happy friday we have a big show lined up for you. here's what we've got on deck. >> breakouts and backhoes. carter worth is cracking open his copy of the farmer's almanac to explain why there could soon be a bountiful harvest for deere. then it's not the one that supplies food or the one that things about underwear it's the tech giant cisco.

plus, the original story of alibaba is one of both greed and redemption right now the same could be said about the internet stock mike khouw explains how to avoid the fees it's time to risk less and make more "options action" starts right now. let's get right to it. it's been a wild ride for the markets since the march bottom but gold and silver seeing big gains as some investors fly to safety could now be the time to take a harder look at the soft commodities? carter, what are you looking at? >> it's true it's been very dynamic for precious metals. crude went negative, negative almost $40 a barrel, then bounced back other industrial commodities like copper, as you said, are in

play if indeed there's a recovery the grains a little bit weak, soybeans, corn, wheat. sugar has been strong, coffee. the first chart is a broad commodity soft index it's a disaster. essentially down to the right, an unmitigated mess. we've just broken above the established down trend line in effect for essentially five or seven years. the top panel is the softs index. on the bottom is the relative performance of the soft commodities to all commodities, the bottom panel relative to a broad basket of commodities. what we do know is even as the

softs were continuing to make new absolute lows, the relative performance has been basically improving versus all commodities for the better part of the year. now the third slide, it's just a table but i point out that we've heard from major agriculture stocks and their earnings have been very good this is a stacking of the past two months' performance. agco up 26 you see cf up 18, fmc up 14.5. then there's the s&p up 11 these stocks are actually outperforming even though commodities have for a long time been under pressure. two charts to end it the first is a chart of fmc. you can see the well-defined tops of the past year.

and the stock is just now breaking out inze indeed they reported earnings this past week and the numbers were very good the final chart, john deere, it's the exact same setup. it's what's known as a generally agreed upon. this is a set up that we look for and then we look for the catalyst we know earnings coming up in the next two weeks john deere chose eclosed out at $183.50. i think it's going to 200. >> mike, what's the trade? >> deere is an interesting trade. this is one that saw a lot of analysts downgrades.

de the tractor fleet is aging rates are relatively low if you start to see a bid for commodity prices, that's usually supportive for tractor purchases in the ag space. combine that with the fact they just recently reinstituted guidance perhaps the analysts are trailing this. that's borne out by the fact that the analyst price target is 1 170. it closed above 183 today. they're going to report earnings on august 21st i think what we want to do is try to sell that elevated option stream we think it's poised to break out but of course the markets are trading very close to all-time highs here.

sell the august 195 calls against the spread net-net i'm spending $5.65, a little over 3% of the current stock price. the idea is to collect some of the decay in the near dated options. if it does not go above that 195 price, you have an opportunity to roll into a vertical spread as well. we're trying not to reach out and buy stocks trading close to their all-time highs >> what do you think, tony >> i quite like this setup john deere is a name that's not on every investor's radar because it doesn't dominate like the tech headlines what i like most about it is really the recent relative strength we've seen on the stock as it broke out above that 180

level. mike's trade structure of the day makes a lot of sense going into that earnings announcement. normally a stock like john deere i would get a little bit more aggressive and sell maybe the 190 calls. the fact that you have this really strong relative strength and earnings coming up on this new breakout, i do like it and i think mike's trade at adjustment up to that 195 strike, a little more conservative, is very smart. >> what do you think of tony's more aggressive approach >> it's aggressive in one sense but it's less aggressive in another which is that obviously would be basically not giving room to the upside i think carter's price target is closer to 200 usually up 7-10% or so. obviously you don't want to have a situation where it blows through your short strike. that's a situation where you got the trade direction wrong.

>> carter, last thoughts on this >> no one's looking at it. that's not to say there aren't major shareholders in john deere but it's under the radar so to speak. the earnings train keeps on trucking next week tony zang says there's one stock that could surge higher on results. >> i'm looking at cisco. just like john deere it's one of those names that's not on most investor's radars because it's not one of the fang names. it currently trades at a very reasonable valuation and it's recently made some strategic acquisitions here in the cloud security business. i think that 2020 is going to be a turn-around year for cisco

especially after yurnunde underg so strongly over the past year it's actually had some poor relative strength over the past year but it's traded itself into a bit of a wedge here. i think the earnings catalyst next week is what takes cisco to break out above this $48 level it's currently trading if you couple that with strong revisions going into the earnings announcement, that's what i'm typically looking for for a potential beat here. the options market are implying only about a 5.8% move while on average over the last four quarters it's moved about 7.4% the market is not expecting a big move here but i am looking for that breakout on the earnings catalyst. using a trade structure that's specifically designed to capture a potential breakout but with a small amount of risk the trade i'm looking to do is

to use a september 47.50-52.50 call spread correcti icollectin cents. key here is to risk as small amount of money as possible in relation to the stock price. >> mike, what do you think of this trade >> we often talk about the implied move around earnings, how much does the stock move the day after their report or the week they report of course tony is using a call spread that expires in september. a more relevant metric might be how much cisco moves in the month following their earnings report they actually move quite a lot on average, about 9% if you can make a directional

bet that's going to capture most of that move for about 3% of the stock price even if it's a coin toss, that means the options math is kind of working for you here i think he's taking advantage of the options market i'll leave it to others to decide whether the term s technical setup is the right one. >> go ahead, carter. >> sometimes stocks are where they belong. they don't always have to be moving up or down. it's news that resolve the standoff this is a case of equilibrium. no one has the ball. what's interesting is that the analyst community basically doesn't like it. you're talking about a price

target 12 months forward that's only $2 higher if the stock holds at $47 and they're looking at $49 for the next 12 months, that's pretty uninspiring. of the 3015 , 15 or buys and 15r holds. only 5% of stocks are given a sell rating. so if you get 15 that are saying buy and 15 that are saying hold/sell and the price target is only $2 higher, no one really likes it and that is the perspective opportunity. >> i quite like cisco here because of the fact they recently made these acquisitions in the cloud security business that is really one segment of the business that is growing strongly that is what i really like about the turn-around story here for 2020. >> check out our website opti s

optionsaction.cnbc.com. coming up, open says a mike. professor ci professor khouw will light you way through the dark cave that is trading in alibaba now. plus, reach into your pocket and tweet us your question at options action if it's nice, we'll answer it on air. this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. 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. ♪

♪ ♪ welcome back to options action check out this slate of chinese internet names getting hammers today, this after president trump issued an executive order

aiming to shot down tiktok and wechat many of these names are still among the year's big winners in tech including alibaba, up more than 20% mike >> baba is one of these interesting cases. today wasn't a great day for the stock but this is a stock that is trading about 10% higher than its january highs, in fact right now going into earnings perhaps unsurprisingly, options premiums are slightly elevated one thing i would point out, we were talking about deere, the analysts getting caught off sides there, maybe in cisco evenly matched between the bulls and bears. that's not the case for baba this is overwhelmingly bullish if you happen to own the stock you might be thinking going into

earnings am i really well-positioned here is there another way to play it with less downside if earnings are disappointing and still get a bit of the upside. i was looking at the 235-260-285 call spread risk reversal. we're buying the september 260 call, selling the 285 call and selling the puts you'd collect about a dollar in premium to do that what's going to happen here is if the stock happens to rally through that lower strike, obviously we get upside from 260 up to 285. because we're collecting that dha dollar the total profits would be about $26 to the downside if the stock is put to us at that 235 strike, we're going to own it at 234 that is right about those highs we saw back in january effectively it would be as if the year hasn't happened in that situation. how much could the stock move

between when they report earnings and that september expiration or what happens if it doesn't move at all? well, if it doesn't move at all, those 235 puts and the 285 calls are going to decay more than the call that you own. you might actually collect more than a dollar if the stock trends sideways. you have less downside risk if earnings are disappointing if the stock stays put you're going to collect a little bit of premium. the stock is about $250 so if you're collecting $2 net when you close this position out if the stock goes sideways you're about 1% of the stock price. it's not a huge amount but over the coarse urse of one month itt bad either. >> i like the stock a lot because it's very similar to amazon the cloud business is growing very fast. the revenue growth numbers are off the chart. i like the stock itself.

mike has a very creative trade structure to play for upside my only concern is really the geopolitical risk between the u.s. and china and what impact that has on stocks like alibaba. the trade structure i like, but the only part i'm concerned about is selling that 235 put. i prefer to buy the 260-285 call spread that mike suggested that costs about 8 bubcks. that's only about 3% of the stock price. i'd like to take this bullish bet risking 3% and not take the downside of geopolitical risks. >> mike? >> i think for people who don't own the stock already, that's a pretty good way to play it i'm thinking about an alternative to that long stock

position going into earnings if that's the case, this does reduce your risk does it reduce that risk considerably no it reduces that risk somewhat modestly i took a look at how the stock has behaved out of earnings. probably it outperforms a long only equity position by about 10 or 15% over the entire course of the history there. you know, not selling that put obviously reduces your risk but it also means something has to happen whereas if you sell the put, you collect some premiums. really this is more a judgment for each individual trader to decide how much risk they're willing to take. >> carter? >> there's two types of weakness in today's age, weakness to take advantage of and weakness to stay away from if you have a stock that's an unrelenting down trend and has a horrible day down 6, 7, 10%,

that's reason to stay away from. by comparison, this is a strong stock that is down on news frankly, 6% is not a lot i think if the news were really troubled, it would be 16 or more, that kind of thing i think it goes into the category of weakness to take advantage of i'm a buyer of baba. we're taking your tweets send us your questions at options action it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya.

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on the upside i think that's waterproof. maybe not... ♪ just last week tony said disney would need to pull a rabbit out of its hat to avoid an earnings disappointment. >> we know there's going to be a significant decline from theme park revenue we know the media and studio division is going to be relatively soft. then you have the disney plus side which we know is the only part of this business that is growing. the numbers for q-2 haven't looked particularly attractive here going out to august, i'm buying the 115-105 put vertical here, paying about $3.85 for the august put and collecting 90 cents for the august 105 put. >> as it turns out, disney had

just enough magic left in it to surprise to the upside. >> this trade didn't work out, obviously. we cut losses as we put out the tweet here on wednesday. but the most important thing to remember is as an investor you're always going to have trades that don't work out this is a trade structure that only risks 2.5% of the underlying stock price in terms of risk on this particular trade. this is a prime example of how you can utilize options to keep risks low. >> uber shares might hit the brakes after earnings. >> one of the things you look at are ways you can capitalize on the elevated options premium and take a neutral to bearish view i was looking at selling a call spread, specifically the august

30.50-31.50 call spread. i can collect about 40 cents on that strike. >> the stock is sitting outside the green. mike, what do you do >> that's exactly right. we got the thesis on earnings correct. of course the stock rallied about 10% going into the print the thing is it seemed to trade very poorly today. i usually don't like to cover a situation like this until about three days afterwards. we're going to close this trade at the end of tuesday, win or lose right now you're synthetically long i thinking the position is probably okay for the next two days but we'll probably close it tuesday afternoon or wednesday morning. >> uber, carter? >> it remains widely long. that leaves us with nothing. stick with the short ♪ ♪

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♪ ♪ ♪ ♪ time now for the final call. carter braxton worth >> john deere buying ahead of earnings, the chart is excellent. we're going long. >> tony zang. >> cisco networks, buying a call vertical >> michael khouw >> i like diagonals going into deere earnings following carter's technical setup. >> that does it for us here on

"options action. we'll be back here next friday at 5:30 p.m. don't go anywhere. a very special program "summer school, back in session. that's up next good evening and happy friday jim cramer and mad money back on monday we're here tonight to talk about trading stocks we've been flooded with your questions answering them tonight. here is the stock market's report card. the dow jumped 2.5% for the s&p and same for the nasdaq, the small caps and russell 2,000 up a whopping 6%. with me tonight is the coolest guy on wall street, cnbc josh brown, the ceo of hous