okay? tony: absolutely. lemonis: okay, buddy. tony: thanks, man. lemonis: good luck to you. tony: be well. thank you. lemonis: i thought giving him his dignity and respect may be the thing that he actually needs more than anything. happy friday everybody it's time for "options action. i'm not melissa lee. i'm brian sul vachblt here's what's on deck. don't let this fry your charge controller. carter worth thinks tex la stock is about to shift into neutral. then everyone is also getting amped up about tesla's stock splichlt's not the first company to do so or the last and there's a ton of corporate actions that could impact anybody's stock.

professor cho has a lesson on "options action." plus, hold onto your hammers. home depot already reported earnings, but that's not stopping tony from building a trade right now. time to risk less and make more. "options action"s starts right now. >> risk less, make more. sounds pretty good let ee get right to it okay it has been an electric year for tesla and its investors. the stock rallying again stored. it's up nearly 400% in 2020. pandemic be darned it's more than walmart the chart master says it may be time to pump the brakes on this red-hot stock. carter, take it away. >> you bet a phenom it's epic. but there are sequencing patterns with any assent or

descent, ade skren desce descent, and that's what we're looking at it was exactly a decade ago, june, 2010 no judgments, annotations by me. take a look at the second chart. basically after the ipo in 2010, you have a dormant period, right, where the stock between 2011 and 2012 doesn't do anything, and then basically it goes on a 10x move you can see that there then sideways again and another 10x move take a look at the third chart where i put those numbers in basically ipo at $17, but essentially after the ipoquiess.

then 2015 to 2019, a lot of volatility, but making no net progress and then here in the past year, similar to the one-year ten-bagger in 2013, we see again a 10-bagger. in this case 210 to todays 2100. any given time where a stock has the potential to go up, down, our sideways, you want to tag what's likely. it leaves with sideways or down. i've written in dormant with a question mark. are we now entering the next phase where it has to catch up with its valuation so two more slides take a look at the fourth.

it's a slide if incredibly one had put $10,000 into its ipo, a whopping 1.2 million that's nifty and then to put that in comparison, look here if one had put 10,000 since tesla's ipo in other marquis names. netflix would turn it at 10,000. almost a 3-bagger. amazon, 180, apple, 130. not bad. 10,000 to 130, but notice la in any event, the thinking here is it's a bit hot. dormancy, sideways. >> amazing first off, 10 grand into 1.2 something million, unbelievable. you think maybe the stock will be the same way. mike cho, what's the code now on

tesla. >> it's interesting the setup because if you take a look at how options are currently priced, they're not expecting a dorm management period to put things in perspective, it's about 80% if we think about it, that means the options market sim plying the stock could be higher or lower by about 20% in a month, a little over 30% in a quarter and somewhere in the neighborhood of over a 12-month period that it could swing 50%, 60% or so the options market is expecting big moves while the tech jipt might be suggesting this run is over one of the things that does is when options premiums gets this expensive, it's a nice opportunity presumably to sell premiums we're talking pretty chunky prices we're going out to september i was looking at the 2250, 2300 call spread. so for a stock that is over

$2,000 as of today's closing prices, a spread that's only $50 wide is relatively small still big compared to most stocks but small compared to tesla's price. selling a share would collect about $15. we're trying to take advantage of the option prices being elevated i think most of the fundamental stories we might talk about with tesla while very interesting haven't really proven to have a big impact on the share prices historically it's trade 2g 50 times earnings. people are concerned about regulatory emissions credits they get, about $1.5 billion a year, which is what the company is expected approximately to earn i don't think that's what's driving the stock price, but if you're inclined to basically hit the pause button, that call spread is a way to collect a

little bit of the premium. >> tony, what's your throughout on the tesla, how to make the money in the mike trade? >> so i really like this particular trade first of all, i really like carter's chart setup projecting up. but if you apply it, you'll see the same pattern during june, tesla traded to the 1750 level consolidated to another level we're currently trading at i like this as a high light of how technical analysis is an investment people can use. there's no indication when it's going to pause its current rally. if you look at mike's trade, it's, from my perspective, a perfect trade from a technical analysis perspective where you're expecting the stock

to trade sideways, perhaps a little lower, perhaps a little higher because i feel so strongly about the technical levels here, i would get more aggressive on the strike prices. know why mike chose a $250 price. having that type of buffer makes a lot of sense, but, again, because i feel so strongly about the technical levels, i would be getting more aggressive. i would like at the 2100, 2150 credit spread that will collect around $19.30, which is 4% of the width it does have a little bit of a lower probability for a profit but it has a lower risk ratio, which is almost 3-1 on mike's credit spread. >> a good in-depth look at tesla. all right.

why don't we switch gears. housing market is going through the roof if it sounds like a big number, 24%, it is the biggest monthly gain ever on record it's the latest bullish sign for the builders, the xhe home builder up 24% if you missed out, fear not. tony's got a way you can still build a winning trade out of it. take it away, tony. >> yeah. i want to skmor this fundamental shift away from travel and entertainment into home improvement and furniture, and i specifically want to take a look at the extremely strong housing numbers and how that translates into what i think is a very strong q2 into what could be a stronger q3 and second half for names like home depot. now, if we look at the chart itself, home depot, it's a

strong bullish chart, but what i particularly like about this current trade is earnings knock the stock down a little bit, which for me is a long entrance point. if we look at the fundamentals, the fundamental backdrop is extremely strong housing, i just reported earlier this month, month over month, 18% in june. it's one of the economic bright spots we currently see if we look at baerng of america's recent survey on working from home, prior to covid-19, only 5% worked from home currently that sit s at 45% that has huge ramifications for home improvement spending, furniture spending, and home depot sits in this category. if we couple that with mortgage rates prior to covid, we're looking at 3.7%.

now 3.1% you take all of these things this translates into what is a seismic shift in terms of how consumers spend specifically in this category, and home depot is a net beneficiary of this. the trade i'm looking to make here is going out to the 20k9 22nd i'm collecting about 925 on that 277.5 and paying about $3.35 for that 262.5, that $15-wide credit spread i'm collecting almost 39% of the width here and if home depot stays where it is is and starts to collect higher, i'll collect more. if it ends up between the two strikes, i'll end up owning home depot at $271.

worst-case scenario, if home depot falls apart, i'm only risking 3%. >> mike khouw, your take on tony's home depot trade. >> first of all, i love home depot as a company obviously we have greater transparency now that they've already reported earnings. that's a plus. the trade structure he's talking about makes a lot of sense when you consider they're about 50% higher than they were at the beginning of the year. the interesting backstory is that home depot shares actually are not as volatile as the options market is implying that suggests that they're slightly overpriced. that's when you want to do things like sell credit spreads like he's doing here because that catalyst has already come and gone, we're not really expecting something that could move the stock sharply against you in this case.

>> carter? >> you know, homebuilders this year for the first time got above their housing bubble peak in 205 we just cleared a high with home depot. it's part of that theme, stay long, be long. >> carter, thank you for everything all right. for everything "options action," check out our website optionsaction.cnbc.com while you're there, sign up for the newsletter here's what's coming up next >> coming up, tesla splits, apple splits, banana splits. mm no matter the name or type, the options market can help you dig in without belly aching. professor khouw explains plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us your

question @"options action. if it's nice, we'll answer it on air when "options action" returns. nutes until we board. nutes 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. ah, they're getting so smart. choose the app that fits your investing style. ♪

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♪ ♪ ♪ ♪ ♪ hi welcome back to "options action." in case you have not heard tesla is headed for splitsville. that's right, come next month a five for one stock split kicks underway smart viewer, you know what that means for the stock. but what exactly happens to your options when a stock splits? it's a great question. professor mike khouw knows and he's got some answers in his "call to action. >> okay. so, yeah, obviously $2,000 per share, oftentimes when you see share prices get as high as what

we have right now, you see stocks split tesla is going to be splitting at the end of the month, august 31st what do you have to do nothing. this is going to happen automatically. for every one share that you own when the split takes place, you will then own five shares. is that going to result in a windfall profit? no because when that happens the share price is also going to get divided by five. if you owned one share for $2,000, now you're going to own five shares valued at $400 so what does this mean, though, if you own options something similar happens there, for example forecast you owned one 2000 strike all option, now you're going to own five $400 strike call options. basically instead of one call on 100 shares, five calls on 100 shares each or 500 shares. if you owned a 2100 strike call that cost about $170 now, post

split you're going to own five of the 420 strike calls valued at about $34 in both cases you would need the stock price to rise 8% before you would see profits. so you will see more contracts in your account or you will see more shares in your account. other than that, it won't be very much. it will be a good thing for investors too because the high share price can sometimes be a barrier to entry both for options and for stock, and that's going to come down. >> learning something every day. love that. tony, your thoughts. >> it's a non-event here, but what we have seen is when a stock announces a stock split, there's usual lie a 3% to 5% move over a one week period on a stock split and 7% on the negative movement. there is some movement here. because of the invent of

fractional shares and etf investing, stocks have really stopped splitting over the last decade or so the average s&p stock has gone from $50 a share to $147 a share. because you have so few stock splits here, the few that we have seen like apple and tesla have seen significant outperformance, 10% for apple, 35% for tesla. but, you know, as mike said -- as mike laid out, those are the changes for a retail investor. the other thing is if you had 25 shares of apple or 20 shares of tesla, you now will have 100 shares after the stock split which means now you can sell a covered call on those names that you couldn't do before because each of those calls represents 100 shares those are some of the things on retail but the big story, i think, is apple. apple is the number one name in the dow. you're going to see some rebalancing flows here to sell apple for portfolio managers trying to rebalance to the index. >> it's like virtual learning and i'm the one doing the learning

carter worth, let's go around the world. top it off >> the history of stock splits is because the sell side wants to be able to share more shares. commissions are based on number of shares traded warren buffett never split his stock for that very reason since new york stock exchange began, average price of stocks are about $40. once they go up, double, triple, they split it. that is why stocks are split >> really good lesson there on stock splits and how they pertain to options up next, one chip stock ripping higher this week on its earnings we're going to tell you why that may be great news for one of your traders tonight. plus, we're taking your tweets sends your question questions @optionsaction on the twitter. we'll answer some of your questions on air we're back right after this. ♪

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♪ ♪ we've got to step out of "options action" for a moment. we have some breaking news in d.c. >> reporter: that's right. the president has just lost another battle in the war over his tax returns. a federal appeals court has denied an emergency stay request that the president's lawyers have put in to stop the disclosure of his tax returns in that ongoing court fight the appeals court now denying that stay request. what this sets up is arguments

for a stay pending appeal on september 1st. briefs will be filed in this next week. so the fight goes on, but this is a defeat for the president' side in trying to keep those tax returns private and out of the hands of the manhattan d.a brian, back over to you. >> another loss for the president there. we'll be right back to "options action" right after this gy gut ? what's that? you run it by an expert, you talk about the risk and potential profit and loss. could've used that before i hired my interior decorator. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪

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all right. welcome back to "options action." time now to take a look back at a couple of our own trades tony expressed some caution optimism heading into nvidia's earnings. >> there's no hiding behind the fact that nvidia trades at a very rich valuation, a very large premium to its peers at about 56 times next year's earnings so, as optimistic i might be on this particular stock, i do think it's fairly valued and i think there's a somewhat limited upside so, the trade structure i'm looking at to use here reflects that i'm going out to september and i'm selling the 450-415 put spread collecting about $22 selling the september 450s net-net here i'm collecting about a $12 credit >> well, that delivers it. tony, what are you doing now >> yeah.

so, nvidia did report stronger than expected earnings but the stock did open substantially higher on monday than when we reported this on friday you probably collected closer to about $10.50 but you could have closed this out today at about $3.60. you're looking at about a 65% gain if you closed it out today. about two weeks back mike laid out a way to play alibaba into earnings. watch. >> this is a stock where the street is overwhelmingly bullish. and, of course, this is one of those reasons why if you happen to own the stock, you might be thinking going into earnings, am i really well positioned here. is there another way i could play it that might have at least a little bit less downside if earnings are disappointing and still give me the upside i think there's a way to play this i was taking a look out to september, and specifically i was looking at the 235-260-285

call spread risk reversal. what's going on here we're buying the september 260 calls, selling the 285 calls and the 235 puts >> all right so baba did jump baon the back f strong results mike, how are you playing this now? >> putting this trade on we collected about $1 i would close the 235 puts and roll the 260 calls up to 270 net/net, i'm going to collec about another $8 which means i'm going to have collected about a total of $9 on this trade andly still own the 270-280 stock spread so if the stock continues to strengthen, i still have an opportunity to profit even further. okay final call carter >> tesla touched 2100 today. take measures. >> tony. >> i see a seismic shift in consumer spending habits toward home improvement sell the put credit spread here on home depot. >> mike.

>> sell credit spreads in tesla. >> all right good stuff, guys really educational and informative with profitable trades that does it for us here at "options action. we'll be back here next friday at 5:00 p.m. eastern don't go anywhere. summer school starts right now - [announcer] the following is a paid "special report" presented by national debt relief. - hi, i'm craig wollman, and welcome to a "special report: the debt crisis". now tell me if you can relate to this. you do your best to never miss a payment on your credit card bills. you think you're doing everything right. but somehow it seems like your balance never goes down. you work hard, and you pay on time, yet you still find yourself in debt. perhaps your debt slowly crept up on you. maybe it started with a divorce. maybe you were hurt in an accident and are now paying medical expenses.