it's 5:30 p.m. here at the nasdaq on a friday that can only mean one thing it is time for "options action." here's what we've got for you tonight. >> the energy market hitting a giant oil slick this year. 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 khouw is setting sail on this name ahead of earnings

>> i'm in love i'm having a relationship with my pizza. >> if you're a pizza lover too, tony zang is setting up a slice of opportunity there's one name he is sinking his teeth into it's time to risk less and make more "options action" starts right now. welcome, hi, everybody let's get to it here on a friday energy, of course, it's been lagging the markets, lagging the market for five years. but crude is actually quietly trying to creep a little bit higher in fact, oil just handed in its best week of the year. not saying a lot but it did. if you're betting that a crude comeback could be in the works, carter both worth is going to lu one way to play it. >> bottom fishing is dangerous stuff as we know, yet sometimes it's very profitable it's zero in on crude. this is the fun contract on the

imax right now what is clear is we have come down to this level repeatedly. a little bit of a breach, but we have essentially held. if i were to go to the christmas crude contract, which is one of the more lagging ones, same circumstance we've come down, and we have held that's not random. whether that's algorithm -- the christmas crude of 2021, on december 24th we hit a 4865 of 2018 we came down to 4866 held by 1 penny. that was a monday. this was a monday. and i think you're going to get a nice bounce here we've already seen a bounce. we've moved as high as a buck or two. so here is the uso the etf you can use. it's the exact same circumstance so whether you call it triple bottom or quadruple bottom, i think we want to zero in on this here is the up and close chart

the percentage gains this bounce 20%. this bounce 25%. and this bounce 25%. can we get another does it have to be 25% doesn't have to be, but you can make some money even as it does. it's started to base finally the really short-term. what do we know we' we've got a slight double bottom we also have a move above the down trend line we've been in. take a look. there's your double bottom very developmental, uso. >> uso, yeah long-term downtrend. mike khouw, what's the trade here >> one of the things -- uso, as carter is pointed out, that's the etf that tracks wti, west texas intermediate, u.s. domestic oil rather than brent, principal oil benchmark. $50 psychological level. this is a week that was filled with bad news for oil prices generally. a couple of things going on. for example, the first global oil demand decrease in a decade.

that was one of the things announced. we've got coronavirus fears. then a lot of people are just taking a look at whether we're at the end of oil as energy. when you compile all those things together as a story, it's not surprising we saw this kind of pressure. but we did also notice at the end of the week that the net shorts on these crude contracts have essentially leveled off, you're not seeing a lot of additional selling pressure. one of the things that has happened is we've seen volatility, as we've seen decreases, we've also seen higher options prices. normally we use spreads to deal with that, but in this instance, we're dealing with a fairly volatile instrument. uso was over 13 not that long ago. i'm not that interested in trying to take advantage of selling options at about 10 cents. i was looking out to april you could buy the 11.5 calls, 30 cents. 30-cent option contract sounds very cheap, and in absolute terms it is. consider this, that's almost 3 of the value of uso as it stands

right now so it's not that cheap. it is i think the best way to try to make a play because it's going to give you a little convectionity. the increase in the value will speed up as it goes through the 11.5 strike price. that will be your opportunity to consider rolling, rolling up and out, or spreading. sometimes higher options prices are justified. i think they are here. >> i think this trade is speculative in nature with oil when i look at this chart, the fact that it got back above the 5150 level is not bearish but it doesn't for me say oil is going much higher. your trade makes a lot of sense, if you get that 20% bounce in oil, you have a nice trade here. >> it's a huge risk -- quickly, you've got 4 million barrels offsign. coronavirus, libya, iran's had issues but capital spending's starting to slow down opec's talking about more cuts there's a huge battle in oil right now. >> you're exactly right, but the fact is all of these are knowns.

one of the reasons we've seen this big decline in oil prices, because all of these things you cited, combine coronavirus with that, what's it going to take for it actually to get some sort of bounce? we need a few positive items we just need to see some global macro economic uptick that stimulates demand, we need to see something happen with coronavirus. these things in conjunction, you could see a meaningful pop. >> or just get a trade sometimes you don't have to have a reason why, sometimes things get oversold, and that's the bet here, at least from this seat. >> there's a new school of thought, we don't know how many barrels are offline in china, 1 million, 3 million, 4 million in demand there's stories they're buying oil now because it's super cheap, because all these ships are at sea and they need a buyer. okay, we'll buy that oil, $20 a barrel you want the excess barrels pulled offsign. >> that's right, the price is

going to be driven at the margins. it's important when you're dealing with commodities, there is only limited storage. one of the things that can pressure something like the wti contracts, how much storage is there in curbing those pinch points, how many tankers are full and floating around and being acquired by the chain he's you can't fill that tanker more than once. both those things at play. that's why you only want to use options relief. >> that's the way to do it through the options market not super expensive either. let's shift from energy to earnings we've got another busy earnings own, walmart, avis, drop box, john deere reporting numbers it's friday, we're hungry, driving pizza. domino's reporting on thursday the stock up 6% this week. if you think future gains are not just pie in the sky, tony's got a way to get a slice of the action take it away, the domino's options trade. >> take a look at pizza here so i really like this particular

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

nice way to get gain upside exposure going into earnings. >> one of the things -- actually, on those, tony, a couple of his trades, he's buying at the money or sometimes in the money options $10.50, bear in mind based on the closing price, those were about a buck and a half in the money. the extrinsic premium is $8.50 consider how much it has to move between now and march expiration for this to be profitable. $8.50 on any hundred stock isn't that big the magnitude over a period of time is considerably larger. even if you were just speculating, it's a fairly priced way to do this. i would say domino's 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 growth over time. when you have a growing company, 26 times earnings, it's not that unreasonable. >> also the number one

performing restaurant, hard stop it's blown away mcdonald's, starbucks long-term. the opportunity tony is talking about the chart. not just the six-month chart this stock has made no progress in two years you might have a long-term chart but the 300 level has been in effect for two years stock market is up and up, unchanged. that's what tension is breakouts come from fallow periods where you keep improving, then at some point an earnings comes along and you break out. fantastic set up, much higher. >> on your strategy, mike saying you like these kind of or sort of or close to or in the money why is that part of your strategy >> because going into earnings, the value, the call options are really expensive one of the ways to reduce that the cost of that call option - >> reduces the upside a little, obviously, right you're going to reduce some of that >> no, it increases your upside. >> taking less money risk, how does it give you more upside >> a higher delta, so i'm getting more return for my money than if i bought an out of the

money option. >> we were talking about uso, out of the money calls those offer convexity. you get gearing if you get a sharp move with these trades you have more direct exposure to the equity. if you bought deep into money calls, they'll behave just like the stock will the lower the strike of the call you buy, the more the stock is going to behave. it's going to be lower probability of profit but maybe a higher rate of return if it is profitable those are the balances and tradeoffs that you try to make. >> learning every night, appreciate it. optionsaction.cnbc.com sign up for the newsletter here's what's coming up next on the program. >> you know somebody >> of course, that's not the point. >> cruise stocks getting rocked. our mike khouw is betting on smooth sail is for one name in the space when it reports

earnings next week plus calling owl "options action" fans reach into your pocket, grab your phone, and tweet your question @optionsaction. if it's nice, we'll answer it on air. ♪ ♪ ♪

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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. ♪ welcome back to "options action." you know the travel stocks as a group have been hit hard in part

by the coronavirus outbreak. none of the names has dropped like cruise ships. the three biggest names in the industry -- royal caribbean, carnival, norwegian -- all down double-digits to start the year. but mike thinks the stormy seas could turn into smooth sailing for at least one of these names. he's over at the plasma with his "call to action. >> yeah, i don't know if it's going to be smooth sailing, but when we use options we have the opportunity to try to bet on a bounceback for one of these things without necessarily taking a risk that is going to be continuing what we've been seeing one of the reasons amongst the travel stocks norwegian, royal caribbean, have been hard hit, they seem to be the poster child. we see ships with passengers stranded and it looks grim norwegian reporting next week. the stock down close to 12% since its december highs, essentially when the coronavirus outbreak was first announced the stock is trading at less than 10 times earnings these things, a grim as they

appear, don't last forever implied volatility, the price of options action has been spiking. we have earnings, we have the coronavirus. and as i was indicating, the outlook is uncertain, but there is the possibility that we could start to see some favorable news, or we could also get some positive news out of earnings, or investors could actually look ahead and say, whatever the outcome is, it will actually come to an end eventually and you're going to look ahead all i was doing was look out to march to 55, 57.5, $2.50 call spread this doesn't go as far out in time as i normally might look to do it. notice with the stock trading -- it was well below 55, 52.5 or so when i was looking at this earlier today. this is still a little bit out of the money but again when i'm looking for here is a way to lay off some of the high price of options action that's why i'm using a call spread i'm trying to get a little bit

of that convexity we talked about. spending 65 cents for a $2.50 call spread gives me potential upside, also helps limit the amount of risk i'm taking regtive to the stock price take a look at a chart, you'll see what kind of opportunity you actually have. this is what we're talking about. you can see that basically since the news has come out, this is that 12% plus decline we've seen 52.5 this is essentially what we're looking for. if any of the news we've been seeing reverses or people can look past it, at the very least you might expect it to recover back to these levels even at those levels i would point out, which is well below the average price target, the stock is cheap, trading at 11 times earnings. >> mike, why don't you come back. >> i think mike's right, this stock is oversold on these fears about the coronavirus. if you look at revenue growth, it's a strong stock. i think this is simply overdone. i like mike's trade because i was looking at a cover call on

this particular name if you own this stock, i was going to suggest that you sell the march 57.5 call, which is the call mike has chosen to sell but he's just, instead of being long the song, he's long the $55 call choose either the 55 or the 52.5, that would be my preference on the long call. either way, you play a nice bounce on norwegian cruise lines. >> they're identical, carnival, rcl, the same patterns it's all the same story. the disconnect is that the hotels have gone back up, right? that's interesting hyatt, hilton, marriott. so if this is a catch-up trade, and i think the hotels -- expedia had big numbers out today. that's the setup you want for a bounce how did you pick or why this one versus carnival or - >> because we have a catalyst reporting next week. normally when you have earnings, management is expected to sit there and try to explain the results that they're going to be reporting.

i think we can pretty much safely bet that's not what the conversation's going to be about. the conversation in the cruise lines in the hotels, in the travel space in general, is coronavirus. what's going on, how's that going to impact going forward? my expectation is management is going to say, we can look past all of that -- >> will consumers? to your point about hotels starting to recover, will consumers be semi permanently turned off of cruises generally? because there's all these star riz of people stuck on boats. >> it's interesting. cruises always seem to get periodic black eyes. you have situations where there are gastrointestinal viruses passed around, people think, why go on a cruise instead of disney world? they get past it, they find ways to deal with it, and we move on. and they're very, very profitable businesses. that's the key to this thing do these things make money they do, a lot of it they're one of the cheapest ways to make a play right now.

>> let's do a five-day, meet mike khouw tony zhang >> do we have to wear our masks? >> i'm talking about down the road thank you very much, i'll do it. still ahead, we are taking your tweets, your burning questions, @optionsaction. you might get your answer on the air. pepsi falling flat but one of our traders still betting pepsi will make you money. ♪ ♪ ♪ ♪

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

top, move towards the top, and we have upside coke popped on its earnings and i'm thigpensy will do the same. >> looking at the april 1 calls, $3.75. >> pepsi up a little less than 1%, not much of a move just about two months to go before expiration. mike, how are you managing this trade? hanging on >> yeah, i think we stay with this first of all, the stock's moving in our chosen direction. secondly, you pointed out up only 1%. this is pepsi. j j&j, pepsi, walmart, these are the types of stocks that tend to move more slowly than the market does things are looking in the correct direction. there's not a lot of decay in these options. i think this is a trade we stay with. >> carter? >> for sure. it's dull, you're not going to get a break that you'll get out of a biotech, but closed at an all-time high today, what's not to like?

stay long-term. >> sp investments managing director said lyft could follow uber higher on its earnings report >> on the back of uber earnings, it definitely 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 2 to 1 post-uber earnings, 3 to 1 we're expecting a move to the upside in real volume. specifically what i like doing is a trade which is out to february, buying the 50-55 call spread, cost you about $1.60 >> lyft did beat street's estimates but the stock down about 9% since that trade after the company forecasted slower growth bonham was not available but he sent a postcard, wa to do when a trade goes belly-up. quote i'm in a lyft on my way to the airport. i suggested you close out half

your position at $2.60 after the pre-earnings rally since then, stock's been punished keep the other half position for a short-term bounce. mike what do you make of that? is that good advice or give up >> the good advice was what he gave pre-earnings. because he got that stock move, he should have taken some of those profits. the price action for the stock since they have announced earnings is miserable. it's been down from the left to the right each day since then. and it's interesting because they focus on the same things that uber does, which was supposedly why that stock did so well the stock looks pretty broken to me, the strikes are pretty far out of the money. >> yeah, the price -- the price action of this doesn't look strong enough for me >> okay, there you go. if you're out there, call in next time. up next, "the 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,

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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 car," carter.

>> oil long, uso is your vehicle. >> i'm long pizza using domino's pizza march calls. >> norwegian >> sticking with it? >> yep. >> the cruises mike khouw making friends in the cruise industry. thank you, guys, for taking it easy on me that's "options action." see you next week. - [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.