happy friday i'm melissa lee. we have a jam packed show. airline stocks hitting some turbulence this week the chartmaster says buckle up, the etf is ready for takeoff he's got the charts to prove it. >> this is an important thing to say, there's a difference between investing and trading, right? it's not about how much debt they have. it's not about whether they make

it or go bankrupt. if you want to invest in airlines, i'm not with you but there is a trade prospect. there is every possibility this is the time to take the road less travels that's the point of this particular segment right now let's look at a few tables and charts we know this was the hardest hit area of the market you can see the decline in the s&p, down 35%, restaurants down 45, airlines down 70 and hotels and cruise ships down 73 it's the epicenter of the pandemic the issue is that despite all that, we really haven't gotten there since march. that's an important circumstance look at slide two. here's the etf in question rather than taking the idiosyncratic risk to put american airlines or delta or southwest, here's jets

it's the global airline industry in fact, it's 39 stocks. it's not just u.s. carriers. a total of 1.5 trillion in market cap take a look at the first of two charts here is the plunge, of course. after bottoming in march with all equities, you get a nice ricochet and unlike the market, the airline group went back in may and tested that march low. now final picture here, ever since that bottom, we have been basically holding, not getting worse despite the news getting worse. even the travel figures up from the tsa, the numbers are not improving. people are doubting if there ever is a future it's time to make a trade. we like jets from the long side. >> mike, what is the trade

the news from american airlines in the last half hour is they will in fact tap the treasury loan program for $5.5 billion. >> we really have two recent bits of news in the airline sector the biggest constituents of the jets etf are the u.s. carriers, the largest is swept there a southwest. it doesn't surprise me typically if a good manager is going to go out and access liquidity in times of trouble. i'm surprised people are surprised by that. there is some underpinning fundamental management activity that could happen at the airlines that could take advantage of this current situation. one of the things you obviously have to deal with if you're an airline is the age of your fleet. when you're operating e ining a

capacity, you have to wait in line for new deliveries. delta announcing they intend to retire some aircraft early that means the less efficient aircraft in their fleet are going to be retired and they're going to end up with more efficient aircraft going forward. there's a great deal of uncertainty priced in despite the fact that there are also companies in here that might not have the same degree of uncertainty. i'm speaking of general dynamics and tech fund which are also consistency with the etf the average implied volatility was maybe 15% before this was a very stable index before now the low we saw in jets which was about $12. how do we get exposure to the upside without getting exposure to the downside?

i could trade the 15, 17, 20 buy the 15 puts, selling the 17 calls, selling the 20 strike calls against it net-net i'm not laying out or correcting any pre inin ining a. that would be a decline of about 10% from where we closed today you're not getting exposure for that near downside but you have getting exposure on the near upside if it continues to track sideways, what's going to happen is those wing options are going to decay a little bit more you might make a standstill rate of return if it doesn't take off. >> tony, what do you think of this trade >> i this this trade is a fairly opportunistic trade.

if you look at the jets etf and the four major constituents, i think the chart is fairly constructive you have southwest bouncing off 36, den that bouncing off the 30s, american airlines, very similar picture. when you have this setup, what i like about this is just the attractive risk/reward ratio that you have. you have a fair amount of upside here, while if the stock declines a little bit, i would consider this thesis incorrect and get out of the trade the thing i want to point out about mike's trade which is a creative way to play for upside while limiting your downside is the fact with the risk reversal like this, even though you have downside protection down to the $15 level at expiration, if the etf declines to that 15 level before expiration, you will have a paper loss and you will have to hold the two expirations in

order for the wing options to decay and for you to have a flat position that is one thing for investors trading the strategy to be considering when they're executing the strategy. >> carter, you made clear and so did tony, in fact, that there's a distinction between trading and investing. the end of november, what does this chart look like >> here's the thing. now you're getting into what does matter. that's not investing value investing is actually not investing. it's speculating someone could say i could find something that's distressed, decide the day it's cheap enough and also decide when to get out. airlines are a commodity investing in them, no thanks speculating on them, let's do it

>> let's talk about the cloud now. salesforce is down more than 14% after hitting a record high earlier this month tony thinks there are more gray skies ahead for this stock what's the trade >> salesforce is favored by almost every analyst on the street it's hard to bet against but i think it's getting a little bit ahead of itself especially after this last earnings report. i think there's a risk of filling this gap down into that 218 level. if you look at the stock itself, it's currently trading at 17% above the 20-week moving average. if you go back over the past five years, the peak at its highest is about 16% above that 20-day mov 20-week moving average i think we're looking back into that 218 gap level if question look at the daily chart, we've had this recent gap higher above into that 250 level on that earnings report.

the stock quickly reversed below that 250 level and has really started to come back below that. it came to retest that 250 level this week as resistance and got rejected it's trading below its 20-day moving average more importantly, if you look at the relative strength of the stock, salesforce has been outperforming the technology sector since the beginning of 2019 this earnings report reversed that, but ever since the earnings report came out, the relative strength has continued to decline as we see a bit of rotation out of technology for salesforce to weaken below that 250 level and continue moving lower. the interesting thing about salesforce is the fact that the implied volatility right now in this stock is still extremely elevated, currently trading at about 44%. the implied volatility was 40% before earnings. so the trade structure i'm looking to use is selling a call spread i'm going out to the november 6

weekly expiration and selling the 245-260 call spread, collecting about $13 on that 245, paying about 7.80 for the 260, collecting a total of 5.55 which is about 37% of the width here my break even is at 250, which is that gap priece that i'm looking for salesforce to stay below before expiration. >> carter, i wanted to get your thoughts on the chart here. >> as described, you have a stock that gaps up on its earnings then ever since has been not necessarily faltering but has been slipping to the point where it calls into question whether that gap wasn't just sort of the high for quite some time gap fills are a very important part of technical analysis and the gap below looms. if you do draw a trend line from

the march low, it comes into play exactly where a gap fill could come into play at 218. >> mike, your thoughts >> quickly, the deal here is essentially that what we're seeing is a good performing company but the stock price is largely a function of expanding multiples. we've seen that can be a weak place to be. a lot of good performing names are starting to run into resistance when the valuations are reaching the peak levels over the last decade >> announcer: coming up, a double down double header. khouw and carter are tag teaming a new nike trade following this week's blowout quarter they're using options to score big. plus, calling all options action fans, reach into your pocket, grab your phone and tweet us yourueio qstns @optionsaction.

if it's nice, we'll answer it on air when "options action" returns. ♪ ♪

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♪ ♪ ♪ nike shares sprinting higher on the back of a blowout earnings report, the company crushing online sales estimates. you'll remember mike khouw laying out a trade capturing this exact scenario. >> as we go into earnings, this is a stock that has typically moved about 4.7% over the last eight quarters right now the options market is implying a significantly bigger move, 7.3% or so how if you own the stock are you

going to take advantage of the fact that the options premiums are high and the valuation and the stock price are also high? it's really one of the most basic strategies that we encourage for people just starting out with options. that is to sell covered calls. if you own nike stock right now, you could take a look at selling some calls in october. i was looking at you could sell some calls for about $3.60, the 120 strike calls in october. when you do that, you're basically taking advantage of the fact that the options premiums are elevated and you're going to collect that premium and you still have a little bit of upside. >> the nike traded has high as $128 a share this week mike, walk us through this one. >> this is an interesting situation. obviously if you're selling calls against stock that you own, you do want the stock to go up of course, because you own it but you're not making the bet it's going to blow right through the strike of the call you sold. that's exactly what happened

here this is one of the larger upside moves we've seen in the last decade plus in nike. this was a pretty extraordinary upside blowout result. the one thing i would point out for people who are holding the stock here, the valuations are at the highest levels we have seen in nike since basically 1990 we're going back decades now even in the 1999 stock level didn't see valuations as high as the ones we have right now those earnings, good as they were, it was basically digital sales doing it because brick and mortar hat declined enough that year on year we saw decline. with valuations here and seeing how the stock traded afterwards, notice that after it gapped up, we didn't see continued strength even as the market did relatively well, the stock did not. it feels like we're running into a little bit of resistance and trouble and in fact those 120

calls that we sold are only worth a couple of bucks more than when we did so originally if you're in that position, i think you're fine with it. bear in mind, you should cover those calls before expiration i they're still in the money you're going to collect another 2% in premium or thereabouts if you don't have a position, how you take advantage of a more morabund situation, i was looking at a calendar diagonal specifically i was looking at buying the novemb i selling the november 115 puts and buying the november 120 put. the idea is that the stock is probably going to trade a little bit sideways as it tries to figure out maybe it even fills that gap that we had on earnings we'll obviously have to get carter's point of view on that we're looking for the stock to basically move a little bit

sideways because it didn't really have continued strength after we saw that big gap on earnings. >> moribund is a very carter braxton worth word. >> i like that one that's exactly what i think is coming let's say it this way. the sequencing is important. you have a stock that's very strong, up 20% before its earnings with a lot of good things baked in. it turns oh ut that bullishness was quite right. the stock surges yet even further. yet it's like it can't stick its landing after hitting the high today of 130, it falters. it's been down since the past two or three sessions. we just looked at the prospect of a gap fill in salesforce.

tony clearly outlined that that's what you have here. in a way we know that what is the news that would make a new high now that's out of the way. and we also know that our holows another reference point. so moribund is exactly what's likely, basically a stock that trades between 125 and 115 for weeks and weeks and weeks. >> tony, what do you think of this assessment of nike's future and what do you think of mike's trade specifically >> i think the important thing is sales were flat they simply didn't decline as much as the market auz ewas expecting. it's a similar setup to salesforce i think it's likely to fill that gap. i like mike's trade here because you're only risking about 3.8% it's being a little tactical

here trying to get nike to fill that gap and you're only risking 3.8% of the underlying stock price. i specifically like mike's november 115 strike. he's using technical analysis to choose that strike price, which is roughly about a 30 delta, the same type of strike price we would normally sell but being tactical for november so, if it does fill that go, you're likely to have that november option expire worthless and potentially you have the option to sell more puts again to lower the cost of that long put. >> last word to you, mike. >> i think there are other things to contemplate here of course, when we are thinking about what the next potential catalyst would be, obviously we have the year-end shopping season would partially be part of that. we're going to have another earnings season when the next quarter rolls off. november isn't going to capture those things we have strength in some of these higher flying names that are trading at higher multiples.

i think it's risky to chase those names even if they are companies being operated as well ne is. next, we are taking your tweets send us your questions @options questions @optionsaction 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. ♪

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." our first viewer asks if it is

worth buying walmart mike >> so i like walmart a lot i actually think that kind of like nike, the company is finally making some traction on the digital side, on the grocery side the valuation isn't extraordinarily high where a lot of other companies are those options are exceptionally cheap right now. they're about 90 cents but they're cheap for a reason you're only giving yourself about three weeks to expiration. the market is em plying there's probably a 20% chance or less that trade is going to be profitable you might choose a strike that's a little closer to at the money and a little bit further out in time. >> how does this chart look, carter >> i think the high is in for walmart. i think it got up too much on the tiktok news and i think the

upside is very muted. >> our next viewer rightwrites t boeing carter >> the answer lies in the segment we just did on jets. it's the same circumstance really in fact, boeing, while not an airline operator, of course an airline manufacturer, it's correlated with airlines 75% decline from a 450 peak here it sits at 156 it also has no love. it's very rare for the community to have more sells and hoholds n buys this is a company that has more holds than sells and buys. no one likes it. i think you should speculate on the long side. >> so bad, it's good, as carter

is known to say. our next viewer has an idea for an apple trade that expires ahead of earnings. he says he's happy to be long on $100 a share here's the trade tony, what are your thoughts here >> i think this is an interesting strategy where you'vee eed a straddle but long on the call option. i'd sell about a 35 delta on both sides and i would look at buying a call option just outside of that 35 delta to the upside. up next, the 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.

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i feel hopeful about the future now. ♪ time now for the final call. the last word from the options pit. carter braxton worth, what do you say? >> the center of the storm in the pandemic of course is travel, hospitality. you can speculate on airlines here via a good etf, jets. if one wants to pick a stock that's similar, boeing also on the long side. >> tony zhang? >> salesforce gapped up to that 250 level here on earnings it's now trading below that both on an absolute and relative basis. i'm looking for salesforce to fill this gap down to the 218

level. i'm looking to sell a call credit spread to take advantage of that downside move. >> mike khouw? >> i think that the near term highs are in nike post earnings so i like calendar spreads there. to follow up on the jets trade, use callprri sead sk reversal to take advantage of the high implied volatility field for all investors. there's always a bull market somewhere and i promise to help you find it. kw "mad money" starts now hey, i'm cramer, welcome to "mad money. welcome to cramerica other people want to make money, you my job is to entertain and teach you. call me or tweet me @jimcramer we're almost done with this heinous month and it can't end soon