they couldn't look at themselves in the mirror ever and say, "i'm a good person, i'm a good father, i'm a good brother, i'm a good whatever." they were just bad people. ♪ happy friday, "options action" fans we've got a great show lined up. here's what's coming up. >> ahoy. watch out for the lbatross carter worth explains why one might heed the warning of the rhyme of the ancient mariner. then, what's the dill yeo with twilio. isn't that what the kids say tony zheng knows, and he's going to break it down into options terms you can understand. and professor khouw is traiting his calculator for a

combine to explain how and why this could be the season to sow a plan around adm. it's time to risk less and make more "options action" starts right now. let's jump right in. another huge slate of earnings coming up this coming week including tech titans facebook, amazon, apple, microsoft, and. take it away. >> it was a big week in terms of earnings, but there is sark. the five biggest names are all reporting on the same calendar week now, the daily goes back, of course, to facebook's ipo, but if you were to look at the three other times when this has happened, apple, microsoft, amazon, google, and facebook, all reporting in the same week, it's been a down event in any event, let's look at the table and the chart of qqq

what we know, of course, the market itself is so dependent on tech and/or growth look at the first bullet point that i have for you. basically when tech is down, the s&p itself is down 80% of the time look at the second bullet point. when the s&p 500 growth index picks up -- now we're picking up amazon, google, and facebook, when the s&p growth index -- that's a subindex of the s&p is down, the s&p itself is down, you see it right there on your screen, 93% of the time. so much hinges on just these big names. now, take a look at the chart of the qqq. so what we know is it peaked on september 2nd. it's the area that broke the hardest, dropping almost 15% versus the s&p down only 10%,

10.5%. and really ever since then, its relative performance has been quite poor so the question is are these names having been so much ahead of the market for so long and now having stalled on a relative basis also all reporting in the same week and the little bit of stats would suggest it's uninspiring. is it a time to be cautious on these large names? the thinking is less. >> so given that, mike, what is the trade? >> yeah. so this is an interesting situation. obviously as carter was pointing out, the biggest stocks represent nearly half of the qqq. actually to get to half, you would need to add tesla, which is another stock that's already reported, and basically the street has absorbed that in a fairly ho-hum kind of way. the stock hasn't performed particularly well since then here's something else to think about. these stocks are all trading essentially close to ten-year highs in terms of valuation.

we're talk 35 times earnings for microsoft, 35 times earnings for apping, maybe for google if we're going to use the acronym then, of course, you take a look at the options prices. earnings is one reason the election is clearly another. and threaten are some stories involved with some of the other names as well. google and anti-trust concerns some of those things will add to the price of options i think the way you'll play these, if you hold the stocks, if you own them, you own some of these. understanding there's probably going to be an increase in correlation as well. you probably will need put spreads to deal with the higher spread volatility. i was looking specifically out to december. that's going to keep some premium because it's going to capture the election as well the december 275 put spread when i was looking at that earlier today, you can spend 11 bucks,

sell the two 50s against it for 4.5, net/net, you're going to be spending a relatively small amount in term of the current qs this isn't the bet where it's going to roll over and we're going to swoon this year obviously it's seeing exhaustion in the markets and the valuations, understanding that some of the headwinds might persist after the earnings it's hard for me to see these names breaking out, obviously despite stocks going up. the value bakes a lot of that good news in already. >> yeah, mike. interesting. if you take a look at facebook as well as alphabet, they had huge weeks which might help going into this particular trade going into next week in that they might have pulled forward the gains already based on snaps earnings tony, what do you make of the action and mike's trade specifically >> yeah. so if you look at qqq, which

tracks the nasdaq 100 index, this week it held a major support level at 282 if you look at the price action, i think it's been fairly construction active for tin dex to hold this level but the one catalyst i'm more concerned about outside of the earnings next week is actually the potential of a contested election, and i think that's the type of catalyst that could drive shares down 57, %, 10% take a very cheap way to buy yourself some downside protection all the way down to that 250 level, which is about 12.5% downside protection, only costing you 1.5% of the ets value. >> mike, last thought on the quick trade here >> yeah. one other thing i would also add f you're like tony, maybe less concerned about what's going up and you want to buy this protection, you can also take

advantage of the volatilities by selling upside calls a lot of these names are trading very close to their high level, so you can still give yourself some upsigned helpbasically finance the hedge this way. shares of twill owe are up more than 200% on the year tony said the cloud stock could have a chance to soar next week. tony, what do you say? >> yeah, exactly like you said the stop is up over 200% so far this year. i think there'sfurther upside going into next week twill o twill owe is not necessarily a household name they add growth here they've made smart strategic acquisitions that have allowed them to project another 30%

year-over-year growth over the next four years. so a substantial amount of growth for the company is expected over the next half a decade here or so. and if you look at the thwart itself, you have a recent breakout here above the 290 resistant level. it's come back to retest that level of support and is continuing higher. when you couple that with the strong strength and the technology sector, not only is it outperforming the technology sector but the cloud computing index, which is up 80% on the year itself. when you couple the strong relative strength with that chart, you have a strong setup going into earnings. so the trade setup i have is taking into account the implied volatilities here. the stock itself averages about a 13.6% move on earnings, while the current markets are only implying an 8% move here the implied volatility is very expensive. i'm using the call debit spread

to offset the high implied volatility and i'm trying to induce that by using an in-the-money call option here. paying about $21.40 for that $300 call option, collecting about $8.50. it puts my break even price at just about $313, just shy of that, which is only about a $7 or $8 move to the upside or $2.5 upside i'm expect on a strong earnings play to make that break-even level by a substantial margin. >> carter, how does that zone in on tony's trade? >> it was october 1st, a thursday, analyst day, and the company came out and remarkably pledged revenue growth of 30% in each year for the next four

years. this is a powerful kind of setup. stocks that gap up often gap again. i would want to be long, not short. >> mike, what do you think of the trade? >> i'm in. the situation here is that this is obviously a story stock as much as anything i like the fact if you're going to make a bullish play, you're going to do it in a more idiosyncratic situation. obviously it's a growth story. the other thing i like is options while not that high going into the ee rent are not high relative to the kinds of movies we have seen historically that's the time you want to look at using options, when you have these types of stocks and can buy the options at a reasonable price relevant to historic price. i like the trade structure. >> all right we're going to head to break don't forget, check out

optionsaction@cnbc.com don't forget to sign up. here's what's coming up next hold on to your hay bales. old mcdonald has a barn, but a strategy on adm. who do you think will have a more bountiful harvest betting the farm plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us your questi question @optionsaction. ♪ ♪

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welcome back if you caught the show, you will remember that the professor found a way to get bearish on bonds. >> one of the things we see is prices are quite relative. if we take a look at the spread between the price for options going out three months or so and how volatile it has been, the spread is quite wide we can interpret this one of two ways i think the options market is telling us there is some danger ahead for people who hold long-term u.s. treasuries. i was looking out to january you could spend $2.50 for that notice the tlt doesn't move a great deal, but sometimes when it started to move, then the move can be quite aggressive.

>> well, that turned out to be a very good trade. rates have skyrocketed since then, hitting their highest levels in four months. mike is back with a way to try for bigger gains mike >> yep if you follow us on twitter, and you should, you will know we did an update on this trade. we offered two ways to spread it one was to sell the january puts, you are essentially in the trade for free and the other way was to sell the december 4th weekly 155 for $2.50, and you would be in the calendar spread for no money basically if you're putting it on the calendar spread, you're looking for a total of 20 basis points that carter was talking about. so i think this is two ways you can spread >> believe it or not, that's not all mike has to offer. the professor has another thing to offer for this rate rebound

mike, back over to you. >> yeah. i mean obviously if you notice, we have a bearish trade on tech and a bearish trade on long-term bonds. you might think i'm bearish on everything, but not necessarily. agricultural stock adn has a strong balance sheet and obviously a stable business. and a lot of bad stuff has already been priced in, like, of course, ethanol has been hurt by falling fuel prices. we do have a slightly attractive volatility level this is a name we can take advantage of to the upside of course, the stock is breaking out to new highs for the year. i think the way we want to flay this is with a call spread i was looking out to january this is slightly in the money because the stock was under $52 when i looked at it. you could buy it for $3.50 and

sell against it for 65 cents notice there is only about a dollar in the money and i am offsetting more than a third of that this is a way we can make a hedge bet to the upside, mitigate some of the decay, and take advantage of one of the few stocks trading at a very high multiple right now. >> all right, mike we've got to go to carter. what do the charts look like on the adm, carter? >> sure. when we discussed this earlier, there were a couple of things that set up well first, look what the grains and salts are doing, sugar, corn, wheat, cotton all up between 15% and 30% over the past three months second slide, take a look, of course, by contradistinction and look what the market has done, nowhere near as interesting. look at copper and oil that means the first are up by

25%. doubling, tripling other asset classes. to the charts. the first is a compare active chart. what's so interesting is the performance of caterpillar versus archer daniels. they're in lockstep. they are correlated. we know that a lot of c.a.t.'s business comes from land-moving business and to some extent a.g. i have added john deere. it has already broken out. we think it leads the way for both c.a.t. and archer daniels so archer daniels the up and out good up trend. what is not to like? now where are we back to >> exactly back to the 2018 high circle that and you see the arrow implying breaking out. the more authority a level has, the more authoritative the resolution

final chart. this level play has not been in play since 2018, yes, but all the way back to 2013 and '14 so a breakout here, and we think that's what is going to happen deere has already done it. archer daniels is a powerful thing. we think grains are telling us that is what will happen >> tony, what do you think >> if you look at archer daniels on paper, it looks foreign it doesn't have a lot of revenue growth, operates on thin margins, but it has a strong track record of beating earnings and raising dividends for the last 45 years. so when you put that into context in the breakout of the $511 level carter was referring to and the fact that it's outperforming its sector, i think it trades at a reasonable multiple of 15 times next year's

earnings it will be a slow grind, but that's what i like about mike's trade here that's the type of money you would use on a slow grind. the stock doesn't have to move much for the strategy to break even so i like the stock and i like the trade itself. >> carter, i'm just curious going back to the comparative charts do you think caterpillar is also due for some sort of a breakout? >> and it has earnings next week as well. i do >> got an answer coming up, snap, crackle, and pop. great news for one of our traders. we will be back after this 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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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. ♪ wks back to "options action." time to look back on a trade that tony hit out of the park. we've gotten a recent breakout above this 26.5 you couple that with the strong strength we have seen in snap chat i think this puts snapchat well into targeting 29.5, which is an

all-time high. paying net/net here, about $1.25. >> that turned it into solid gold the stock soared to an all time high tony, how do you manage this one? >> yeah. so this is one that even beat my expectations here, but when you use a debit spread like this and it blows through, it's best to take profits here. earlier you could have closed this out at about $3.90, pretty much the full value of the vertical spread that would be 200% on this trade. if you missed out on snap, i think pinterest is another one that could be on the upside. >> what does the chart look like to you, carter, snap

>> what's remarkable is when you do gap up, right, you get cheaper. it's something that's count counterintuiti counterintuitive, but it means that such big news has been releas released, fda approval, indictment, gapped down. obviously it's not priced through. there's no follow-through. in this case there's been a massive follow-through in this case, you want to harvest gains an find the next one. perhaps twilio or some other objective. >> up next, tweets and 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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♪ ♪ ♪ ♪ ♪ ♪ welcome back time to take some of your tweets our first viewer asks -- tony

why don't you field this one >> yeah. so i like the thesis on this particular trade biden has put together an infrastructure spending plan that includes solar. he has a climate change plan that i think is construction active for this type of thesis the thing i have to say is the butterfly is an interesting way to play it, risking only 1% of the underlying ets value, but i would give yourself a little more time than just four days past the election to make this play final call carter braxton worth >> short bonds playing for higher rates and archer daniels or caterpillar on the long side. >> tony zheng. >> i like the cloud computing name twilio.

looking to buy a november called vertigo. >> mike khouw. >> put spreads in the cue and call spreads in the earnings >> have a great weekend. see you back here next week. meantime don't go anywhere "mad money" with jim kramer starts right now - [narrator] 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,