that got addicted to the medication, the drug, and began selling it, because at the end of the day, if you want to get high, you're gonna get high. happy friday i am tyler in for melissa lee. we have a great show lined up for you tonight. and here's ha's coming up. >> perhaps you are feeling a little stressed out this week? not to worry, a call on health care that could help ease your anxiety. then, as if we haven't all been inundated enough, tony has a utilities play that could turn on the water works, so to speak, but in a good way. plus, even when other battles end, you still can't fight the fed.

as they say. so professor coe has another shield to protect yourself with. "options action" starts right now. >> let's make more let's get right to it. despite everything that has been happening, what a week it has been health care has been flat lining for much of the year but carter thinks it's time to yell clear as the sector could soon get shocked back to life carter, you are a doctor you, too, have charts. your prognosis >> let's see what it is. a couple of tables and charts. the first. what we know is sometimes one day says a lot what was the best performing sector the day after election day? health care. are there reasons for that sure

maybe because obamacare is less under pressure maybe there will be less regulatory pressures for drug stocks but this week it's the second best performing sector only to tech take a look at the next table. is it a good sector? of all sectors, it has the strongest top line growth of all sectors in the past three years. revenue growth is 29%. how about valuation? look at the next table health care right now is its cheapest valuation to the s&p in five years in fact the trailing pe, can you see it on the screen 21.8, versus the s&p, 27.2 what you have before you is a two-panel chart. this is data going back to 1989. that is the health care sector on the top on the bottom is the sector's

relative performance to the s&p. you can see that the sector has been underperforming since about 2015 hence the five-year cheapness on the pe but most important, every time we have come down to that trend line, it has bounced to the penny. we are bouncing literally this week off that line and finally, the etf we could use to trade, this is the simple chart of the xlv it has the classic breakout candidates you can see it is making new 52-week highs where the s&p is not. this is the second biggest sector in the market by weight at 14% and it's diverse with biotech. which is aggressive. you have devices, managed care, life sciences, tools

it's a good place to be. it's an offense-defense trade. xlv. >> you make a compelling case for it how would you put those facts to work, professor? how do you trade it? >> i think a lot of the things carter was pointing out was important considerations a lot of times in a sector you feel like you don't have sufficient sigh diversification. you have growth opportunity in the area of biotech. we were talking about biogen in the last half hour and it was disappointing news, but this is only about 1 1/2% of xlv, but you have diversecation you don't have head winds that could affect other areas of the market

like consumer discretionary for example. one of the things i was taking a look at, options price have come in considerably since election day, but they still remain elevated in many cases they are elevated in xlv this is one instance tha i think this is a case where it's well justified. what we have seen since the election is that sharp move. even though options prices aren't as cheap as i would like, i would like to be net long options. and i think we can do this with a very simple trade. i was looking to january sometimes due to various actions with securities, you're going to get these odd-looking strikes, but that is strike that expires in january when i was looking at it earlier today it was trading at about $2.10. may be a little lower so 2 bucks. here is the thing, the idea is

if you get the move in your favorite direction, then we may sell an outside call or a nearer dated call against it. that's one way we should be taking advantage of the momentum we are seeing in the sector right now. >> tony, when i see the phrase as i did just there, profit potential unlimited, i like it do you like it, tony >> yeah, so i actually quite like this trade. first of all, if you look at the health care sector, it was one of the strongest off the march lows, but it lost steam about mid april because it has underperformed the market pretty much since then. but as carter showed, since the election, we have seen this break out on an absolute basis i do think it's constructive specifically when you look at the valuations, that is from my perspective, quite attractive. but ha what i specifically like

here is mike's trade mike has chosen to go out to january. the first out of the money strike price is quite far out of the money, about a 35 delta. the 114.33 strike price. for me i usually wouldn't pick something that far out of the money but that was the first strike price he could choose he is only risking a little under 2% to take this bullish bet. when you use such a low delta call option here, what you have is a relatively low probability of success trade but the tradeoff here is the fact that you have very low risk and an extremely attractive reward-risk ratio if you get the breakout on xlv. >> carter, what do you think on what you just heard? >> i like it all 3-0, all on board. >> one, two, three let's move on to another sector of the market. usually thought of as more boring, among them a large

volume of rushing water, and the fed, but tony has a way to keep you flowing with both. you have some water for us >> yeah, tyler, like you said, >> utility is usually considered a boring sector. but we have seen a bit of slow rotation into utilities. i want to use american water works as a way to potentially play for the upside into the rotation that we see int utilities. if we look at xlu which is the etf that tracks the utility sector, we had a range bound between april and october but broke out above the $63 level. if you look at xlu on a relative basis to the s&p 500, it has been underperforming the recent breakout is coupled with outperformance. i like this. xlu has been outperforming the market during an environment where interest rates have been

rising which is generally speaking a head wind for this sector. i am fairly constructive here on the rotation we are seeing into utilities. now if we look at american water works which is one of the stronger names in this sector, this stock also broke out above that 150 left at the same time xlu broke out above its range, and it's come back to retest that level as support. no only do you have a breakout on an absolute basis but american waterworks continuing to outperform the sector itself. you have american water works continuing to outperform the sector itself. so the stock is outperforming the sector which is bullish in any trade i look for the trade setup is taking advantage of the facts of implied volatility on american water works is quite cheap currently trading about 13% of its rank over the past two weeks. so the trade setup that i'm

using is going out to january. i am paying about $6.40, for the 160 call collecting about $1.25 for that sell call. so that's all i am risking looking for the upside in the january expiration >> very interesting, mike khouw, what do you think of that trade, how would you trade it >> i think i would use the same structure. a couple of things i like about it oftentimes in utilities we are talking about fairly safe and stable stocks. we don't mind being long in a stock. this is a stock that has moved sharply off the marked lows. it's up over 65% off those

marlow march lows and has good movement as tony is eluding to he also implied volatility is low. that's why he was probably willing to use a debit spread. the situation you want to look at, if you see low volatility that's a reason to buy, and if you see it lower, as in this case, you might look for situations where you can spread. because we have relatively low realized volatility, he has given himself sufficient time. that's a good setup if you are playing a bullish bet on this particular name. >> carter, do you like this or would you do something different? >> no, no, i do. first of all, it's a great chart. in my case it's less about the sector utilities just on september 1st made a ten-year relative low to the s&p. american water works is in a way not a utility. what is the best performing utility this week?

american water works how about the last year, two years -- awk this is really about idiosyncratic growth here if you will i think it continues but that's about the sector. >> less about the sector and more about the company as you call it. kind of an idiosyncratic play within the sector. thank you. you can check out our website. "options action".cnbc.com. while you are there sign up for our newsletter here is what is coming up next -- >> announcer: only one is all-powell-ful professor mike khouw has hit yet another bunker when you can't fight the fed plus, calling op options action. grab your phone and tweet us

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♪ ♪ ♪ ♪ ♪ welcome back good to be with you on a friday evening at the end of a busy week silver is not just for 25th anniversaries and dinnerware, it can be a great shield against rates. carter, let's start with you

talk us through some silver. >> you bet a couple charts. the first one is the past year what we know, of course, on the pandemic low, the slv was down at 11, $11 an ounce it comes to life with equities with the general market, and you can see the huge run with the august high about 27, or thereabouts about 150% advance the giveback annotated on the chart, down to 21. that's a 25% sell-off. so up 150, down 25%. now it's starting to come to life one way to show that coming to life look at the next chart whether you call this a wedge or a triangle, it doesn't matter what you call it, equilibrium, a standoff, a debate being resolved to the upside

you can see the arrow i've drawn. these are converging trendlines and we are breaking out to the upside where could we go? it's tomorrow's launch going way out there in the future. going back to the 2011 high at 50 you can see in context the longer term, we have this powerful move. we were as low as $10 or $11 a ounce in silver come surging to life and we are in this consolidation phase which looks like it will be resolved to the upside and i think dramatically so >> how would you hammer out a trade? >> so let's just take a look he was pointing out some longer-term charts i'm looking forward and backwards two or three months. looking backwards two months, we

saw slv just above the $26 level, around $27, the highs we saw in late august since that point it fell where did it go? roughly $22. where are we now in the middle. just about 24. right now we're seeing very elevated options premium in slv due to the volatility that we've seen i think we could take advantage of that. i was looking at selling the january put. you could collect $2.10. the idea here is that i am comfortable owning slv i do own it myself if it goes below that, you are going to own it. but where are you going to own it just below 22. even if it trades sideways, essentially almost 9%-ish, and it might bump into, in the near term, resistance if it gets back to the levels

from whence it came. again we will be collecting about as much by selling the puts i think we can take advantage of the elevated options premium and sell some options. and here, i'm comfortable owning slv if it does drop. >> all right, tony, how does that strike you? >> i think gold and silver are two metals i have been paying attention to a lot of investors are paying attention to this week carter and mike brought it up last week through gdx. i think this is another way to get into gold and silver the thing about gold and silver, it's consolidated, as carter said, over the past couple months we recently had this breakout and that's constructive for continuation higher. and if you look at gold and silver, the two are very highly correlated the correlation is about 93% the difference between gld and slv is the fact that gld trades about 7 times the price as slv

which means, if you're selling an at the money put option, your margin requirement or cash requirement is only about $2200 per contract but to do the same thing on gld would cost you $17,000 so for those investors who have a smaller account or want the ability to be more flexible on sizing, slv could be a better opportunity. and also, the yes, ma'implied vy of slv is more than double that of gld so you are collecting almost 9% of the value on slv, where if you did the same on gld, you are only collecting 3% so down the line you could purchase call options if you saw acceleration to the upside i like the thesis. i think slv will break out above

this $24 level if you look at the chart. so i like how mike is being really aggressive by selling the in the money puts. >> thanks. up next, check out shares of wayfair. how this work from home winner is paying off. and send us your tweets and we will answer some of them we're right back 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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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 time to look back at some of our open trades. last week tony said wayfair was set to be a big work from home winner >> i really like way fair going into earnings next week. i think that it sits at th intersection of e-commerce and the shift in terms of spending for home inprochlt i am going out to december and collecting about 12.50 in credit >> boy, was tony right wayfair taking off since the time of that trade tony, a great call what do you do now

>> so wayfair reported fairly strong earnings across the board. both top line and bottom line. gross margins came in better than expected about 30%. customer growth also coming in fairly strong. when you have a put spread like this, earlier today you could buy it back for about $2.90. which represents about 75% of the max profit with 42 days to go, this is time to take profit and move onto the next trade >> move on to the next one mike khouw, what do you think? >> absolutely. when you have taken most of the reward relative to the risk, that becomes asymmetric against you if you don't i agree with tony. you know, this is definitely a situation where you should take the money and move on. >> take the money and run. thanks, guys 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.

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and welcome back to "options action." time to take your tweets the first question -- what' the impact of the vix on things like leaps. mike, explain it to us >> when you are talking about the vix index, what you are looking at is the implied volatility over the next 30 days, very near term when you look at leaps, those are long-term options. the volatility of volatility is relatively low so the short answer is short-dated volatility doesn't really have a big impact on long-term volatility let's go onto the final call about 30 seconds carter >> health care long and silver long for health care use slv

for silver bullion use slv >> tony, you next. >> playing the rotation into utilities of american water works, buying in january with a debit spread >> xlv called. >> thanks, everybody, for watching we will be back next friday. don't go anywhere. "mad money" 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,