if it doesn't sound good, stay away from it. there is no gold at the end of the rainbow. [ chuckles ] there is no money growing on trees. it simply doesn't exist. what is at the end of the rainbow and what does grow on trees are fraudsters. happy friday "options action fans" i'm melissa lee. we have a jam packed show. airline stocks hitting some turbulence this week the jets etf falling 8% but the chart master says buckle up. the etf is ready for takeoff he's got the charts to prove it. carter, take it away >> sure, you bet before we get to it, there's 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. as it gets darker and darker and people doubt them more and more

there is every possibility this is a time to take the road less traveled that's the point of this particular segment right now let's look at a few tables and charts so, what do we know? this was the hardest hit area of the market the peak to trough decline in the s&p, 35% restaurants down 45% airlines down 70% and then hotels, which also includes cruise ships, down 73% it's the epicenter of the pandemic the issue is that despite all that, we really haven't gotten worse since march. and that's an important circumstance look at slide two. here's the etf in question rather than taking the idiosyncratic risk to pick american airlines or delta or swefrkts there's an etf, it'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. a fairly well documented formation known as a double bottom now the fourth slide, second chart, final picture here, ever since that bottom, we've been basically holding. not getting worse. despite the news getting worse even the travel figures out from the tsa, the pass-through numbers are not improving and people are doubting if there ever is a future it's time to make a trade. we like jets on the long side. >> all right mike, what is the trade? if you can speak to the news we just got from american airlines in the past half hour that they'll tap the treasury loan program for $5.5 billion which is more than what many had

expected >> yeah, well, we really have two very recent bits of news in the airline sector the biggest constituents of the jets etf are the u.s. carriers, the largest of which is southwest, others including american, united and jetblue are also important constituents. probably collectively all of those stocks represent 40% so it doesn't surprise me. typically a good manager is going to go out and try to access as much liquidity in times of trouble as they can so i'm surprised that people are surprised by that. but there is some other underpinning fundamental management activity that could happen at the airlines that could, of course, take advantage if you will of this current situation. one of the things you have to deal with if you're an airline is the age of your fleet other airlines tend to be less efficient but when you are operating at full capacity you have to wait in line for new deliveries delta just announcing they intend to retire some aircraft early. the less efficient aircraft in

their fleet will be retired and they'll end up with more efficient aircraft going forward. one of the points carter was making about their weakness, we're seeing it in the options market a great deal of uncertainty priced in. there are also companies that may not have the same degree of uncertainty. i'm speaking of general dynamics and textron. the implied volatility in jets is 60% that's four times greater than it was before all of this. the average implied volatility going out three months was maybe 15% before this was a very stable index before also the low in jets, which was about $12. so the idea is, how do we get exposure to the near up side without getting exposure to the near down side with the etf trading around 16.71 i could trade the call risk spread reversal selling the 15 puts, buying the 17 calls selling the 20 strike calls in

november against it. net/nerk net/net, i'm not laying out or collect anything premium you get near-term exposure to the upside as soon as the etf is above the 17 strike call you get that participation. you could have the etf put to you at that $15 strike price that would be a decline of about 10% from where we closed today so you're not getting exposure to the near down side but exposure in the near upside. and if it continues to track sideways, the way it has been lately, what's going to happen is those wing options are going to decay a little more you may make a standstill rate of return if we don't get the momentum or it doesn't take off the way carter suggested it might. >> tony, what do you think of this trade >> so, i think this trade is a fairly opportunistic trade the tsa numbers haven't been particularly strong. pretty flat for the last three months if you look at the jets etf and four major constituents which make up 40% of the index, i

think the chart is fairly constructive jet just bounced off the $16 support level. you have southwest bouncing off $36. delta bouncing off the 30s american airlines, same -- very similar picture. when you have this type of setup, i like the attractive risk/reward ratio you have because you have a fair amount of upside. if the stock declines even a little bit i'd consider this thesis incorrect and get out of the trade. the only thing i want to point out about mike's trade which is a creative way to play for upside while limiting your down side, with the call spread risk reversal, even though you have down side protection to the $15 level at expiration, if the etf declines to the 15 level before expiration, you will have a paper loss and you'd have to hold a two expiration for the wing options to decay and for you to have a flat position. so that's one thing for investors who are trading the

strategy to be considering when executing this trade >> carter, you made clear there's a distinction between trading and investing. longer term beyond, say, november, the end of november, what does this chart look like >> well, here's the thing. now you are getting into what does matter. if you -- what do we hear numbers, 40 billion, 50 billion. value investing is not investing. it's speculating that's someone saying i can find something that's distressed that won't go out of business, decide the day that it's cheap enough but also decide when to get out. investing is long term in nature finding something that's a disruptor and is going to win over time. airlines are a commodity, a bad business and investing in them, no thanks. speculating on them, let's do it >> let's stick with the skies. 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 >> so salesforce, this stock is favored by almost every analyst on the street. it's hard to bet against but i think it's getting ahead of itself, especially after this last earnings report it's losing some relative strength there's a risk of this filling this gap down into the 218 level. if we first take a look at the weekly chart if you look at the stock itself, it's trading at 17% above the 20-week moving average. if you go back over the past five years, the peak that it's ever been highest is about 16% above that 20-week moving average. the average price of this stock is usually only trading about 4% above that 20-week moving average. so we're looking for a potential mean reversion here back into the 218 gap level. if we look at the daily chart, we've had those recent gap higher above into that 250 level on those earnings report the stock quickly reversed below the 250 level. it's started to come back below that and came to retest that 250

level this week as resistance and got rejected it's trading below its 20-day moving average and if you look at the relative strength of this stock, salesforce has been underperforming the technology sector since the beginning of 2019 this earnings report reversed that, but ever since the earnings report came out, relative strength has continued to decline i'm looking for, as we see rotation out of technology for salesforce to potentially weaken below that 250 level and continue moving lower. now the interesting thing about salesforce is the fact that the implied volatility right now on this stock is still extremely elevated currently trading bat 44% versus the implied volatile, was 40% before earnings. the trade structure i'm looking to use here is selling a call spread going out to the november 6 weekly expiration. selling the 245, 260 call spread collecting about $13.35 on that 245.

paying about 780 for the two 60s. collecting 5.55, which is about 37% of the width it's the gap price that i'm looking for salesforce to stay below before expiration. >> before we get mike's take on the trade, carter, your thoughts on the chart here. >> so just as described, you have a stock that gaps up on its earnings tony discussed that. and then ever since has been not necessarily faltering but has been slipping to the point where it calls into question whether that gap up wasn't just sort of the high for quite some time that they did everything they could do put up a great number and yet it was all priced in on that day. so gap fills are in a very important part of technical analysis, and the gap below looms. if you do draw a trend line from the march low and it's a very precise one, it comes into play exactly where a gap fill would come into play the level tony cited at 118.

218. mike, your thoughts? >> very 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. and we've seen that that obviously can be a weak place to be a lot of very good performing names are starting to run into resistance when evaluations are reaching the peak levels we've seen for everything options action, check out our website. optionsaction.cnbc.com here's what's coming up next >> coming up, a double down doubleheader khouw and carter of tag teaming a new nike trade following this week's blowout quarter how they're using options to score big. plus, calling all options actions fans reach into your pocket grab your phone and tweet us your question @optionsaction if it's nice, we'll answer it on air. when "options action" returns. ♪

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♪ ♪ welcome back to "options action." nike shares sprinting higher on the back of a blowout earnings report, the company crushing online sales estimates. if you caught the show last week, you'll remember mike khouw laying out 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. >> nike traded as 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. there may have been four or five quarters where we saw moves of

this magnitude or higher 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 had declined enough that year on year we saw decline. the company continues to operate spectacularly, but 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 if 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 november 115 puts -- excuse me, selling the november 115 puts and buying the january 120 puts in that trade you'll lay out about $4.75. the idea here 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 same thing if you're short the call spread. what we're looking for is the stock to 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. do you agree with that scenario? >> 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, meaning a lot of good news baked in. it turns out that bullishness was quite right. the stock puts up good numbers, the company, of course, and yet surges even further. and yet it's almost as if it's called an exhaustive gap it can't hit its landing after hitting an intraday high, it falters and it's been drifting down since, the past two, 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 low is -- the point from which we gapped up is 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 about this news announcement is the fact that sales were flat. they simply didn't decline as much as the market was expecting. you had several one-time items that boosted the bottom line here it's a similar setup to salesforce you have an exhaustion gap as carter stated and it's likely to fill that gap. i like mike's trade 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 think that's an inexpensive

way to play that 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 gap, you're likely to have that november option expire worthless and potentially 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 as nike is. next, we are taking your tweets send us your questions @optionsaction

we'll answer some of them on air. we'll be back right after this 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. ah, they're getting so smart. choose the app that fits your investing style. ♪

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because our customers love it. see for yourself, at carvana.com. 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." time to take your tweets our first viewer asks if it is worth buying walmart october 16, 145 calls. will the stock bounce back to the mid-140 range in the next few weeks. mike, what do you say? >> 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. right now the options market is implying there's probably a 20% chance or less that that trade is going to be profitable. in the money so you might if you are thinking about being in a bullish position in walmart, choose a strike 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. let me just say it that way. i think it got bid up too much on the tiktok news, and i think the upside is very muted >> our next viewer writes about boeing it closed near the high. it's still well below its downward sloping 200-day moving

average. does carter have any opinions on the technicals of boeing >> the answer lies in the segment we just did in jets. it's the same circumstance really in fact, boeing, while not an airline operator, of course an airline manufacturer, and it's correlated with airlines around a 78% basis over the last 12 months. bombed out, 75% decline from a 450 peak here it sits at 156. but it also has no love. it's very rare for the sell side community to have more sells holds than buys. this company has more holds and sells than buys. nobody likes it. i think you should speculate on the long side. >> so bad, it's good, as carter is known to say. >> i think so. >> 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 a 98 put call to open, a 128 tony, what are your thoughts here >> i think this is an interesting strategy where you've shorted 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. see how you can become a smarter investor with a personalized education from td ameritrade.

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♪ time now for the final call. the last word from the options pits carter braxton worth, what do you say? >> the center of the storm in the pandemic of course is travel, hospitality. you think you can speculate on airlines here via a good etf, jets and if one wants to pick a stock that's very 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 in nike post earnings so i like calendar spreads there. to follow up on the jets trade, use call spread risk reversal to take advantage of the high implied volatility >> that does it for us on "options action. we'll be back next friday at 5:30 "mad money" starts right now - [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.