hello and welcome everybody to a special edition of "options action." tonight, really is a full house. i'm brian sullivan we're joined by. >> carton:er werth, cody zach. another week, another whole new world in the markets we are now seeing things that were really unfathomable just a couple of days ago what could possibly be next? we are following an old adage, it's not where you're going, it's where you've been we are following to err is human. know when to hold 'em and know when to fold 'em case in point, consider last week's trade on the tlt.

>> what we've seen is that this stock -- tlt is moving 40% from the december 2018 lows if we zoom in, tlt is up 15% it's reading fairly over bought. >> now to seismic shifts in everythi everything, that trade has not gone our way first up, get something different with everybody we want to talk about the lessons we've learned and what we're seeing a little more macro than usual given the week, very appropriate. >> we did two things that were very specific and identical last week we were saying that tlt after a great run had gone too far

what we were trying to do is buck the trend, go against moment momentum we said that cruise ships, we picked one, were going straight down had gone down too far. we were going to make the call that they were going up. cruise ships got a lot worse and tlt got a lot better each had a big week against us the point is, sometimes it's very important to be contrarian and sometimes you get your head handed to you. that's what happened. >> we're utilizing these trades. we're using options to get the risks. >> we get trades wrong and right. if you get it wrong, it's important that you're not blowing out your whole portfolio. even if the tlt went to 1,000, i'm only risking 1.8%. >> some of the biggest moves of all time, very over bought or something that you can't think

of would get any worse gets worse. >> did we learn any lessons? everybody is nervous >> would totally agree at the end of the day we're trading options because we want the complexity we're going to trade the market. you want to ride a trend either up or down you're probably taking advantage of the vol levels. >> equity markets we ended where we began basically almost flat despite multiple thousand moves either way. is there a trend right now >> karen was talking about this, and obviously if you just put a blindfold on, saw where we closed last friday and this friday, you might not think a lot is going on. what is going on is an explosion in correlation that's essentially what we've been seeing this week. stocks are basically all tracking together. so it's completely risk on or

risk off actually, to illustrate this, i think we have a chart of the implied correlation in the s&p at one point it actually reached 75 today now to put those numbers in context, zero would mean that stocks were not at all correlated 100 would mean they were perfectly correlated so reaching a number like 75 is essentially like saying that one stock is -- any stock is the same as all stocks essentially people are buying or selling futures, they are buying or selling indices, they are buying or selling global individual stocks. they are not discriminating about whether some might be winners or losers. it's safe to buy them. it's unaf to zone them i'm going to start to sell them all. >> call carter, tony, jump in. at this point -- >> are people indiscriminately selling which means there's

going to be opportunity somewhere? >> absolutely. just add to that i think the risks now still speak to the down side i think we're going to revisit that 2.85 low on the s&p and we might over shoot that. one of the things about volatility, the thing is i don't think we should necessarily fight the fed here buying puts i think is expensive. i prefer call spreads here i'll show some trades here later today as far as why i think selling call spreads is the right zbling there is that old expression, pushing on a string. it is pretty bad once you've shown your hand. everyone else at the table says, yeah, that's all you've got? not the best action for the fed after what they did. >> if these wild market springs continue, the chart master says defense could be the best offense.

that's not the point of this segment. talking about aerospace and talk about lockheed martin. one-year chart this is the low. you can see it here, $2.85 we made a peak with the market two weeks plus ago at $4.39. what we also know is the following, that that advance, from low to high, is a gain of about $154 a share how much do we give back look at this next chart. we gave back 77. 77 times 2 is 154. this is exactly a 50% retracement. not only that, watch where lockheed stops it stops exactly at its october low. so having retraced 50% of its one-year move and finding support, i think this is one that we would want to play for a balance. let me make a case that would

support this one-year chart and now what we have is relative performance to its own sector which is to say, yes, it sold off, but what we know is it is outperforming the sector and today at the close made a new relative high this is the kind of thing that's defensive in many ways. >> carter, come on back over here mike, what's the trade on this the sector doesn't think it should be exposed, it might be defense. >> this is really interesting. carter and i were talking around midday and trying to figure out a place you could dip your toe in the market. we have arrived actually at lockheed market independently through our two different techniques my approach when i was looking at this was exactly what you're talking about. this is not a discretionary stock. close to 73% of the company is in the u.k. government and the

god portion of the balance of their revenues come from other defense contractors. this is not discretionary spending we're not trying to figure out whether demand for the f-35 and the 3,000 planes they're supposed to be building, the only stealth bomber these forces are going to have. this is looking well ahead besides which this is a company that also is trading at a relatively attractive multiple 14.5% earnings that's not the cheapest but not far off of it. if we take a look at the price of options, options prices are exploding. i'm going to try to look for a stock that takes advantage of that the trade that i did was 3.85, 4 4.25 call spread the stock was lower than where it was i got this off for about even.

dispelling the put and selling the call against it. a level where i am comfortable getting the stock, that's below the level that carter was indicating and would meet the next area of resistance and would represent the cheapest multiple that this stock has received in the last five years. the options will probably decay more quickly than the call i'm buying i'm not overly bullish but that doesn't mean some stocks aren't representing lower values. this is a situation where if we do have the stock put to us, down at 3.35, it represents a good discount to 3.85 where the stock closed today. >> point out two things. it's that the put strike if you sold, you're comfortable owning the stock at that level. that's a critical distinction that you made. another thing is in this market you have to try to hit singles

your strikes, the spread difference in your strikes are probably going to be tight because that's what we've all indicated. options prices are extremely high you have to be willing to kind of grind this thing out and actively trade your positions. >> so i like the stock if you're trying to pick a stock to buy, i think lockheed martin is at the top of my list strong fundamentals. valuations are relatively inextensive. the trade that i like, a little simpler than this, sell a march put. i was looking at the at the money puts you can collect 12 bucks which would allow you to own this at 3.68 it's just below the 3.70 that's a simple trade. >> okay. good stuff, guys from defense to a group like many, finding itself playing defense this year, which is technology stocks. the s&p 500 technology sector slammed. if you think there's more pain ahead, tony has a way to triage

some technology. >> i want to take a look at technology which is one of the weaker sectors trading if we look at the one-year chart, the stock pulled back from 18% down to the 200 a day average. we're trace 50g% back. it will get down to the 84% lower which is the 200 day moving average the lions share is microsoft/apple of which both of them are substantially higher than the 200 day moving average. i think there's quite a bit of room for both of these names to pull back. visa and master card, both names will continue to slow down as consumer slows down. intel, i don't see a bounce on semiconductors i think there's a bit of down side from xlk. there's a rare opportunity for us to take advantage of the current sku. looking at the sku of the april call options the at the money call options are trading at a substantially

higher implied volatility versus the out of the money call options. it's a great opportunity to sell call credit. go out to april and sell the 88/95 call spread collecting $5.25 on the april 88 call paying $1.79 net net collecting $3.41 which is almost half of the width of a $7 wide call spread. this has a break even price of $91.41 which gives me a 60% probability of a profit. with a one-to-one payout those are the odds i like on a trade like this. >> all right hold on, guys. sorry to interrupt but we do have breaking news right now let's get a live look at the white house where vice president mike pence who is the head of the coronavirus task force is holding a briefing on the outbreak we're monitoring it. as always we'll bring you any headlines as they develop whether it pertains to the

economy, companies, what they're doing, what they think is going to happen certainly. vice president mike pence is talking at the white house let's quickly get back to the trade on technology, tony. i'm sorry, i was focused on headlines that were crassing as you were talking do you think it looks like apple and microsoft are going to drop more >> a little bit. not substantially. i think there's room for a pull back i'm not looking for a big move to the down side, that's why i'm selling a call spread. >> you're so dominated by master card, visa, intel. if you look at the sector equal weight, we have indices that do that the actual sector. the thing that drove it so much, more than the market, what's caused it could come away. >> at least i have for months, we're not picking on etfs. do you believe the market structure has contributed to the

size of the moves? >> sure. >> sell everything. >> correlation as well. >> it helps on the way up. we like it on the way up. >> speaking of the way up. >> no, go ahead. >> i have to jump in here. >> go ahead, mike. >> on apple. apple is one of the largest constituents of xlk. december 31st, that was the day the coronavirus was first announced. apple is essentially trending unchanged from that level. i think it closed that day around 2 poin93 we are selling at 283. it's trading 23 times earnings you have that opportunity. that's where we are right now. it has opportunity i think to go a lot lower. >> a lot lower mike khouw in san francisco. thank you very much. we still have a little bit more to do on "options actiooption"."

here's what's coming up. gold shining but if you missed out on the rally, fear not. we're laying out a golden way to play catchup using options. plus, calling all "options action" fans reach into your pocket, take out your phone and tweet tweet @optionsaction if it's nice, we'll put it on air. ♪ ♪

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welcome back certainly was a wild week for the markets. escalating market fears supported by the coronavirus there was one bright spot. take a look at gold. gold posting its best week since 2016 investors turn to the bull onfor safety if you missed out on the move carter werth is looking at maybe, maybe another opportunities at this for you. take it away. >> gold is great by all indications, plenty higher i wanted to take a look at the ratio of gold and silver gold over silver it will zero in on when that spikes and what happens to silver go back to 1970. that's a long chart. take a look at the circles i have on here those are all spikes in the gold-silver ratio. guess what has happened each single time the ratio has spiked as it's spiking now. what's happened going forward, you'll see this in the table, is

that silver's absolute performance, this is independent of gold, one week later, one month later is very robust almost no exceptions to any of those. it's a simple catchup trade. we love gold but silver has the potential in the catchup trade on its own now zero in on the near-term chart. here again, what the gold-silver ratio would typically do is go down, go down. that doesn't mean that gold's goes down, it means that silver goes up more than gold we're thinking we're at that kind of juncture right now very interesting moment. in terms of the slv, we know it spiked and peaked in 2011. we know you can draw the lines many ways, but i think you can draw it like this. we have come out of this important formation and think how much more room it could run. long slv on silver, not gold watch the gold-silver ratio. >> come on back to the desk. you're not anti that but you

have a different way to play it in terms of lengths of the contract. >> correct correct. take a look at the chart of bld. it's been quite volatile particularly in the last two or three weeks. you take it a step further you look at the term structure of implied volatility n. this panic keep in mind gold is thought of a store of wealth. we're seeing historic options trading at a massive premium from implied volatility from longer dated options the last thing i like to point out is if you look at the smile surface, most stocks trade with a sku meaning things fall faster than they rally unless of course it's gold. you have a sku to the down side. it's the exact opposite. the last thing i want to point out is you can see that the march smile is the much steeper, much steeper than the june smile. the trade i'm going to lay out is selling the gld march

straddle to buy the june glb 153 straddle you're selling the same strike in march you're going to sell that at $6. you're going to get option alit out until june two weeks of what you're selling for half the cost. we mentioned earlier about continuing to make sure that you have holding positions and you have trading positions this definitely qualifies as the latter once this march rolls off, you can see from the p&l standpoint, above your break-evens, 151 and 163, you start to make money trade it after march x 3 you are left with a long straddle if this inverted turn structure continues you are able to roll the march into the next weekly or monthly option and continue to pick up premium on the way up. >> tony? you like the strategy? >> i'm actually surprised at how

much premium you can pick up in two weeks in march that makes a lot of sense buying that optionality you're picking up half of that you're able to do that in 14 days, that makes sense i would try to sell another call or straddle possibly once the markets expire hold on to either the call or put depending on what direction you think gld will held. >> totally agree >> and then one could say why bother like in the ratio are you saying short gold long silver in a pure world that's what the gold-silver ratio is what we know is in a world rates to zero, gold to infinity, even as that continues to happen, you want to make sure you have some silver too. >> gold and silver, guys we have breaking news by the way coming out of the coronavirus briefing from vice president pence. they're reporting 21 people have

tested positive for coronavirus on the grand princess cruise ship that is the one stranded off the coast of california. of those 21 who have tested positive, 19 of them are crew members. so, again, that cruise ship which is off the coast of california 2, 1 positive tests of those 19 are crew members coming out of the press conference with vice president pence moments ago. we'll get you more as we have it we'll be right back after this ♪ ♪ ♪ ♪

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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 final call mike khouw out west. >> you know, as a defensive play i like defense, specifically lockheed martin. you can call spread risk reversals. looking at carter's slv trade, i would buy longer calls. >> carter. >> speak for me. that's exactly it. lmv and smd. >> i'm taking advantage and

buying march june straddles. >> technology continues to grind lower. selling call credit spreads. >> guys, i really appreciate this little different tonight big week incredible week. that's it for us a very important "mad money" with jim cramer starts right now. - [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.