happy fry, everybody i'm me lisa lee. we have a big show ahead first up, look at that paypal and erg. >> and so do we. >> carter worth taking a look how you can cash in, too. >> video games >> yes tony has been playing around with trades in the space he'll showyou.

another beyond meat and uber on deck what are you seeing in the which thes you bet. a couple of charts first, the set up is paypal for a breakout to new highs. it's right at the set up is perfect. the first chart, take a look at the symmetry of this circumstance you have a 23%, 23-day plunge, a 23-day ricochet. you start at 124, you drop to 82, you go right back to 124, so again, a 35% decline, which you can see there, 51% rally, all very symmetric in terms of price and time and here we are right back at the time look at the second chart, this pulls it back a bit longer. look at the authority of this level

the stock has approached this and re approached this, and this is a perfect kind of set up for a news related break out earnings and earnings are coming next week. the other thing i would point out of course is how its relative performance is done the next chart is a two-panel chart and this also is important. pay pal, you can see on the bottom panel, its relative performance has already broken out, and this is a very positive development in the context of an absolute chart that hasn't broken out, and finally, of course, just performance relative to peers.

i have sort of a slide here that will show you, we can see the chart. pay pal up 11% year to date, visa down 6, fis down 7. mastercard down 10, and global payments down 12 fisv down 13 relative strength is one of the in models. relative strength is impressive. the absolute level is right, and the bed here is that this breaks out in a big way in response to earnings >> all right carter, so mike, what's the trade in your view >> yeah, so this is an interesting case because of course, you know, pay pal obviously has performed well and for anybody who is wondering why that might be, the lot of investors have been trying to answer the question, what companies if not immune or less affected by what's going on in the economic world around us, obviously amazon has been possibly a net beneficiary, zoom a net beneficiary, pay pal also among those companies that could be a net beneficiary, and the reason of course is online sales. this is a company that gets the bulk of its revenues that way, and while other payment companies like mastercard and visa have underperformed, it's worth pointing out even though they have exposure to the space, it isn't a high percentage of the overall revenues and the other thing is, things like

travel and entertainment, booking airline, probably using a credit card to do that, maybe not so much pay pal, and this is a growing business they're actively growing their users, so all of those things are positives and the stock has obviously responded as a net result of that the downside is that the stock has moved as a result of that and is now trading very close to its all time highs the options market is implying a move of a little over 6% when they report next week, and you could play for that break out by simply going out and buying short dated calls. in fact, goldman sachs recommended doing that this week the problem with a strategy like that for me, though, is that when you do that, you need the stock to do that to be profitable you're going to lose the premium you spend, and that's not a probability of profit that i like very much, so instead i'm trying to take a look at a trade that maybe not swinging for the fences, more like trying to bat a single, i was looking at a strangle swap. that sounds complicated. it isn't really.

it's a lot like calendar spreads that we often talk about in this strategy, you would sell the may 8th weekly, 115, 130 strangle, selling the put and the call, and buying that exact same structure in june, buying the june 115 put, buying the june 130 call. when i was looking at that earlier today and the stock was higher, actually than where it closed, you would spend $5.75 here is the way this works if the stock stays here, those near-term options will decay and you'll collect the premium and you probably will come out ahead. if it runs to the higher strike, you'll actually see higher profits and that's 130 which by the way is just outside of that 6% implied move or 115 to the down side. of course, after the end of next week, would you have an opportunity to revisit your trade and this is just a way that you can try to take advantage of the fact that options prices right now are slightly elevated. we can improve our probability

of profit. don't use this right now as an opportunity to try to swing for the fences and hit home runs off of stocks that frankly, have hit home runs since the stock hit a home run on the year. >> tony, what do you think of mike's trade >> so as mike said this trade on the surface sounds a little complicated and you can break this down into two trades and the best way to look at this is to look at it as a call calendar and a put calendar, both bullish and bearish going into earnings for paypal what's interesting about paypal is the things that michael has said and the fact that paypal has 100% exposure to online commerce as a payment processor because if you look at bank of america data, what's interesting is there are three categories in consumer spending that have seen an increase in spending and that's online electronics and groceries and that's online retail so paypal, i think, will be a net beneficiary as a result of all this and on the down side,

paypal does process payments for both uber, airbnb and stub hub which are industries that have seen substantial declines in revenue. i really like this trade because it allows you to trade a bullish and bearish view into earnings >> carter, just quickly. i don't want to divvy too much from paypal and pages and we had visa earnings and i'm wondering what you see from those types of processors compared to what you're seeing from paypal. >> all right they are much more tied to travel and to other things for paypal and here's the thing, for the first time in a long time, the manager needs to be overweight on visa and mastercard, but no longer. >> video gamemaker, activision and blizzard and the gaming stock beating the broader market is up around 9% and tony says it will be ready to level up again and take it away what's the trade >> take a look at online and mobile gaming and it will be a rising segment well before the coronavirus and as a result of the lockdown, we've seen a substantial tailwind for this particular segment and if we look at the chart it's reflected by that.

we've seen that activision, and i really like this particular chart and we've recently broke out above a major resistance level and came back to retest that as support and has started to rise higher than that this relative strength is exactly what i typically look for going into an earnings event for activision here. if we turn to earnings, the estimate revisions are really strong for both revenue and earnings per share, and if we look at the earnings historically, the stock doesn't actually move very much and only about 2.5% over the last four quarters compared to almost triple that which is what the options are currently implying 7.6% so given the fact that the stock has risen in the last few weeks and implied volatilities really high here, i'm looking to sell premium looking into earnings and i'll use a trade structure similar to microsoft by selling a put spread here and i'm going out to may, and i'm selling the $4.61 credit spread collecting $2.76 for selling the may, $64 puts and paying $1.58 for the may 61 puts and net-net i'm collecting $3 wide and that's roughly 40 shy of the credit spread and i have a break even spread of 62 and 82 which is right below the $63 resistance level that i was targeting here and i'm looking for activision here to rise higher on earnings and collect the credit here on this particular event >> mike, what do you think of the trade? >> well, i think obviously in an elevated options premium environment where we find ourselves looking for ways to

collect money on credit spreads and using credit spreads in particular because we really don't know what we'll be hearing out of companies like activision, i think the news is going to be positive the stock certainly is behaving that way and it demonstrates the opportunities that you get when correlation is very high and you see the stocks getting thrown out as we did into late march and people begin to contemplate and why would a position be hurt as badly as other stocks that got hit that hard and it's bounced back and this is a way for you to take a look at the the credit here on this particular event >> mike, what do you think of the trade? >> well, i think obviously in an elevated options premium environment where we find ourselves looking for ways to collect money on credit spreads and using credit spreads in particular because we really don't know what we'll be hearing

out of companies like activision, i think the news is going to be positive the stock certainly is behaving that way and it demonstrates the opportunities that you get when correlation is very high and you see the stocks getting thrown out as we did into late march and people begin to contemplate and why would a position be hurt as badly as other stocks that got hit that hard and it's bounced back and this is a way for you to take a look at the fact that option premiums have been elevated at this time and also look at names like this one that have bounced back pretty strongly and you might think you missed the opportunity to make money and i missed the trade >> call of duty is the reason why you see so much optimism in

this, carter, what do you see in the charts >> it's exhibiting characteristics that we like the key thing is that this is a turnaround story and the stock peaked as far back at $83 and essentially dropped to 40 and it's been crawling back ever since and i think it goes higher for everything options action, check out our website, optionsaction.cnbc.com while there you can sign up for our newsletter here's what's coming up next. >> seems like every investor is shouting, gold, more gold. put down the bars. mike khouw has a lustrous way to play ♪ >> 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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welcome back to "options action." stocks tumbling, sending traders seeking safety gold has been on a tear lately and that has been a big win for the miner, and the etf is up 40% in the last month, but if you missed the major move in the miners, mike has a way to synthesize it, he's here with a call to action mike, take it away >> yeah. so this is one of those situations that we're talking about stocks that are trading close to their ail-time highs in this environment we're talking about stocks that seem to be recovering. what do you do about the names that have already performed very, very well? gold has performed well and by extension the gold miners have performed well

in many cases they're a levered play on gold and here we are with gdx trading at seven-year highs and for people looking at this saying i want to be long the metal. i know there's a lot of basically monetary printing going on, it seems like a good environment and the input costs and operating costs are going long, but do you want to chase it with a stock up this much this is a situation where you want to look at stock substitutes and ways to make a bullish bet that don't necessarily offer you the immediate downside risk if it gives a little bit back. if you are long gdx right now or if you're long gold looking for a levered way to play it, but one way to look at this might be to use a call spread risk reversal specifically, i was being looking out to july at the 26.5, 33.5, 37.5, call spread risk reversal i would spend about 50 cents on buy the at the money call and sell that down side 26.5 level

put and the upside call and the idea here is that i'm getting near upside exposure, but it continues to rally however, of course, if i wait out until july if it did come back, i'm essentially going to have gdx put it, and that's lower than the level where gdx began the year and it was pretty stable to end the year if you're thinking this is something that has moved quite a lot. i want to have exposure to gold and the miners have a good way to play it and i'm uncomfortable with the idea trading at a seven-year high and this is a way that i can get the near upside participation over the next couple of months, but if your thesis proves to be incorrect and the worse that's going to happen is you will own it at 26.5 and that's a discount at the 33 and change that we closed today >> carter, what do you think >> i mean, all roads lead to gold here and all of the things that are going on, and if one doesn't have gold in one's portfolio, i think, one is not taking advantage of two facts. one, gold has kept pace with the s&p 500, with dividends reinvested over the past 23

years. two, gold is nowhere near its high we're getting there, but miners are still some 50% below their high and it is a levered play on gold gold acts well and i'd be long the metal and i'd be long the miners. >> tony, what do you think of the trade? >> so i'm a little biased here because i'm actually long gdx myself i'm using a different structure than mike here, but i really like mike's structure because he's able to take advantage of upside whereas i just sold a put spread and i'm just looking to collect a premium, but the chart looks constructive after breaking out above the $30 level and it bounced off the $32 support today and that's a good

entry for long the only thing i would do for mike's trade is i would get aggressive on the short put. i was actually looking at the 29s here going out to july that collects about $1.40 in premium. that's 4% of the ets value and that's still 12% out of the money and i would get aggressive on the short strike and that put. >> mike, last word >> yeah. the young guy. he's ready to get more aggressive than the old one. that doesn't surprise me too much, but i will say this is something that i'm interested in getting involved in. i'm long slv right here and that has more industrial applications than gold does as a precious medal, and i didn't handle that strategically as i might have, and i still like both, but gold seems to be the one that people are favoring right now as a way to basically deal with the risk that's going on with currencies and basically risk off with

every other risk asset and i'm probably going to be positioning less in slb and more into structures than the one i just outlined >> a tale, and we will give you all of the details and later, we are taking your tweets send us your questions at options action and we'll answer some of them on air. we'll be back right after this ♪ ♪ ♪ ♪ ♪ ♪ ♪

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time it is time to look back at a couple of our open trades. mike khouw said apple's run might end when they reported earnings. >> this is a company with a fortress balance sheet and a lot of technology companies some would say are well positioned, all things considered for what is obviously a very weak economic environment and the thing is this is a hardware company and it used to trade at a hardware company multiple which meant that it traded at a discount valuation to the rest of the market like other consumer electronics companies did. right now it's trading over 20 times. the one that i would recommend right here because implied volatility remains high would be a may 260, july 265 put diagonal you would sell the may 260 puts and buy the july 265 puts and it was $9.75. >> apple did, indeed, take a hit when they reported after the bell yesterday mike, how are you managing this

trade? >> yeah. it took a hit, but of course, the stock is higher week on week that put spread has declined by about $1 it was a better way to play it than shorting the stock. i'm short apple in two different ways and i'm short call spreads and long this diagonal and the short call spreads didn't do very well and the case would be made that the iphone cycle could actually be the catalyst that gets this company the new highs, but i'm not really going to buy that going into the summer right now. i'm actually going to stay with the put spread and i'll take off my short put spreads, though >> carter, what do you see in apple's chart? >> what we do know is that the timing reason, to be sure, a news event has come and gone and it did hold up well. i don't think there's any reason to be long, but to have an active short here and now doesn't seem like that's going

to be profitable >> apple wasn't the only big tech name to report earnings this past week and tony had his eyes on big gains for microsoft. >> microsoft generates 50% of the revenue from the azure cloud business as opposed to a consumer business like apple as we continue to shift working from home after covid-19 apple will benefit from that i'm going out to out to june 5th and i'm selling the 172.50, and the 162.50 put vertical here collecting roughly $4 credit i'm selling the june 172.50 for $9.40 and buying the 162.50 for about $5.40. net-net here i'm collecting $4 credit on a $10 wide credit spread and 40% of the width. >> any he got him. tony, what are you doing with this trade >> so microsoft did exactly what i was expecting to which is rise mildly higher. that's why i sold this put credit spread as opposed to outright buying in these types of calls however, we were able to take off this trade for a $1 profit and i will say looking back if i would go back in time i might have sold a shortly dated option, but this is a trade that

we did take off and take profit this week. >> up next, we have your tweets and the final call so what are you working on? >>i'm searching for info on options trading, and look, it feels like i'm just wasting time. wasted time is wasted opportunity. >>exactly. that's why td ameritrade designed a first-of-its-kind, personalized education center. see, you just >>oh, this is easy. yeah, and that's >>oh, just what i need. courses on options trading, webcasts, tutorials. yeah. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. >>so it's like my streaming service.

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one person asked him to state your account was hacked. you're killing every investor who invested in tesla right now. moments ago musk replied, as always, i'm optimistic about tesla long term. mike khouw, it's not a direct answer to the question of if your account was hacked, but it does seem like an acknowledgement that that was his tweet. >> i think it is, actually >> yeah. i think that was an acknowledgement that that was his tweet. who doesn't love elon musk and basically the entertainment value that he provides around an innovative company with phenomenal products and a phenomenal stock price that's hard to get your arms around i love tesla, but i don't love the stock. i've said it many times and i've

said it when the stock was lower than it is now and i said it when it was higher and i've said it today. >> what's your technical take, carter >> reed hastings did this with netflix in the past and many ceos in their quarterly letters have stated that i think the stock has been momentum players and maybe a bit rich and it's when you can pump your own stock you're in trouble and i don't think there's any harm there other than the stock has gone down technically, look, they've had a big run and it's given back a bit, but my hunch is to be long tesla. >> time for the final call tony, what do you say? >> i think online gaming and mobile gaming continues to take off selling put credit spreads >> carter worth? >> i think paypal is poised to pop. earnings >> michael khouw >> yeah, so you know, if you're looking at gold or gold miner,

that's understandable. i like both of them, but they're trading at relative highs here and use substitution strategies like call risk reversals >> that does it for options action and i'll be back next friday at 5:30 p.m. eastern time be safe. don't go anywhere. "mad money" starts right now - [man] the following program is a paid presentation for the oxypure air purifier brought to you by nuwave, llc. asthma and allergies are at an all time high, and it seems to get worse every year. it's not your imagination. allergy season continues to get longer and more intense as temperatures rise, and airborne viruses are becoming an epidemic problem worldwide, with the changing environment, and unseen dangerous air pollution surrounding all of us. you need clean air more than ever. if you suffer from mold, dust, pet dander, smoke, odors, or sleeping problems. discover the nuwave oxypure air purifier. one of the world's most powerful air purifiers.