it's 5:30 p.m. at the nasdaq on friday. that could only mean one thing it's time for "options action. here is what we have come up for you tonight. >> announcer: the energy market hitting a giant oil slick this year but the chart master says a crude comeback could be in the works. he drills down on the charts plus cruise stocks hitting rough waters but mike khouw sets sail on this name ahead of earnings

and. i'm not. i'm having a relationship with my pizza. >> if you're a pizza lover tony zhang is serving up a slice of tune there is a name he sinks his teeth into time to risk less and make more. "options action" starts right now. all right. welcome. hi, everybody. lets get do it on friday energy, of course, it's been lagging the market -- lagging the market for five years. but crude is actually quietly trying to creep higher oil just handed in the best week of the year. not saying a a lot but did and process you bet the comeback could be in the works. carter worpgt lays out a play it lets look. >> bottom fish something dangerous stuff as we know and yet sometimes profitable lets zero in on crude and then an etf that if if works will be lucrative. this is the fun contract on the

imx right now and what's clear is that we have come down to this level repeatedly. and a bit of a breech and essentially held if i went to the christmas crude contract one of the more leggy ones you have come down and held that's not random. whether it's algorithms or charts, or just at some point an oversold circumstance. and now here this is remarkable. this is the christmas crude of 2021 on december 24th we hit the 4865 of 2018 appear came down to 48.66. held by a penny. that was a minde this was a monday. and i think you're get agonize bounce here. we have seen a bounce moving as high as a buck or two. here is the u.s. o, the etf you can use. it's the same circumstance and whether you call it triple bottom or quadruple bottom i think we want to zero in on this and here is is the up and close

chart, the percentage gains, this bounce, 20% this bounce 25%. and this bounce 25%. can we debt another? doesn't have to be 25% backup about you can you make money if it does it started to base and finally the short-term what do we know? a slight double bottom and then we also have a move above the downtrend line we have been in take a look. the double bottom, that's developmental worth oh a shot on the trade vehicle. uso. >> yeah, long-term downtrend but mike khouw what's the trade. >> us. o as carter pointed out that's the etf that tracks wti, the west texas intermediate, the domestic level rather than brent which is the other principal benchmark to look at short-term 50 a psychological revel. it's interesting of course this was a week filled with bad news for oil prices generally. a couple things going on for example, the first global

oil demand decrease in a decade one of the things announced. we have coronavirus fears. then of course a lot of people are looking at whether we're at the end of oil as energy and when you compile of those things together as a story, it's not surprising that we saw this pressure but we did also notice at the end of the week that the net shorts on these crude contracts have essentially leveled off essentially you are not seeing a lot of additional selling pressure in here one of the things that has happened is we have seen this volatility and seen this decrease, we have also seen higher options prices. normally we use spreads to deal with that. but in this instance we are dealing with a volatile instrument uso was over 13 not long ago i'm not interested in trying to take advantage of selling options at about 10 cents. i was looking to april you could guy buy the 11.5 calls. 30 cents a 30-cent option contract sounds cheap and in absolute terms it is

of course consider that it's almost 3% of the value of uso as it stands right now. it's not that cheap but the best way to try to make a play. because it gives you convexity the increase in the value of the call option will speed up as it goes through the 11.5 strike price. that's the opportunity to consider either rolling up an out or spreading one of these things but sometimes high options prices are justified here. i think they are. >> i think this trade is speculative in nature for the reason you pointed out the chart, the reason is got above the 51.50 level is not bearish but it doesn't say for me oil is going higher but i think the trade makes sense. if you get the 20% bounce in oil you have a nice trade. >> just quickly from fundamentals you have about 4 million barrels off line coronavirus, libya, iran had issues but capital spend something slowing as well. opec talking about cuts. there is a huge battle going on in oil right now. >> that's exactly- dsh i think

you're exactly right but the fact is that all of these are knowns one of the reasons we have seen this big decline in oil prices, because of these things that you just sighted combine coronavirus with that, what's is it going to take to get some sort of bounce. we need a few positive items just need some global macroeconomic uptick that stimulates demand. we need something with coronavirus. those things in conjunction with the other -- you can see a meaningful pop. >> or you just get a trade sometimes you don't have to have a reason why and sometimes things get oversold and that's bet from this seat. >> there is a school of thought we don't know how many barrels are off line in china, a million maybe three to four million in demand, second biggest importer in the world there is stories they are buying a lot of oil because it supercheap because all the ships are at sea and they need a buyer. okay we'll buy that oil. maybe 20 bucks a barrel. and we'll buy it that's what you want you want the excess barrels pulled off line.

>> that's right. the price is driven at the margins. but it's important with commodities like oil there is limited storage one of the things prepressuring the wti contracts. the pinch points how many tanker are full and floating around and being acquired but you can't fill the tanker more than once we have both of those at play. that's why you want to use options really if you speculate on a the bullish bet. >> that's the way through the options market and not superexpensive are the all right. lets shift from energy to earnings we have another -- earnings season never ends, does it next week you have wal-mart, avis drop box on john deere reporting numbers. but here on "options action" it's friday, hungry craving pizza. domino's pizza reporting on thursday the stock up 6% this week alone. if you think future gains are not pie in the sky, don't worry tony has a way to get a slice of the action take it away, the domino's options trade. >> lets look at pizza here

i look this chart setup. because this stock had a strong q4 performance rallying from 220 up to 300 at the end of last year and spent the last couple months consolidating, healthy after a long rally and earlier this week it broke out above the 20-day moving average, "fast money" a signal that this bullish upturn is about to continue. when we look at earnings if we look at analyst revisions of the last few weeks they've been strong and this points to me that we are getting a sizable beat and looking at options right now implying a 6.2% move into earnings, a little less than the average we have seen the last four quarters of 6.8%. this stock moves on earnings normally into earnings options are quite expensive. but looking out to march they're reasonable i'm using a simple trade structure here going out to march and buying the 290 call options for about $10.50 this has a break even of just above 300.

this is a really clean nice way to get -- gain upside exposure into earnings. >> yeah one of the things -- i noticed tony on a couple of the trades buying at the money or sometimes slight slightly in the money options $$10.50. those were about $1.50 in the money. the extrinsic premium you spend is about $8.50 consider how much is has to move between now and march expiration for it to be profit lk that upside move on the $300 stock isn't that big and the average move magnitude over a couple of period of time. is larger. even if you are speculating it's fairly priced way to do it i would say dominos as a company. this is one of the oldest fast food companies we have known a long time. but they have seen good consistent considerable revenue growth over time good eps over time when you have the growing company 26 times earnings it's

not unreasonable. >> it's also the number one restaurant it's blown away, mcdonald's, starbucks. and the opportunity tony is talking about the charts not just the six-month this stock made no progress in two months might have a long-term chart but the three hundred level in effect two years up and up over two years that's tension breakouts come from fallow periods where you keep improving and then at some point an earnings comes along and you break out. fantastic set up much higher. >> on the strategy, mike saying you kind of like the sort of -- close to or in the money. >> right. >> why is that part of your strategy on options. >> because going into earnings you want to -- the value -- the call options are really expensive. one of the ways to reduce that -- the cost of the call omission is. >> reduced to the upside i mean you reduce some of that. >> it increases the upside. >> how if you take less money risk how does it give you more upside. >> in the money options have higher delta i get more return for the money than if i bought

out of the money option. >> it's interesting because we were talking about the uso those are out of the money calls those offer convexity and you get gearing with a sharp move. process the trades tony talks about you have direct exposure to the equity. think about it this way. if you bought deep in the money calls they behave like the stock. the lower the strike of the call you buy the more like the stock it's going to behave the more out of the money option, the more convex it's lower probability of profit by higher rate of return if it is profitable those are the balances and trade office you try to plak. >> good stuff there learning every night. appreciate it for everything "options action" maybe i should collect it out "options action".cnbc the place to go a news letter. sign up. here is what else is coming up in the program >> that's not the point. >> goodbye i'll miss. >> you cruise dock getting rocked but our mike khouw bets on smooth sailing for one name in the space. when it reports earnings next

week we'll tell you how to play it. plus, calling all "options action" fans, reach into your pocket, grab your own and tweet us your question at "options action." if it's knipes we'll answer is on air on air when "options action" returns. ♪ ♪

oh yeah, you going to place it? not until i'm sure. why don't you call td ameritrade for a strategy gut check? what's that? you run it by an expert, you talk about the risk and potential profit and loss. could've used that before i hired my interior decorator. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪ all right. welcome back to "options action." you know the trammel stocks as a group have been hit hard in part by the coronavirus outbreak. but none of the names has dropped like the cruise ships. the three biggest in the industry royal caribbean, carnival, norwegian. all down double digits to start

the year but mike thinks the stormy seas could turn to smooth sailing for at least one name. he is over at the plasma with his call to action. >> i don't know if it's smooth sailing but actually when we use options we have the opportunity to try to bet on a bounceback for one without necessarily taking the risk that's going to be continuing what we've been seeing one of the reasons that amongst the travel stocks norwegian rail caribbean have been so the hit they are the post-er child we see the ships with stranded passengers and looks grim. we have norwegian reporting next webb down close to 12% since the december highs when the coronavirus outbreak was announced. but i think i want to point out, the stock is trading at less than ten times earnings. as grim as these appear don't last forever in volatility, price of options spiking. earnings one reason. and the coronavirus.

that's another the outlook is uncertain but there is the possibility of favorable news or could also get positive news from earnings. or investors could look ahead and say, whatever the outcome is, it will actually come end eventually and you're looking ahead so all i was doing was looking to march, the 5 a/57.5, $2.5 call spread. spend 56 cents to buy that this doesn't go as far in time as i normally look the traded well below 5 a. at 52.5 wei looked today it's out of the money here but i'm looking for a way to to lay off high price of options that's why i use the call spread and get the convexity we talked about. spend being 65 cents for the $$2.5 call spread. gives me limited exposure limits the amount i'm taking relative

to the call price. you see the opportunity you have here you can see basically since the news has come out this is that 12 plus percent decline we see down here. it did end up at $52.5 this is what we are looking for if the news we see lately reverses or people look it at the least you might expect it to recover back to the levels even at the levels, well below the average analyst target subpoena the stock is cheap. 11 times earnings up there. >> mike, why don't you come back tony what do you think of this trade. >> i think mike is right i think the stock is oversold on the fears about the coronavirus. look at revenue growth i think it's a strong stock. this is overdone i like the trade here. because i was looking at a covered call on this name. if you own this stock i was going to suggest you sell the march 57.57 call which is the mike chosen to call. instead of being long the stock

he is long the $5 a call choose either the 5 a or the 52.5 that would be my preference on the long call. but either way you play ha nice bounce. >> they are iektle, carnival, lcl and all the same story the disconnect is that hotels have gone up that's interesting hyatt, hilton marriott if this is a catch up trade -- exceedy has had big numbers out today. that's the setup you want for the bounce how did you pick or buy this one versus carnival. >> it's because we have a catalyst, reporting next week on this one normally when you have earnings management is expected to sit there and try to explain the results they are reporting i think we can safely bet that that's not the conversation. the conversation right now in the cruise lines in the hotels, in the travel space in general, is coronavirus what's going on? how does that impact going forward? of course my expectation is that

management is going to say we can look past all of that and. >> but will consumers -- i think to your point about hotels starting to recover, you wonder, mike will consumers be semi permanently turned off of cruising generally -- because there are all the stories people stuck on boats. >> yes. >> it's interesting, because cruises seem to get the periodic black eyes you have the situations where there is some sort of goornts intestinal virus passed around and everyone thinks why get upon a cruise instead of disney world they get past it and deal with it and they move on. and they are profitable businesses that's the key to this do they make money they do. they make a lot of it and one of the cheapest ways to make a play right now. >> we can do a "fast money" ongss action cruise. a five-day come and meet mike khouw, tony zhang? the piano lounge. >> do we have to wear masks.

>> royal caribbean for carter worth. i'll do it send us your questions at @"options action" on twitter. shares of pepsi falling flat on the back of the earnings tt'll tell you why one trader is being pepsi might make you money. we're back live at the nasdaq right after this >> announcer: "options action" is sponsored by think or swim by is sponsored by think or swim by td ameritrade. ♪ ♪ ♪

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♪ ♪ ♪ ♪ and welcome bang to options action time to check in upon a couple of open trades you remember last week mike and carter said that pepsi could be in for a post-injures pop. >> a 40-year chart back to 1980. the same performance but here is the dwreertd chart for whatever reason on the year to date chart. coke is ahead pepsi lagging.

the thinks is that is thatter moving towards the top of the channel move to the top and we have upside. coke popped on its earnings. i'm thinking that pepsi will do the same. >> i was looking at april 145 calls. $3.75. >> pepsi is up a little less than 1% since the trade, not much of a move about two months ago to go before expiration. mike, how are you managing the trade hanging on. >> stay with it. first of all the stock is moving in our chosen direction. you pointed out up only 1% this is pepsi. j&j pepsi wal-mart these are the stocks that tend to move more slowly than the market does. they don't have tremendous beta. things are looking in the correct direction. there's not a lot of decay in the options. i think this is a trade we stay with. >> carter. >> for sure. it's dull not like a biotech but sometimes dull is good

closing god today. stay long be long. >> xp investments. bon win said lyft could follow ub higher. >> on the back of uber earnings it seems the bulls have come out to play in a major way look at option volume calls versus puts, the last week two to one post uber earnings, 3 to 1 we expect a move to the upside in real volume specifically what i like doing, a trade out to february. buying 50-55 call spread costing you about $1.60. >> lyft pete street estimates but the stock down about 9% since the trade after the company forecasted slower growth this year. bon win was not available to join us on set but sent as you post card with a helpful explanation of what td when the trade goes belly up. he writes, quote, i'm in lyft on my way to the airport.

on monday i suggested you close out half your position at $2.60 after the preearnings rally since then the stock punished at these levels keep the other half, the position for a short--term bounce mike what do you make of that, good advice or give up >> well the good advice was given preearnings because he got the stock move he should have taken the profits. i will say that the price action for the stock since announced earnings is miserable. it's been down from the left to the right each day since then. and it's interesting because they focused on the same things uber does which was why the stock did well the stock looks broken to me and the strikes are far out of the money. >> okay. yeah the price -- the price action on this doesn't look strong for me. >> withino won bin if you are out there call in next time. up next, the final call. t do you "options action" is "options action" is sponsored by think or swim bper,

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carter. >> oil long. uso your vehicle. >> tony. >> long pizza using domino's pizza, march calls. >> and mike. >> norwegian >> sticking with it. >> yes. >> the cruises mike khouw making friends with the cruise industry thank you, ginuyg taking it easy on for "option action." >> my mission is simple, to make you money. i'm here to level the playing field for all investors. there is 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. i'm trying to make you some money. i'm here toad indicate a educath you s so tweet me or call mechlt we're coronavirus 24/7 these days this could be with us unti