absolutely, i mean, if the lifestyle of his clients was so mesmerizing to him, if he wanted that world so badly and wanted to impress people so badly that it just suddenly corrupted him, to impress people so badly that it just suddenly corrupted him, or if he was always like this. you know it's friday, because it's "options action" time here's what's coming up on the big show >> as the saying goes, home is where the heart is now carter werth thinks home is where the money is he'll help you refresh your holdings with a coat of paint. then, boeing setbacks at every turn, with no clear heir to be scene but tony zhang has a way to pilot you through. plus -- hold the phone, literally. after a huge run, apple and other tech giants are on deck to report in the busiest week of

earnings season. afraid computers might crash item your helpful i.t. guy, mike khouw has some patches for your portfolio. it's time to risk less and make more "options action" starts right now. >> and let's get right to it despite the weak sell-off in the market, one group of stocks managed to lay down some strong foundations for a rally. the itv home construction etf managed to rally 4% this week. and carter says there is one name in that that would make for a particularly sturdy trade. so carter, what's the name >> right, it's sherwin williams. we'll look at a couple of charts, but this is all -- we've discussed this on other shows, it's the rate environment, it's the one area within consumer discretion that is holding up so well and yet, not extended and not overbought, so a lot of characteristics that make this desirable. let's look at a few tables and

charts the first is, talking about sherwin williams, this is one of the best performing stocks in the market, regardless of its line of business here you're looking at a comparative chart. going back to the beginning of data in 1985, sherwin versus the s&p. you're talking about a 6-fold increase over the general market now take a look at the next short, if i introduce the nasdaq 100. now, we know, these are -- this is microsoft, apple. sherwin is even beating the nasdaq 100 by a healthy margin in fact, take a look at the next slide. this is a simple table, if one were to have been so lucky to put 10,000 in sherwin back in 1985, that is now $1.3 million or thereabouts versus 850 for the nasdaq and you would be at a paltry, so to speak, $168,000 in the s&p. in any event, home builders act well and sherwin is the best

performer long-term. it's not a home builder, but that's the key, right? it doesn't have the cylicality the fourth chart is taking a look at itb year-to-date versus the market and we know that the market is plus or minus depending on your day. but home builders as a group are up 10% so sherwin, which, again, it's like home depot in a way, it's tied to home builders, but it's better than home builders. so here's one way to draw the lines. it's a textbook conventional by juncture a convention generally lly agr upon you can see the authority of the 600 level. sherwin has already started to poke up above that level we like pit a lot. and finally, the same chart, really, but just drawing a trend line in effect since the march low. whether you call it ascending triangle or wedge or what have you, it doesn't matter what it is, it's a breakout from

a well-defined formation and there's every indication that it is headed higher earnings next week, we like it a lot. >> that is pound the table from carter werth, mike khouw so what's the trade here >> so it's interesting, you know, sometimes you will see charts where basically stocks are going from the lower left to the upper right and it's largely a technical pattern and we have a hard time justifying it from a fundamental standpoint that's not actually the case here sherwin williams is basically one of the better and more consistent growers of earnings per share. as an example of that, i would say, look back ten years this company was earnings about $4 per share at the time and for the last 12 months, with the last reported quarter, we're looking at about $20 per share that's a five-fold increase in earnings right now it's trading at about 28 times earnings, forward earnings, that is. that doesn't seem terribly unreasonable, given that growth, but the stock has had a very strong run one of the things we might look to do is give a bullish bet

using options. also, at $620 a share or thereabouts, this is a very expensive stock. so some market participants might be reluctant to go out and buy 100 shares of it, which is going to set you back about $6,200 right now the market is implying a 3.7 move on earnings when they report next week usually when weapon look at the charts that carter sets up, we're looking at a slightly longer time horizon. i was looking out to september you can buy the 620, 680 call spread, selling the 680st against it for 6 for a net price of $20 per share that's obviously considerably less that the current share price. here's something i would quickly point out. the month following earnings, the stock has moved 5.5% the september options expire considerably beyond that and at $20 that we're spending for this options spread, we're really spending, give or take, about 3% or a little bit more of the current stock price.

i think it sets up as a good risk/reward into a known catalyst for a stock that has some good fundamental reasons propelling its strength. >> tony, do you like this trade? do you like the story of sherwin williams it williams >> i particularly like this trade for a couple of reasons. first of all, if you look at the underlying stock, not only is housing one of the strongest sectors and one of the brighter spots for q3, but sherwin williams is also part of the material sector, which carter laid out a pretty nice thesis last week for a potential breakout on xlb. you have both xlb and itb about to break out to the upside if you look at the chart of sherwin williams, very constructive chart breaking out above that $600 level, looking like it's consolidating and moving higher. i particularly like mike's trade structure. the debit vertical spread is a very efficient way to take a bullish view here with a very small amount of risk he's only risking 3% of the

stock price. you're only risking 3% of the underlying stock price >> mike, i know you're going out to december, but a lot can happen between now and december, particularly during a pandemic i'm wondering, in that time frame, are there certain events that you're looking at thinking, oh, that might be a catalyst, either to the upside or to the downside for sherwin >> yeah, so, there's obviously --we have the earnings catalyst, you point out, there's going to be a lot of economic data that follows. and you have the issues that will be driving the market more broadly. another thing i would point out, it's not uncommon to see upticks in volatility. you'll notice that's my expiration is. this isn't really a play to the end of the year, so much as recognizement, we've seen a big increase in volatility in the market and in implied volatility and it seems now, the same thing i was saying last week, it might be a better time to be a net buyer premium than a seller of it >> there was one group of stocks

that was hit particularly hard this week. it's been turbulent for the airlines those stocks following the broader market lower and that's got tony betting against the one big aircraft supplier as the skies look cloudy ahead. tony, what's the name, what's the trade? >> so i want to take a look at boeing, because i think there are a lot of elements here at play going into earnings next week but i think that the risks here are skewed to the downside first of all, if we look at the 737 max recertification. at this point, it looks like it's looking unlikely that that's going to happen in 2020 if you look at boeing's order book, 13% of that order book has already been canceled in 2020. and i don't see that trend reversing anytime soon given if outlook that airlines have been giving us every single day, giving us fairly negative guidance, it seems like, every single week, you're getting worse and worse guidance for 2020 and looking out to 2021 and the next three to four years for those reasons, i'm not particularly constructive on boger going into earnings. if you look at estimate revisions, they're pretty poor

going into earnings. you couple that with a chart, it's very hard to make a bullish case here for this particular chart. you have a major resistance level at 185, which boeing has failed to get above. and if you look at the relative performance to its sector, it's really starting to underperform here over the past few weeks so you couple the estimate revisions with the underperformance we're seeing against the sector those are really typically the things i look for for a potential miss here on earnings. if we look at the options here, they are implying a big move here, about 8.7% versus the average of only about 2.9% over the last four quarters so options are implying a big move to the downside, but options-implied volatilities here are very elevated the options structure i'm looking to do here is actually to sell premium, and i'm going out to the august 28th weekly options and selling the 180/195 call spread. i'm paying about $9.10 for the

195s net/net, i'm collecting about $5.45, which is about 36% of the with here, but the spread here is about $5 out of the money so that's a nice collection i'm making here on this particular trade. and my break-even price is just above $185 i'm expecting boeing to trade down and collect this credit on this credit spread >> mike, do you like this trade? >> i do like the trade i would make one quick point about how much the stock has historically moved on earnings you know, since the -- we've looked at everything that's happened, they've taken on a decent amount of debt and tect market capitalization is lower the net effect of that increase in debt and the lower market cap is you would anticipate to see higher volatility. all of that said, i agree with pretty much everything that tony said here. it is hard to imagine exactly how all the clouds are going to be lifted for boeing, you know, in the short-term. and let's bear in mind that the valuation of the company is not far off where it was about two

years ago. two years ago, when they had a 5,000 deep order book and everything looked brilliant for them going forward, it's a very different picture right now. when you look at it that way and say, would i buy it at this valuation or have bought it at that one knowing what we do and what we did, it's hard to see why you would a big buyer of it here 22 times earnings is best, it's probably fairly valued and the omissions are quite expensive as tony pointed out >> carter, how does that chart look >> the word "ominous" sort of comes to mind. it is hovering ominously at well-defined intermediate lows and the presumption is it's going to break those lows. the things that's so important here about this great winner, and i say that because boeing is one of the great commercial franchises ever to open its doors, after dropping from its peak, it lost 80% of its value this is a $450 stock that touched 80 on the pandemic low it looked like a sherwin,

outperforming the market by many turns, and this plunge, news-related or not, pandemic or not, basically wiped out all of its relative performance to the s&p since its inception. and now it's just a gambling chip to be $80 in the march low, to go as high as 235 in june, now back to 173. i think it's going to break and break hard >> all the revel gains over the s&p 500 since inception? that's amazing >> given back. >> for everything "options action," check out optionsaction.cnbc.com while you're there, sign up for our news letter. here's what's coming up next >> announcer: coming up, professor mike khouw plays the role of insurance salesman and shows you how to protect yourself in what could be a hazard-fraught busiest week of earnings season. plus, calling all "options actions" fans, reach into your pocket, grab your phone, and tweet us your questio

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♪ ♪ ♪ welcome back to "options action." take a look at big tech get wrecked this week. tesla, facebook, apple, all facing big losses as investors rotate out of the space with only amazon escaping in the green. and in you're one of the many folks out there in these names, you may be wondering, how can i protect myself from further downside well, lucky for you, the professor is in. mike khouw is here with a call to action. mike, take it away >> yeah, so this is pretty extraordinary, of course, what we've seen so far this year. the tech indices are up about 50% off of their lows. some of the most broadly held

stocks, obviously, are one of the big reasons why that might be true. and you might be thinking to yourself, okay, now that we've seen those gains, how can i hedge my exposure? the first thing you need to do is identify a decent proxy to use for a portfolio. because a lot of the biggest stocks we have in there, chances are you don't 100 shares of it if you have an average-sized portfolio. and then we need to size the trade. let's try to work through an example together let's imagine you have $100,000 in your account and a number of the most commonly held stocks represent that $100,000. a couple shares of amazon, facebook, netflix, tesla, things like that. these are the stocks that the top ten of which in the nasdaq composite index represent about 57% of the weight. so we could use qqq, which is the etf that tracks that index how much do you need to buy? all you need to do is take the $100,000 of overall exposure that you have, divide it by the share price of qqq i'm simplifying it here and

assuming it's about $250 that works out to 400 shares of qqq, is roughly equivalent to your 100,000 portfolio of tech stocks since each option represents 100 shares, that means you would need four options to hedge if you were going to use qqq options. as an example, i was looking at the september 240 strike puts, those would cost about $6.50 per contract you multiply that by the 400 or so, that's going to get you to about $26 in premium that's how much you would be spending to protect your $100,000 tech portfolio. and i'm going to make the point that everybody already knows, but it bears repeating, these biggest stocks have had quite extraordinary runs here. and of course, they are a big part of the reason why the index has gone up as far and as fast as it has. if they reverse, we've seen some signs and cracks that would happen this week, they will be the same ones that drag it lower. and earnings options on each of those stocks individual could be

quite expensive. this is a cheaper way to take a look at your overall risk and hedge it going out to september. >> tony, is this how you would hedge? >> yeah. so we actually hosted an education event last night, specifically on this strategy. and one of the things that we -- and i think this is firstly a timely time to talk about this, because we surveyed over 500 retail investors last night? how many people felt that the markets would be lower one month from today outpaced the number of investors that the markets would be higher almost 5 to 1. a lot of retail investors think that a downturn is about to come and i think mike did a good job laying out how to buy some protection and how to choose a proxy for your protection. the one thing i want to add to that is around timing. because statistically, markets only move 5% lower in a month, typically only about 12% of the time so probability is not quite in your favor so we always advocate, when times are like this and things

are starting to turn around, but not quite getting ugly yet, it's time to sell cover calls, so you can generate a little bit of premium, and the other thing we also look at as an indicator for timing a particular hedge is vix futures. when vix futures goes into backwardation, that's usually a good sign that markets are stressed >> i know the viewers out there are avid fans of "fast money" as well as "options action," creator, so they probably caught your segment about the tech stocks flashing warning signs. but in a nutshell, carter, it doesn't look good for some of these big cap tech stocks. >> well, in the sense that you have the dual circumstances of being extended, overbrought, crowded, hysterical in many ways, and then you have now the facts coming out, so to speak. microsoft's earnings, whether you say they're good or bad,

there is no such thing as a good or bad earnings report there's only an earnings report, which is how the market reacts did the stock go down? it did facebook, netflix, look at intel. the point is that we are getting fundamental information from stocks that have the pre-condition of being very extended, priced for perfection. for the most part, amd was good, of course, but for the most part, the risk is to the down side >> up next, we are looking back on two of our open trades, where traders will tell you what they're doing next with them stick around we're "options action" coming up turn on my tv and boom, it's got all my favorite shows right there. 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...

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i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪ welcome back to "options action." time to take a look at a couple of our open trades just last week, cohen carter said we were living in a material world >> we are toying with the prospects of an important breakout-type move to new highs. that is not the case for financials or energy, or industrials. they are not at 52-week highs and they are not in this position >> when you're looking at trying to play for new breakouts in the index itself, you can keep the trade really simple. i was just looking out, in fact, to the september 62 calls. when i was looking at these earlier today, they were about $2.25. when we think about that, that's, you know, a relatively small percentage of how much xlb costs at this point. and that's really the key right

here >> well, gold crossed above $1,900 an ounce today. so carter and mike, what are you doing with this item carter, we'll start off with you what does this chart look like >> sure. i think the key here is in a very sort of sloppy week for the market, albeit markets only down 30 materials are up and it's tied to a handful of names. but what we do know is that precious metals, this week silver had its fourth biggest two-day move ever, going back to the history of the data. and gold just crossed over $1,900 an ounce. i think there's more to come and one wants to be long here versus not. >> mike? >> yeah, i think we stay with this trade we were able to get these calls relatively cheaply they're slightly higher now. this is the one space that definitely is, we've been beating the drum on repeatedly, seems to have some strength. so i would stay with it.

>> meantime, tony said opportunity was calling in t-mobile >> as we stare down 35 million unemployed people in this country, i think what we're going to see a lot more price sensitivity to your wireless carrier going forward. and this is something that t-mobile is not shy about going after both at&t and verizon customers and competing with them based on price alone. i'm going out to the august 7th, september 105/110 call diagonal, where i'm buying the september 105 calls for about $6.15. and i'm selling the august 7th 110 calls against that for about $1.92. >> well, tony, this is doing exactly what you wanted it to, so what do you do now? >> so at this point, we're still holding on to this call diagonal, as you said, as long as t-mobile stays around this particular price, especially below 110 below that august 7th exploration, i'm looking for that to roll off and sell

another one going forward and holding on to that september 105 call and potentially rolling that higher if the stock continues to move higher >> okay. up next, we've got some tweets that we'll hananswer ande final call i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. 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 except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪

♪ ♪ ♪ ♪ ♪ ♪ welcome back to "options action." we have got time for a tweet a viewer has a 151/170 bullish call spread on roku expiring on

august 20th. he asks, any thoughts. tony, any thoughts >> so i quite like roku here i think the chart is fairly constructive it's found a breakout above 150. it's consolidating there if you're establibullish, i wou on to a call like this through earnings >> twhat do you think of tony's chart work >> that's exactly right. in a week where this this is the kind of stock that might have been gone down substantially with other names of its ilk, it held in very well. there is a well-defined level from which the stock can break out here so a conventional buy juncture buy. >> it is time now for the final call, the last word from the options pits tony, what do you say? >> gray skies ahead for boeing sell a call credit spread. >> carter braxton werth? >> sherwin williams. i think it's a great way to play the housing theme. it's a stock that's at a

conventional buy juncture. the 600 level has authority. up and out and here. >> mike khouw? >> so i like call spreads to play sherwin williams into earnings for a stock that's obviously rallied quite sharply off the bottom and for those of you who have really benefitted from this strong rally we've seen in the tech names, maybe now you would consider hedge big september puts and schools >> that does it for us summer school's in session - [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.