheless. i think it is prudent for him to take his money, continue, and invest in another profitable trade idea. >> reap and sow. meanwhile, we took a swing at the consumer stocks >> the thought is that, right, consumer discretion is out performing 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. the sector has ascended, but its

relative performance is descending. >> out to june, 125 trading for $4.35. when i was looking at this earlier today. 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 >> all right consumer discretionary edf shared pretty well against market head winds. mike, how are you managing this one? >> we have all the way out to june in the interest of full disclosure, i actually bought a couple more put spreads middle of the day today obviously, i am sticking with this one >> very much so. time is on our side. also, ex-amazon is part of the premise. amazon is one thing. we like that long. all of the stocks that make up the consumer, autos in particular and other things, retailers, not good. >> yeah, if you look at the last gdp data, economic data, it was led by trade balance opposed to core spending. speaking about the consumer,

whether there will be weakness, if there is weakness, it'll come in discretionary i like the fund. logical trade. >> the jobs report was good. incomes were up. all bodes well for the consumer sbl t >> the thing is, all the news has been good, and it is doing well it takes a crack in any of that to see weakness. up next, your tweets and our final calls. >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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

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it for what we were articulating on consumer discretion in general. it was wise to unload. we have a minute left for the final trade. >> carter? >> pepsi has earnings. catalyst i like it long. >> likes it long mike, you go next. >> yeah. pepsi options are very inexpensive. going into catalyst, looking at the april call at the money calls, it's anne inexpensive wy to make a bet. tesla, you need to use the calendar call spreads we were talking about. the options are so expensivexpe. >> check that out. what's your last thought >> i like the xly trade. >> xly thanks a lot appreciate it. good week, guys. that'll do it on "options action." we'll be back next friday at 5:30 p.m tonight, 7:00 eastern time, outbreak, the coronavirus, our special will air there are more cases in hubei

and more deaths there, so we will be covering that for you at 7:00 eastern time. 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 - [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer, sponsored by nuwave. live well for less. we all love fried foods, (crunching) but yuck! (sizzling) that means scoops of grease, blobs of butter, or gallons of oil, just to fry. this adds up to a lot of unhealthy fat in your diet, year after year. stop! (slamming) now, you can cut out all the added fat, and still keep all the flavor with the new brio digital air fryer by nuwave, the world's first digital air fryer with flavor infusion technology. coming up next, you'll see how brio's compact design makes mountains of crispy wings