it's 5:30 p.m. at the nasdaq on a friday. that could only mean one thing it's time for "options action. here is what we have coming 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's drilling down on the charts plus, cruise stocks hitting some rough waters. but mike is setting 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. let's get to it here on a friday energy, of course, it's been lagging the market -- lagging the market for five years. but crude is actually quietly been trying to creep a little higher oil just handed in the best week of the year. not saying a lot, but it did if you're betting a crude comeback could be in the works, carter will head to the plasma and break it down for us >> bottom fishing is dangerous stuff as we know and yet sometimes profitable let's zero in on crude and the an etf that if it works will be lucrative.

this is the contract on th imx right now and what's clear is that we have come down to this level repeatedly. and a bit of a breech and we've essentially held if i went to the christmas crude contract, which is one of the more liquid ones, you have the same circumstance. we have come down, and we have held that's not random. whether it's algorithms or charts, or just at some point an oversold circumstance. and now here, and this is remarkable, this is the christmas crude of 2021. on december 24th we hit the 4865 of 2018, and we came down to 4866, held by a penny. that was a monday. this was a monday. this is the exact same circumstance you call that a triple bottom or quadruple bottom, we want to zero in on this. this is the up close chart,

percentage gains this bounced 20% this bounced 25% this bounce, 25% can we get another does it have to be 25% doesn't have to be you can make money as it does. it started to base finally, the short term, what do we know? we have a slight double bottom then we also have a move above the down trend line we've been in there's the double bottom. very developmental worth a shot on the trade vehicle. uso. >> yeah, long-term downtrend but what is the trade here >> yes uso, carter pointed out, that's the etf that tracks the 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 level. 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

which was one of the things announced. we have coronavirus fears. then, of course, a lot of people are taking a look at whether we're at the end of, you know, oil as energy. when you compile all 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're 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 can buy the 11.5 calls 30 cents a 30-cent option contract sounds cheap and in absolute terms it is of course, consider this, that'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 when i look, the fact it got above the 51.50 level, i think, is not bearish, but it doesn't, for me, say that oil is going much higher. but i think the trade makes sense. if you get the 20% bounce in oil you have a nice trade. >> just quickly from fundament tams, you have 4 million barrels off line coronavirus, libya, iran had issues capital spending is starting to slow, as well. opec talking about cuts. there is a huge battle going on in oil right now. >> that's exactly -- 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 cited, combine that with coronavirus. what's 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 3 to 4 million in demand they're the second biggest importer in the world. there is stories they are buying a lot of oil because it's super cheap. 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 that can pressure the wti contracts the pinch points, how many tankers 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 super expensive. let's shift from energy to earnings we have another busy -- earnings season never ends, does it next week you have wal-mart, avis, dropbox, john deere reporting here 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 because tony has a way to get a slice of the action. take it away, the domino's options trade. >> let's look at pizza here.

i like 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 earlier this week, it brok out above the 20-day moving average which is, for me, a signal this bullish upturn is about to continue. when we look at earnings, if w 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 i'm going out to march, and i'm 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 -- 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 profitable. that upside move, $8.50, on a nearly $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 a fairly priced way to do this i would say dominos as a company, i mean, this is obviously one of the oldest fast food companies we've known for a long time, but they have seen very 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 performing restaurant on stock

it's blown away, mcdonald's, starbucks. and the opportunity, and tony is talking about it, is the chart not just the six-month this stock made no progress in two years. might have a long-term chart but the three hundred level in effect two years stock market is up over two years. unchanged. 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 option is by slightly -- >> reduces the upside a little, right? >> 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 the 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 going to be. lower probability of profit by the higher rate of return if it is profitable. those are the balances and trade office you try to make. >> good stuff there, learning every night. appreciate it. for everything "options action" maybe i should check it out optionsaction.cnbc.com, the place to go. a news letter. sign up. here is what is coming up next on the program. >> that's not the point. >> goodbye i'll miss you. >> announcer: cruise stocks getting rocked mike is getting 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 phone, and tweet us your question at "options action. if it's nice, we'll answer is on air. when "options action" returns. ♪ ♪ ♪

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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 travel stocks as 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 of these things without necessarily taking the risk that it's going to be continuing, what we've been seeing. one of the reasons that amongst the travel stocks norwegian, caribbean have been hit, they are the poster child we see the ships with stranded passengers and looks grim. we have norwegian reporting next week 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 is one reason coronavirus is another the outlook is uncertain but there is the possibility of favorable news, or we could get positive news out of earnings, or investors could look ahead and say, whatever the outcome is, it will actually come to an end eventually you're going to look ahead so all i was doing was looking to march, the 55/57.5, $2.5 call spread spend 56 cents to buy that this doesn't go as far in time as i normally look the trading is below 55, as well it was 52.5 when i was looking earlier today. it's out of the money here but i'm looking for a way to lay off high price of options and that's why i'm using the

call spread. and trying to get the convexity we talked about. spend being 65 cents for the $2.5 call spread gives me limited exposure and 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 tha 12 plus percent decline we see down here. it did end up at $52.5 this is what we are looking for here 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 there, 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. if you look at revenue growth, it is a strong stock this is simply 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 57.5 call, which is the call mike has chosen 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 that, nice bounce. >> they are identical, 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 -- expedia has had big numbers out today. that's the setup you want for the bounce how did you pick this one versus carnival or -- >> 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 what the conversation will be about. 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 pfuture is bright >> but will consumers -- i think to your point about hotels starting to recover, you wonder, mike, will consumers be semi-permanent addy turned off of cruising generally? because there are all the stories of 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 gastro intestinal virus passed around and everyone thinks, why get o a cruise instead of disney world and then they get past it. deal with it and 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" options 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 online one i'll do it still ahead, we are taking your tweets. send us your questions at @optionsaction on twitter. might get your answer on air first, shares of pepsi falling flat on the back of the earnings we'll tell you why one trader is betting 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 td ameritrade. ♪ ♪

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♪ ♪ ♪ ♪ and welcome back to "options action." time to check in on a couple of the open trades. last week, mike and carter said pepsi could be in for a post-earnings pop. >> a 40-year chart back to 1980. literally, the exact same performance. but now, here's the year-to-date chart. for whatever reason, coke is ahead. pepsi is lagging the thinking is we're going to move toward the top of the channel, move toward the top,

and that we have upside. coke popped on its earnings. i'm thinking that pepsi will do the same. >> i was looking at april 145 calls, slightly in the call. $3.75. >> pepsi is up a little less than 1% since the trade, not much of a move about two months ago 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, walmart, these are the types of 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. you don't get a breakout like biotech, but sometimes dull is good closing at all-time high today stay long, be long >> xp investments.

the managing director said that lyft could follow uber higher on its earnings report. >> 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, the last week, it's been about two to one. today, post uber earnings, three to one we expect a move to the upside in real volume specifically what i like doing, a trade out to february. buying the 50.55 call spread, costing you about $1.60. >> lyft beat street estimates, but the stock down about 9% since the trade after the company forecasted slower growth this year. bonwin was not available to join us on set, but he did send a postcard with a helpful explanation of what to do 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

and after the pre-earnings rally. since then, stock has been punished at these levels, i'd keep the other half, position for a short-term bounce. mike, what do you make of that good advice or give up >> well the good advice was given pre-earnings 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 user does, which was supposedly why that stock did so 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 enough for me >> bonwin, if you are out there call in next time. up next, the final call. >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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 kick-off the final call. >> uso is 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, guys. taking it easy on me that's it for "options action. "mad money" with jim starts right 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