happy friday, everybody. it's time for "options action. carter worth explains why small caps could be in for a big surprise and how it all comes down to financials plus, jeopardy style, the answer, what is the work video call you're on and zoom's video call the question what are two things nowhere near ending speaking of call, the professor, mike khouw has another teaching moment on why now could be the best time to go back to the most basic tool in your kit it is time to risk less to make more and let's get right to it for this friday after another

wild month of trading, all three major indices managing to close out in the green and the s&p 500 up more than 38% from its march low, but take a look at the small caps, despite seeing a boost this month the it is stilling laing the broader market down 16%. carter worth says there's more truth brewing for the beaten down sector. carter, what are the charts telling you? >> the issue here, of course, is that small caps have lagged for such a long time and they're heavily weighted financials and let's look at one of four slides the first one shows you the iwm and it shows you the well-defined lows from which the iwm, the russell 2000 broke sharply and you cannee that level and it's the 145 level and we plunge to 95 and we ricocheted all of the way back to that level and that's the issue. we're up 51% off the low and more than the s&p and that's the problem about going down so much

meaning it's so damaged. take a look at the next slide. i've drawn the arrow because basically it's a classic example of a rally back to a difficult level where a lot of commitments were made, money was lost and now the money has been restored and in principle it's where sellers act. third, take a look at the long-term chart and this is the defect and this is the chart since the '07 peak and there were distinct characteristics. one, you can see the russell 2000 put in a perfect double top and it could never make a high this year. you think the market has made big, new highs and the russell 2000 went back to the 2018 high and you have a 2018, 2020 double top, a crash basically down 40, 45% and this ricocheted right back to the underbelly of that line not a great setup. finally, and this issue as well, look at this final chart it's a two-panel chart and it's the iwm on top and look at the

relative performance to the s&p and the bottom panel it is low and aer and lower andr and it peaked in 2014. we also know this, that they add up to 2.4 trillion and that's less than apple and microsoft. you're taking a lot of chances with the index that's heavily weighted in financials >> wow that really puts it in perspective. mike, what's the trade out of this >> yeah. so this is an interesting thing. i think carry the was touching on this. the russell 2000, you're looking at basically the economy's smaller publicly traded companies. the russell 1000 has essentially gained back to where they were at the beginning of november of last year. that's a remarkable thing when you consider where we are as an economy and we went from the lowest unemployment that the countries had in its history to the highest unemployment that we've seen in several

generations over the course of three months and we don't know when we'll get back to some sense of normal and we are temporarily hitting the pause button in terms of the economic impact because of the massive fiscal and monetary response that we've seen and these companies are going to have lower credit qualities, generally and we'll have a situation where we will see an even bifurcation in my view with the mega-cap economy winners and a lot of the stocks that are in this space and the interesting thing is when we've seen this "v" bottom we've seen a decline in implied volatility and i think what i want to do here in my case i'll look out to august for a couple of reasons and one is that some of the fiscal response will run out then and we will start capturing the next cycle of earnings and i was looking at the 130, 110 put spread and you can spend -- is the 110s against it. net-net you will spend $2.30

against the strikes and the idea that i'm capturing those two catalysts, sort of a runoff of government assistance and another earnings cycle and just trying to capture the fact that we've seen a sharp rebound, but i don't think that all of the bad economic news for these companies in particular has been appropriately priced in. >> tony, what do you make of mike's trade >> so first of all, i think i'm going to take a bit of a contrarian view on iwm i kind of find this chart quite constructive you have the 135 triple top that the etf broke out above and you have some significant relative strength over the past five or six weeks where the small caps have outperformed s&p. i actually like this more to the upside rather than down side, however, i do like mike's trade from the perspective as a hedge against the down side correction especially as he's targeting the next earnings cycle and that's something that's very important and the fact that he's using an out of the money call spread

here and he's risking only 3% of the underlying etf's value and that's a smarter way to hedge your risk to the down side >> we got a taste of rotation into value looks like and it was very strong, carter and those little doses and those are not really going to pan out here because that would be key to believing that iwm would continue to be underperforming >> there's a phrase for this kind of thing, of course, and it's not mine, and we know it. it's called a value trap sometimes things appear to be cheap, but typically, that's for a reason, and so we've had a cyclical bounce. think energy energy is up 75% off of its low, double the market. the kre is up 40, more than the market and the things that plunged the most, ricocheted the most and it is so damaged and so dependent on an economic

recovery and not a bet that i want to make let's move on now, check out shares of the quintessential stay at home stock zooming higher today just like that, just like they've been all year and zoom is up 150% heading into next week's earnings report and tony says there's no end in sight for the sweethearts rally. tony >> so i covered zoom here last earnings season. in early march well before we had the lockdowns, when we thought work from home would be a short term trend not only is work from home going to be significantly longer than we had originally expected and actually more of a permanent for many workers so if we look at the chart here, what i love about the zoom chart is it's been in a clear uptrend it touches the foo -- we have this double top that it's about to break out from and earnings next week is what thaurl get to break out above the 180 level.

options are implying a 12.6% move on earnings and this stock can rocket higher if they beat earnings and they're $20 million in terms of revenue to the upside, but the options market is currently only pricing over the last four quarters, it's only moved about 10.8% so the options market moves quite a bit. so the trade structure that i want to use here to continue to break for upside is causing a call vertical similar to the trade that i used last week where i'm going out to june and i'm buying the 175, 210 call vertical here. i'm spending $13.60 for the june 175 call and i'm collecting about $3.20 to sell the june to ten call and i'm looking for a boost here on earnings and for this to break out higher

my break even price is around 185, a little over 185 and i'm looking to break out another $5 higher beyond whery woo are currently trading as of today's close. >> mike, your thoughts on the trade? >> yeah. i mean, i like the trade structure if you're going to make a bullish bet when we're looking forward to earnings we should think about multiples. this is a company that on a run rate basis even if they're doing 250 million a quarter, right now the street is being looking at 200 million in revenues for the quarter that just ended. this is a $20 billion market cap independent is trading at 20 times revenues and that's not a cheap stock. the good news is from a fundamental standpoint that the company has made announcements that they will become an entrepreneurial platform that they'll be trying to deal with this work from home dynamic that we're now dealing with just think that on a valuation basis if you're inclined to make a bullish bet i do like tony's

trade structure and it's the valuation that's troublesome for me and it's trading on technicals in any case >> laid out a solid technical case, it seemed, carter. what did you think of the chart work >> sure. it can only be technicals when you're trading at 70 times sales. it's anything, but fundamentals. it's just future here is a classic breakout candidate and what we do know is it did very well on the march 3rd print ask it came in double the expectation in terms of earnings and yet after flaring up, the stock faltered and so this is an instant that in the event of a news-related pop, i think it's a quick harvest and something to get out of. >> is that what you would do, tony >> exactly i'm only going out to june i'm expecting this trade to be lasting a very short amount of time i'm looking for a pop higher and i'm looking to get out at either at a profit or a loss. >> there is a time for complexity and professor khouw

gives you a k-i-s-s as in keep it simple, student, check out ti.cc.bsite options aconnbcom and while there sign up for our newsletter we will be back right after this ♪ ♪ ♪ ♪ ♪ ♪ ♪

it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." in a case study of bus and booms through the lens of apple. check out just how far apple has rocketed off the march 23rd lows and just over 50% in two months and an apple investor might be faced with the quandary. there's only one way to explain. ♪ ♪ ♪ time for a good

old-fashioned tag team quarter, you're first. >> sure. so take a look at one of two charts on apple and very clearly defined peak in february 326 and a plunge to 312 and back to 324 and very symmetrical and you drop 35% and you have to go back 52 and it's right back to a former high. second chart when you return to a former high, you've returned to a level of overhead supply in principle, there are people who bought and endured a 35% sell-off and didn't sell and now seeing their money returned to them they want to grab it. they're interested sellers get me out and that's only half the supply, and as opposed to people that are breaking even, there are people that brought the low. dumb luck or brilliance, down at 212, 220 and once you flip the cards over and show them a 40, 50% gain they want to book those gains. what a trade

get me out and so we are at that juncture and it is not random and we can see in the chart that apple has stopped precisely at its former peak. i'll turn it over to the professor from here. >> so this is an interesting situation, of course many of you probably hold apple. it's one of the most broadly-held stocks and for many people it's probably a core holding. those are stocks that you hold and that you don't sell and if you're looking at those potential levels of resistance and you're not inclined to sell those shares and are there things you will do to enhance your return and take advantage of the fact that there will be some sort of a ceiling on the stock in the near-term and the answer is to sell covered calls and this is a situation where sometimes people think that the best idea is to just try to sell calls when implied volatility is high and this is a decision that you want to make when you're making some sort of assessment of how the stock is behave yoin. this is attractive if you were to be called out from the stock

you want to sell above the current stock price. the idea is you're trying to choose an attractive exit point and you're looking for an area of resistance and we also want to take a look ahead at any potential catalyst such as earnings and they do report in july and it will be after july expiration so july expiration is the one that i'll be being looking at. specifically, i was looking at the july 330 calls and you collect $7.60 when i was looking at that earlier today. consider, that is above the all-time high in the stock, and net of the 760 you're collect, that's $337.60 per share that you'd effectively be collecting if you were allowed that stock to be away from you. it's not that likely as a potential catalyst to take us there and this is also a trade that will be giving you more than 2% of the current stock price in terms of yield and that's one of the things i try to look for in the stock position in terms of income.

so you know, when we're looking for option strategies, this is the most basic and the one that many people begin with it's in the investment strategy and many of you are invested in apple and this is where we can identify a good, covered call situation. >> tony, your thoughts >> first of all, selling the covered calls in this market environment is what we should be utilizing. i like that they used technicals to get a sense of stock price. normally in a stock like this going out to july i would sell much further out of money and usually around the 345, or 350 or ten to 15 dealt as, but here because they've identified a pretty strong technical level where they exit the trade at 330 and 2% of the underlying stock price to get this and that's exact leet covered call that makes a lot of sense here. i do think that for those of you that believe that apple willic ma an all-time high and will

continue to move higher for those investors that they might want to adjust the strike prices into the 3 ho 40, 345 range. >> china and china tensions to be a real topic and this could afford investors some peace of mind that apple could be in the crosshairs and that that rally could be threatened or at least hit some speed bumps along the way. >> yeah. that's a great point because of course, that also presents some potential headwinds to seeing all-time highs in the stock. one thing i will say in response to what tony was suggesting is implied volatility is higher and you take better advantage of that when you sell strikes that are closer to the money. you are giving yourself a minor amount insulation and the stock just trades sideways essentially you will collect the premium and even if it declines a little bit, you'd be better off if you hadn't sold them those are the things you want to look like. exactly what you're talking about here, technical resistance and levels of valuation that might be high and other forms of

headwinds such as what we're dealing with with china right now. >> speaking of china, we do have breaking news. china's global times responding to president trump's announcement in afternoon saying that trump's plan providing hong kong with special privileges is, quote, a recklessly, arbitrary move and we are all looking very closely for any reaction out of china and this is perhaps the first we'll get to the president's announcement this afternoon. coming up next, a marvelous chip trade. we are breaking down why the semi surge just paid off for one of our traders and plus we're taking your tweets and send us your questions and we'll answer mef emn r. we're back after this. what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. mhm, yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale.

mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. now offering zero commissions on online trades. we charge you less so you have more to invest. ♪

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well except now, you're binge learning. for a limited time, get up to $800 when you open and fund an account. call 866-300-9417 or visit tdameritrade.com/learn. ♪ >> welcome back to "options action." time to take a look back at a couple of the open trades. one chip stock was looking simply marvelous >> well-defined tops at a common level note the authority of the 28 level and this stock is just breaking out $30.13 on the close. very constructive, but the break in principle has more to go. >> given the fact that we're looking to make a bullish bet in the stock that's had such a strong move. i think the way we want to play this is with a call spread and i was looking at the june 30, 34 spread and that would cost $1.20 to put that trade on by doing that, we had upside exposure up to 34.

>> the stock had a mofsh louse day to put this trade in the green. mike, what are you doing now >> so i think this is a situation where we can actually book profits and press a bullish bet. what i would do is roll the 30s up to the 33s. you can collect $2 that's more than the $1.20 we spent to put the trade on. booking and 80% profit you would own the 33 and 34 call spread and you can profit if the stock continues to go higher >> carter, does the profit continue to support mike's move? >> it's a textbook breakout and a big week up 18% and in general, we want to stick with this kind of momentum and when you break out in such a big way and it's time to take profits and that is not the case here. >> meantime, tony shared some insight as to why one health care name could be prime for big gains. >> as you see that the clinical trial announcement lines up with the technical chart breaking out above the $95 resistance level

it spend the last month consolidating between 105 and it's prime now for a potential breakout and i'm buying the july 110 calls for $5.50 and i'm selling the july 115 calls for 90 cents net-net i'm paying $4.60 >> insight had a nice rally and lost it heading into the weekend. tony, what are you doing now >> the chart here still looks very constructive and it's still staying above the $100 resistance level and it's bounced off the $20 moving average and this is prime still for that breakout and it's moved still in our favor and this trade is small and has had a small profit at the moment and i still have almost 50 days left on this particular trade and i'm still hanging onto it and for further gains to the upside. carter, your thoughts? >> up on the week and what's not to like? just the opportunity has been deferred stay long. >> mike, would you stick with this

>> yeah. i mean, this is a technical trade so you'll have to listen to the two guys that were just speaking before me i don't have that much insight as i said last week on insight, and i would defer to tm.he >> coming 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. well exactly. well except now, you're binge learning. >>oh, i like that. thank you, i just came up with that. >>you're funny. learn fast with the td ameritrade education center.

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welcome back to options action time to take your tweets what is your assessment on

buying the gld august 190 calls. tony >> so with respect to buying far out of the money calls and these are really far out of the money, august 190 calls are trading at ten delta which means for every dollar gold goes up this option only goes by ten cents even though these options are cheap, normally when you buy out of the money options you do it on the stock that will have a big catalyst event and gold is simply not that type of trade. it's not a stock that has an earnings event coming up or a product launch where you would expect a binary move and i would use a 165 call option. >> our next viewer asks a bit of a transcendent question. i don't usually ask you guys question, but here's one isn't the spy, the top five names are now 23% and you have a lot of beaten down names that

are languishing. yes, overbought and risky. >> all right our next viewer writes tesla looks poised for a breakout and needs clearance above 826 and 834. how would you play this? >> mike, take this one it is above 826 already and it is actually above 834 where it closed today and what i would do right now and it looks like its progress would slow to my eye and i would use call calendars if you're playing this one on the long side. >> all right it is time now for the final call carter braxton worth what do you say? >> if you have a nice profit in small cap stocks take them, if not, new position, be short. >> professor, michael khouw. >> so if you're in the marvel trade, i think one of the things you want to do is roll up to the 33 strike and basically book your profits and also let some money run and the other thing, of course is if you have apple now is a good time at selling covered calls.

>> tony? >> am zozoom, the ultimate workm home stock will keep zooming in earnings call the put spread. >> that does it for us on option action we'll be back next . my mission is simple, to make you money i'm leer to levhere to level th field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. >> hey, i'm cramer welcome to "mad money. welcome to cray mer ka, just trying to make you some money. my job is not just to entertain, tweet me @jim cramer we waited nearly all day for the president of the united states to take a tough stance on china, figuring there'd b