happy friday we've got an exciting show for you today. here's what's coming up. >> like in the musical "oklahoma" home construction stocks should be singing everything's going my way. >> how clever. >> that doesn't mean the curtain won't fall at any moment carter worth takes the stage to explain. then gm got quite a shock after teaming up with nikola >> i really like this particular stock. >> but headlines aside, tony

zhang thinks this old school auto maker has a better grasp of the future than many give it credit for he'll show you how to plug in with the right circuit breaker. and in this market, elmer fudd might have said, be very quiet, i'm hunting yield but there's always a pesky welcome ba wab wabbit to beware of. the home construction trade on fire this year with both the xhb and itb up double digits the rally comes as mortgage rates hit new lows and home bound americans tackle home improvement projects carter, what are the charts telling you? >> well, the question is at some point is a lot or everything priced in.

it's been a great area obviously we know the story that's been in the news about refis and home improvement and we know the earnings have been great. but at some point sometimes an area of the market is full, is rich i think that's the premise here. let's look at a few charts the first is a two-panel all you're looking at is the home construction etf on the top. the bottom is relative performance to all consumer stocks, which of course all home builders are what you see, of course, is that the movers broke out to new highs. on a relative basis, they've yet to make it back to the january/february pre-pandemic high compared to the overall sector take a look at the second chart. this is the same two-panel chart, but just taken back a bit further. obviously what you see here is

just how poor, frankly, home builders are on a relative basis to consumer discretion, meaning, if one has a choice and a portfolio to buy nike or amazon, for instance, home builders, as good as they've been, they have underperformed their sector for quite some time. now the itb. here's a one-year chart. what we do know is we have a clear break in trend this is what's also going on whether it's in the qqq or the sox or a lot of themes in the market home builders up 23-24% year to date versus the s&p up only 3. yet they're starting to strug e struggle the betting here is that it's time to take profits if you're long or to put on a short if you're interested in acting on this judgment with new money.

>> mike, given those charts, what's the trade >> i mean, i think you have to think about the you want ifs here fundamentals a little bit. a good friend of mine was telling yesterday, you know, we were taught early don't fight the fed. when we look at the home building sector overall, valuations are getting pretty close to full here right now it's trading about 18 times earnings that's maybe only a 10% discount to the peak valuation multiples that we've seen. when we look at it that way, you could say this is a time to take profits. in the options market, implied volatility has fallen, but it has not fallen quite as much as realized volatility. when you're selling options premium, you're trying to collect the volatility risk premium. that is what we're trying to capture here i was taking a look at selling the october 48 xhb puts.

you could collect act 70 cents for those. and then buying the january 50 puts for about $3.20 net-net, that's a debit of $2.50. one of the questions we often get when you're buying a longer dated option and selling a shorter dated one at a different strike against it, how do we figure out which strike to sell? if i'm buying the january option and i'm expecting to hold this for one month, what is that option likely to look like at the expiration of the shorter dated option about one month away you can look at the december 50s and say which option would offset the decay i would be likely to experience as it turns out, the 48 strike puts and xhb in october would pretty much do a neat offset there. you'll s >> before we get to tony on the trade, i want to underscore the fact that the trade is an xhb

and carter's charting was an itb. carter, do those charts look as dire as itb? >> sure. the distinction here is that itb is dominated some 35% in two home builders. xhb is closer to an equal weight index. that is the difference but the charts are almost the same. >> tony, what do you think of this trade >> as mike said, i think we should look at the fundamentals here i laid out a trade a few weeks ago on home depot. the thesis behind it was how strong the home market has been. inventories are at decade lows you couple that with current mortgage rates and that's a strong combination for housing stocks while i agree the momentum has started to shift to the downside, if we look at housing it's providing quite a bit of defense. xhb has only been down about 4% this week, actually up significantly today while the

markets were flat. i'm not as bearish here on this particular sector, but i do like mike's trade here because even as the sector drifts sideways, he can still remain neutral on the sidelines with this particular trade i like the strike prices too the fact that he bought the $50 strike price, that means he's risking less capital and collecting a fair amount of premium. >> mike, last word >> those january options capture a lot of things that the october options will not, which is not just the last upcoming earnings we're seeing right now, but of course the ones they're going to be reporting in january and the election owning those january options but finding a way to finance them probably makes so sense. let's switch gears to the

aut autos. gm announced a $2 billion investment in nikola on monday both stocks floored it before being brought to a halt by hindenburg the company has dismissed the allegations but neither nikola nor gm have shaken it off just yet. tony, what's your take, what's your trade >> so as you said, there was a lot of news that drove volatility in both gm and nikola this week. i want to look past the noise here and take a look at gm's focus on their investment for the future and take advantage of this elevated volatility and perhaps harvest some of it using options. we start by looking at the gm chart. the stock is really underperformed the market for multiple years, but it recently broke out above that $30

resistance level on the news of this deal. it recently retreated back on the short seller piece back to that 30 level that's actually the attractive that i see for a long opportunity here, the fact that $30 has held whether or not nikola is a sham or not, i don't really have any insight into that, but i don't really see that as a long-term negative for nmgm's business. it speaks more to gm's investment into alternative power for their vehicles in the longer term. if we look at gm's portfolio for the next four years, their portfolio for electric vehicles is roughly double what their competitors are about to put out here for the next four years they're really focused on those high margin cars for their business this is one that i really quite like my view for gm is for the long-term. if nikola turns out to be a

success, i think gm is a safer way to play for that particular upside i like the stock in the long run and i want to utilize options here to take advantage of that elevated implied volatility. the trade structure i'm using here is going out to october i'm selling $30 put options that's collecting today about $1.55 or 5% of the underlying stock price. i'm able to purchase these stocks for an effective price of about $28. that's about a 10% discount from the price when the news of the deal was announced. >> mike khouw? >> i think tony's right about one thing. that is that obviously all of the news going on around nikola may have some impact on general motors but it's not the key story for general motors' success. put selling is really a good

investment strategy when you take a look at things that you can do recurrently to generate some yield and buy stocks that you want at lower prices obviously general motors has been trading at a discount for quite a while. they have a lot of debt, but at the moment they have sufficient cash to cover their needs. the put he's selling expires before the next time they announce earnings. i like the strategy. if i was forced to try to say would you rather nikola or general motors or tesla, general motors is probably the stock i would choose >> i'm excited to get carter's take if you take a look at the ten-year chart, gm shares are actually lower than they were ten years ago. >> that is the irony we're coming up on the ten-year anniversary of obviously the equity went to zero.

bailed out by the government it was november 17th, 2010, so in a month and a half it will be there. the ipo price was 33 on the news of the nikola partnership, the stock popped to 33 it's been a decade and think about with inflation i think it's a very defensive way to be bullish. if you're really bullish, you buy calls. selling the puts, i get it it's sort of a muted way to -- here's the thing, this is a long-term dud. >> oh, that's it so direct, carter. a long-term dud. okay we're going to leave it there. check out our website optio optionsaction @cnbc.com. >> when hunting for yield, make sure you don't accidentally shoot yourself in the foot professor mike khouw is bringing up the hounds to help you find a

better target. plus, areach into your pocket, grab your phone and tweet us your question @options dx actio question @optionsaction. ♪ ♪ ♪

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♪ ♪ ♪ ♪ welcome back to options action." in a world where a strike can sell off at any moment, can we at least get some yield, for crying out loud? unfortunately, the answer is largely no but if you find yourself yearning for that sweet, sweet yield, mike khouw has a trade

that could pay dividend. mike, take it away. >> this is a tough situation, obviously, for yield starved investors. they tend to scream for stocks that have high dividends if you're done anything like that, two names probably popped up on your list, at&t and verizon. at&t has a dividend yield north of 7% and verizon is north of 4%, all of that while a ten-year treasury is going to yield you about .66% you might be thinking this is a good opportunity to jump right in when you see high dividends like this and we've talked about this in the energy space, you should try to be a little bit skeptical. for one thing, are those dividends supported by the company's cash flow? and the other thing you should be keeping an eye on, is there any land mine that might be lying ahead? at&t specifically had targeted

reducing their net debt this year, down to about 2 1/2 times ebitda obviously with everything that has happened, they haven't been successful in doing that verizon, meanwhile, seems to have basically hit fewer snafus in the midst of all this they have slightly lower debt to ebitda ratios and it does seem like their plan is realistic going forward. investors could be looking to 5g that's obviously a potential growth area for both of these companies. if you're looking at using options, options obviously don't pay dividends but the price of dividends is incorporated into them if you're looking at verizon, you could look at selling the october 60 puts. you could collect about $1.80 for those. you're not going to get the

dividend, but the idea is instead you're going to be collecting it in the form of options premium. if you do have the stock put to you, you're going to get to own it at a slight discount. it was trading just under $60. effectively this is like owning the stock and selling the 60 call the reason i'm selling a put rather than buying calls on it is because the stock has already had quite a run. i think dan nathan was referring to that earlier in the week when looking at these companies this is a way you can look to collect some yield this is a relatively stable company here this is one of those investment strategies understand you have the stock puts you look to sell additional premium against it. >> tony, what do you think of this trade >> so out of the three telecom companies, at&t, verizon and t-mobile, i definitely like t-mobile the best. but as far as verizon goes, the chart itself is actually fairly constructive you have a breakout above that

$59 level. i think this is a good opportunity to potentially get long if we look at the stock itself, as mike said, debt and the dividend are well covered by cash flows we really have out of these three verizon is by far the highest margin of the three. arguably probably the most boring out of the three, which for this type of investment i think is a good thing. i like mike's trade because he's selling an in the money put here he has a higher probably of actually owning the stock and he's collecting about 3% of the stock price to sell this put option he's getting about a 3% discount on the potential stock purchase of verizon i like the stock long term and i like the trade itself. >> carter, what do you think about this run for verizon >> sure. obviously you're going to have muted returns in an area like utilities, which is essentially what it is on a total return basis, this has been a tremendous winner

versus the s&p long-term the issue for the stock right now on a long-term tentacle basis is it's just returned to its 1999 peak. in principle, this consolidation is healthy i think ultimately verizon breaks out to new highs, finally eclipsing its dotcom peak. we have a news alert here that we want to get to on merck. the company's covid vaccine candidate has begun testing in humans this is something we're clearly watching as the markets react. here it is, up .5% coming up next, shares of apple turn iing sour amid the th selloff this week. i have an idea for a trade. oh yeah, you going to place it?

not until i'm sure. why don't you call td ameritrade for a strategy gut check? 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. ♪ come on in, we're open. ♪ all we do is hand you the bag. simple. done. we adapt and we change. you know, you just figure it out. we've just been finding a way to keep on pushing. ♪

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shoots in terms of rotation into financials over the past couple of weeks t the thing is even though there's good value story here and even though i think the momentum is starting to turn in financials' favor, i think it's going to be a bit of a grind i was taking a look at xlf a 28 call spread, buying the october 6th, selling the october 28th. you could spend about a dollar to do that trade. >> the financials held up well compared to some of the other areas of the market this week. mike, what are you doing with this one >> the october calls we're short traded down to almost nothing and you could consider covering those. why be short in option at this level? i don't think it makes much sense. so i'd cover that. the reason we used calls was because we recognized there was some downside risk

i'd stay with the november calls. >> tony said it was too big to give up on big tech just yet. >> i believe this selloff is going to be contained here with the volatility we've seen over the past couple days if we look at apple, there's no question about the strength of this particular chart relative to the technology sector, relative to the market and arguably one of the stronger fundamental outlooks in the tech sector i'm looking to sell the 105 put vertical collecting act $8.60 for that 115 put net-net here i'm collecting $4.15. >> the trade is hanging in there by the skin of it teeth. tony, what are you doing now >> so admittedly i think i was probably a little weak early for this particular trade, but my original thesis that the selloff was going to be fairly

contained, that we weren't going to see further acceleration to the downside, i think, still holds, especially with the qs closing above 270 today. the fact this this trade hasn't hit any of my stop loss targets yet, i think it's time to hold onto this. if apple breaks below 110 next week, i think it's time to cut losses. >> apple is down more than 7% this week, carter. so where do you see it going >> i think in this instance there is more downside risk. it's so popular, it was bid up so much. it did have the split that drew in so many more and incremental people i think the risk is still to the downside 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.

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♪ ♪ ♪ time for some tweets what spreads would you use in an iron condor for tesla exspiring the friday of battery day? mike >> the immediate options that expire thereafter are the ones that expire on september 25th. this is a volatile stock when you are selling iron condors, look to sell strikes that are about 30 delta on the call side and the foot sidput se

then you just get some outside wing options to cover that. final call, carter >> itb or xhb, short. >>on ty? >> look past my mission is simple, to make you money i'm here to level the playing 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 cramerica other people want to make friends, i'm trying to make you money. my job is to train, educate and teach you. call me or tweet me @jimcramer whatever you do, don't ask this market to make up its mind tech looked incredibly strong from get-go, too strong from the punching and that's what