happy friday, everyone it's 5:30 p.m. here at the nasdaq you know what that means, it's time for "options action." here's what we've got on deck. >> lowes home and garden. >> yes, spring is just around the corner it's supposed to be in the 50s in the new york area this week, and carter worthies the seeds of prosperity are planted in this name. >> plus. >> things are getting a little hairy in virgin galactic options. michael khouw draws on his experience to help you stay safe in this space. and then. >> cause all i want to do is zoom zoom zoom.

>> and a boom boom, just shake your options tony zang is a video conference call you need to be on it's time to risk less and make more "options action" starts now. >> welcome to "options action. i'm courtney reagan in this evening for melissa lee. we have carter worth and tony zang and mike ko joins us from the powdery slopes of utah just like the markets, he's been going down all day we kick things off with a rate route. coronavirus fears really starting to take a huge toll on treasuries as investors flood into the bond market for safety. check out the 30-year yield hitting its lowest level ever today. well, the ten-year is back below 1.5%, and don't look now, but that pesky yield curve, it's threatening to invert once again. but if you're looking to turn these low rates into high spirits, the chart master does have a way to get it done. so, carter, explain to us how we can do this.

>> anything that is obviously rate sensitive or inversely correlated has an opportunity to continue to do well even as rates continue to plunge my camp is much lower rates, much higher gold, and so forth whether it's utilities or in this case homebuilders are in home building related stock, we're going to talk about lows here is the year-to-date performance of loews obviously you can see here there's quite a spread you're talking about lows being up six and the mountain home builders up almost double. let's pull it back for 12 months a one-year chart again, we have circumstance -- and while inside of home construction stock there's a lot of correlation between home depot, lowes and some of the other big related names, up 20 versus 40. so i think that's the opportunity. let's look at the chart itself lowe's and just put it all

together we know we have something of a double bottom, and we know we have what you would essentially call a breakout, but let's zero in on this period here let's draw the lines this way. what it is, we've really moved into this wedge, and we are just starting to come out of this formation. pull it back a little further. watch the five-year, and then what we have is the same thing you have this wedge and often, we know how extended stocks can get. a lot of stocks have blow off tops that's the kind of thing they can be setting up here at a minimum just to make it to the top of the channel, which would give us the sequence that has been in effect for oh, so long so making the bet that lows, which has earnings coming up, will be up and out in response to its report. >> absolutely does have earnings coming up this coming week here along with home depot. carter, thanks so much come back over to the desk i'm going to send it out to mike what's the trade here if you're looking at lowes >> yeah, so i think lowes is an interesting situation. first of all, from a valuation perspective, even as we have the market, of course, came back a little bit today but still trading very close to all-time highs, lowes trading very close

to all-time highs in terms of price action but not necessarily on earnings, is trading about 18.6 times forward earnings. that's really not very expensive in the current context, so i like the stock when we look at names like this, whether it's home depot or lowes, oftentimes people prefer home depot because they have basically a higher percentage of contractor business, about 40% of it comes from that where this is more individuals, and they have higher sales per square foot at home depot, but the thing you would take a look at, take a look at the spread between the two in terms of valuation. that's right about where it is on average so if you like the space, i'm going to go along with carter's technical view something else you need to pay attention to is the price of options, of course the longer dated options are actually relatively cheap as we go out to june and so forth. it's implying about a 6.2% move, much higher than usual what i would do is go out buy the -- those cost about $7.75, sell the 132 for $1.35

selling is is that implied versatility, that basically also represents 5.6% to the upside that is the average move the stock has seen on its earnings report. >> got it. what do you make of that trade >> so mike's trade takes advantage of options here by selling that short dated february call option he's selling about the 25 delta call collecting almost one fifth of the value of buying that june option i really like the fact he's going out to june. the longer story here is housing. housing is extremely strong. housing numbers, housing starts, building permits these are all at decade highs. while, if you look at mortgage rates and mortgage delinquencies, they're all at lows this is all constructive of a higher move in homebuilders. i'm long homebuilders myself i will say out of the two between lowes and home depot, that report on the same day, my preference is home depot just because it's stronger from a relative strength perspective. >> what's interesting is one is always the laggard lowes and home depot is always the favorite this is actually the one to make the better bet on. it's more aggressive going into

its number because it didn't have an earnings gap and drop whereas home depot had a bad setback two quarters ago it's not happened here. >> yeah, it's been interesting with home depot, they have been trying to work through some sort of fundamental restructuring of the business, and they're saying it's taking longer to see those dividend s, but investors have been more patient. lowes kind of the under log, we could see a breakout mike i want to make sure to give you the final word on this one. >> i think that's basically the gist of it we're playing the laggard for a reason, i mean this is basically looking for an upside move out of a catalyst, we're going to get that next week you really have two catalysts. the home depot earnings could propel the stock higher. from the homebuilders to one of the recent hot tech ipos zoom video hitting a snag in today's selloff. overall, it's been zooming higher the stock is up about 50% this year and up nearly 12% in just the last week. if you think this high flying name can fly even higher, tony

zang has a way to play it. what are you thinking on this one? >> i want to turn our attention here to zoom because i actually think this is one of the stocks that's fairly misunderstood by investors. if we look at the chart, the stock has ran from about $60 all the way up to about 105 right after the ipo and pulled back right back to that $60 level consolidated for quite some time between 60 and 75, and just three weeks ago started to break out and we're back at that 105 level. it's pulled back a little bit, and that's the opportunity that i see to get long with earnings as the catalyst that we need to get this above to its new 52-week high if we look at the earnings themselves, the analysts are currently expecting about $0.07 on earnings and about 176 on revenues i actually think if we look at analysts' revisions lately they could blow this out of the water from this perspective. if we look at options, they're really expensive the options are currently implying about a 16% move here on earnings, which is significantly higher than the 12% we've seen over the last three quarters but this stock can move, so by

looking at options, i'm taking a different approach similar to what mike did is looking at a call calendar here or diagonal rather for trading zoom. i'm looking to trade the february 28th, march 105, 107 call diagonal where i'm buying the march 105 calls for about $8 and i'm selling the february 28th 107 calls for about $2.15 net, net i'm paying $5.85, and i'm purposely selling the february 28th calls that expire before the earnings hoping that these will roll off and i'm able to potentially sell another call the week after this rolls off, perhaps turning this into a vertical going into earnings >> this is a creative trade, mike, what do you take on this one? >> yeah, i mean, we're seeing a lot of these types of trade structures because the things we're seeing in one stock actually apply to more than one at this point. that is that higher short dated implied volatility like what we're seeing in zoom and lowes at the moment. i like zoom, i like the product. i use the product, in fact, it's our principal way to communicate

in our business, so i like his trade setup, and it certainly is what you should be doing when you see volatility this way. >> i think a lot of people are using this product i understand with the coronavirus fears instead of meeting in person, they're using zoom video >> it's amazing how precise the levels are you talk about the ipo april 23rd, 2019, 60 bucks it gets to the 105, touches back down literally to the penny to the $60 level and now is right back at the high. that's what goal posts look like you have well defined lows, well defined tops breakouts need a well-defined level. you have that level, and the breakout is going to be big. >> i'm going to give you the final word on your trade here. >> like you said this is technology that i use almost every single day mike and i have been using this for years and it seems like every single boardroom using their software, their hardware. it's capturing the future of how we work. >> it's a real product unlike some of these other recent ipos.

you feel the value, mike feels the value. for people that are afraid to shake hands and get together right now in certain areas of the world feel the value of this one too. for everything options action, check out our website, optionsaction.cnbc.com go ahead and sign up for our news letter. here's what's coming up next. shares of virgin galactic taking flight this week. if you're wondering how to play the stock's meteoric run into earnings next week, our mike ko has a way to make money if it goes up, down, or nowhere at all. calling all options action fans, reach into your pocket, grab your phone, and tweet us your question @optionsaction if it's nice we'll answer it on air when "options action" returns. ♪ ♪

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voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪ welcome back to "options action." virgin galactic, the stock still up nearly 18% this week as investors make pretty big bets on the race to space the options market behaving no differently around this name if you're just not sure how to play the soaring stock into next week's earnings, fear not because michael khouw, he's got some out of this world ideas take it away this is a new frontier i don't mean to be punny about it, but it truly is. walk us through this one. >> there may be no stock that's more deserving of these types of puns than this one we've seen astronomical volumes,

astronomical volatility. this is a stock that fell 20% from its peak earlier this week in 30 hours down to where it closed today obviously some very high volatility this is situation where the options obviously are also very high, but the idea here is we want to buy lower volatility i can't say it's going to be low because none of it's low and sell higher volatility this is very akin to the types of structures we were talking about earlier. the idea here is try to figure out ways you can play bullish bets, bearish bets or neutral bets i'm going to be referring to my sheet here when i was looking at the stoc earlier it was trading $35 and it moved sharply after that. if you wanted to make a bullish bet, you could use an april/march diagonal, specifically the 35, 39. that is a trade when you buy the 35 aprils, sell the march 39s, it's going to profit as earnings comes as long as the stock stays around here or goes higher, any level higher if you wanted to make a bearish

bet, buy the april 35 puts and sell the march 28th puts it's basically the same idea, we're trying to buy lower volatility in april, sell the higher volatility in march this trade also would make money if the stock basically sits still or if it goes anywhere lower. if you want to make money if the stock stays still, which it's unlikely to do, you could put both of these trades on. now, some people who watch may be familiar with doing things like selling straddles, i would not recommend that in a stock like this. we have no idea. right now the april straddle is suggesting that the stock could move almost $18 between now and april expiration that's a 50% move higher or lower. >> carter, what do you make of this trade mike pointed out some pretty interesting moves in a chart like this. >> these things are rare, right? when you have things that can go up four and fivefold quickly, but when they're new, and this is relatively new, you don't really have price discovery yet. it's one thing to have a mature stock have a blow off, but this is new there are people who have yet to

contend with it, cope with it. it might be part of their benchmark, address it, and basically it can go anywhere the imagination will allow, and i think you want to have a few of these at all times it's what speculating is all about. you can't just own utilities or keep it all, you can have your conservative bets, this is the kind of thing that is worth some money on the long side. >> out of this world kind of bet. this is one of the few ways make you can truly play space play at this point. >> absolutely. it's the only publicly traded of the three that are in this particular space, and they're unique because they are capturing the tourism industry i think mike's trade is interesting from the perspective of he's selling short-term to try to buy long-term upside. i've been dabbling in this a little myself. i'm selling slightly out of the money puts, selling about the march 25 puts and i'm using it to fund much longer term leaps, so here because i'm trying to basically as you say speculate

and seeing, you know, if virgi is able to take off f we look at the morgan stanley piece from a few weeks ago, they're estimating that this market could be worth up to $800 billion in the next decade. if you believe in that story, you can buy some january 2020, $25 call options earlier today they were trading about 16 bucks, use them to fund buying these long-term leaps, maybe one day the stock is worth a lot and you can buy it for 25 bucks with these leaps. >> so many good phrasings, one day, take off, astronomical, you could play this all sorts of ways mike, what do you think of the conversation >> i think tony hit on one critical thing this is really speculative stock, speculative options you know, obviously we're trying to find ways to risk less to make the types of directional bests that you might be inclined to make here this is one of those situations where it's the deep end of the pool as far as stock and options trading is concerned. >> i like that one thank you very much. still ahead, mike is going to build on this virgin galactic lesson

he's going to follow up another moon shot play, tesla, we're going to break down that action. plus, a delicious domino's trade. we'll tell you why this week's pizza pop was great news for one of our traders we're live from the nasdaq market site in times square. much more options action right after this ♪ ♪ ♪ ♪ ♪

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♪ welcome back to "options action." it's time to take a look back at open trades. last week tony zang said it was time to bite into dominos ahead of earnings. >> this stock had a pretty strong q4 performance rallying but from 220 up to 300 at the end of last year and spen spen spent the last couple months rallying might be starting to turn for the cruise lines this has a break even of just under 300. >> so after that, dominoes had its best day ever. what do you do now

>> so this knocked it out of the park it exceeded my own expectations on this particular trade, this was designed to be a short-term earn bein earnings trade earlier, i think it was up to 615% return. so i would take my profits and run. >> you don't think it's going to go much higher than this >> i don't think so. >> the range, 220-200. the breakout went exactly to 380. textbook breakout, take all your money and walk away. >> i hope some folks out there took your advice >> i think i want to point out, the stock is trading at less

than ten times earnings. these things as grim as they appear don't last forever. implied volatility, the price of action unsurprisingly has been spiking. we have the coronavirus, looking out to march, the 55, 57 1/2, $2.5 call spread, you can spend $0.65 to buy that. >> unfortunately coronavirus is still taking a big toll on names like norwegian, which is down about 10% since that trade, but mike, there's still time left on this one what can you do now or what should you do now? has your thesis changed at all >> i think we got the information we were waiting for. you know, one of the reasons we used a call spread, we were looking to spend about 65 cents per share. rather than going out and spending $65 or so we understood there was this risk this was a way to mitigate the risk and make a bullish bet.

i think we lost that $0.65 in premium. the news on coronavirus not looking very positive here. >> what do you think about a name like norwegian right now? >> based on the price action now given what we know now, i'm not a big fan. that's my take >> yeah, carter, anything interesting in the charts? pretty straightforward. >> just stay away. >> this is a tough one but mike, you also have an update for us on this tesla trade you laid out earlier this month and can't get enough of tesla for any of us. the stock has been really red hot. what do you do now is there only one direction here >> so, you know, we put on a counter spread what we did is we sold a near dated vertical and bought a longer dated one today the near dated one expired, and we actually tweeted that people could take a look at selling an upside cost spread out to march basically to continue to fund the purchase of that longer dated june called spread that's what i'm going to be looking to do on monday. right now that call spread that we own, the june 800, 850 is well in the number what's interesting to me is the price action the stock closed up on the day with the market much lower we had real money sellers in the last quarter

with the saudi sovereign wealth fund selling it's hard for me to figure out what's going to stop this thing right now, and you know, i'd actually like to hear carter's point of view on that. >> well, you have the february 4th sort of blowoff, if you will, and it's been giving back, trying to get back i think that high stands for quite some time. it's not going to be months, but many, many weeks, say three months before, if at all, they could make it above that my hunch is you're a better seller than buyer. >> it feels like options could be a good way to get into tesla. what do you think of this trade or the action in general around it >> around action, one of the things we look at with stocks that go parabolic, we look at the volatility of volatility how quickly are things moving? and the peak just at the february 4th as you said, so that's where i think that 930 is going to be a top here in tesla. as far as a trade goes, i was looking at this earlier trying to see if i can find a better trade. i honestly think selling that

900/950 call spread is the right way to go. >> equity options, you name it, we've got to keep getting more information on tesla. up next, your tweets, and the final call this piece is talkin "options action" is sponsored by think or swim by td ameritrade l. 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 welcome back to "options action." randy asks is gilead still a good options play. >> it hasn't done well, the big money's yet to be made this stock acts well i think you've got a big breakout here, 75 quickly. >> okay. it is now time for our final

call i'm going to go to mike so he can hit the slopes again >> yeah, actually when short-term vol is very high, longer term is lower use diagonal spreads. >> carter. >> lowe's. into earnings. i like i for a nice move higher. >> and tony, you're going to end us here. >> zoom is going to keep zooming higher on earnings i'm using a call diagonal. >> got it. gentlemen, thank you that does it for us here on "options action. we'll be back next friday at 5:30 p.m - [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