shook my hand. so i'm gonna put a lien on the building, and i'm gonna do whatever it takes to get my money back, make no mistake about it. it's time for "options action." we have a great show prepaired for you. here's what's coming up. >> announcer: if you're new here tonight, a big welcome to you. for a variety of reasons, interest in options trading is exploding. this game can get very complicated very quickly but if you are ready to take it to the next level, this is the place to be. if you are a regular viewer, you know there's always something in the show for everyone. tonight, the volatility mystery from the future. two opposing ways to play the semisector, and how to keep digging when at the end of a mine

it's time to risk less to make more "options action" starts now. >> well, as we just mentioned, interests in options trading seems to keep growing by the day. so bob pisani has some interesting color on at least part of the reason why hi, bob >> good to see you options trading has become the new sports betting millions staying at home have discovered trading and it's spawned a huge sub in tandem with an increase i equity trading showing no signs of letting up. the trends are amazing. trading in equity options hit new highs in november continuing a trend that began earlier in the year equity options trading is 50% above last year's levels year-to-date on all of the options platforms. much of the activity has occurred in out of the money call options with much of it in day trading. in other words, buying in the morning and getting out in the afternoon. analysts say that might make some sense

for example, if you're a retail trader and only have a limited amount of money to invest, buying cheap options at, say, $1 or $2, may make more sense than buying a tesla or amazon or apple and moving that through the day. if the stock moves 5%, the value may also move a similar percent so you can make the same percentage with much less outlay of capital now, importantly, what could go wrong? everybody saying what could go wrong? the markets have been in an up trend. if that reverses, this type of trading will not be profitable there's also, by the way, melissa, considerable speculation that this kind of day trading may have a limited shelf life regardless of the market trends. many doing this now are younger and may have to start paying back student loans soon. for example. and when you will -- and when the pandemic is over, those staying at home will probably go

back to work but it's certainly a lot of fun seeing all of this retail activity melissa, back to you >> great that so many out there are participating in the market, that's for sure. thank you, bob pisani. it also seems dangerous. what are the thoughts on the surge that we're seeing, mike? >> we actually talked about some of this type of flow earlier when we saw this earnings disappointment and there was a lot of activity as people were buying these short-dated calls after the stock fell, they were paying about $2.50. a lot of people made multiples of their money within a day. but you could potentially lose everything you are betting if you are making those short directional bets of course, as bob was rightly pointing out, when people are going to work usually you're not day trading from your desk. you can do that from home, perhaps, but not there the good news is, people are

becoming more about the options. ultimately i think volumes will stay more elevated now that there are more market participants. >> we have seen trends that were already in place prior to the pandemic really take hold during the pandemic, tony this is probably one as well. we have already seen an explosion in interest in the options market and activity. tony >> oh, sorry yeah. this is very interesting because sports betting and options trading are actually quite similar in nature if you look at the way that sportsbooks - >> i think we are having problems with tony >> -- out of the money in call options are really -- are -- is really far out in the money call options are -- can you hear me >> yes we gotcha. >> sorry so these are more like lottery tickets than binary events which most sports bettors are used to.

so the one thing i will point out here is these short dated call options are reall unsubstantial in the long run. if people are looking to build a portfolio, i recommend they actually watch shows like "options action," because the type of trades we highlight here are typically a lot of spreads, which tend to be more binary-type outcomes tha sports bettors are more used to rather than the lottery tickets. >> carter, words of advice to the newbies out there? >> we heard what bob said, it's all done in one day, in and out. that's high stakes poker, speaking of gambling so do it the "options action" way. a little more time and thought >> if you are new to the game, there are more tactics you can employ, for example, hedges, what better place to start carter, set us up with this. >> right so the thinking here is that a little too hot a little too crowded a little too popular, a little too far above trend. look at the first chart.

this is simply three comparative lines. you are looking at the stocks index. tech sector and s&p. here we have stocks up year-to-date 51, tech up 37 and the s&p up 15. basically three-fold increas over the general market. what about the chart itself? next chart sox itself just a steadily orderly uptrend. yet the trend line, pretty far above trend. take a look at the next chart. put it in a channel. we're at top of the channel. doesn't mean this has to crash just means if you're long it's time for reducing exposure and for new money, a short final chart. this channel is not the one-year chart, just looking at this is the entire bull market since the '09 low. what you can see is, like a pinball, we have bounced within this range as we've ascended and now we've come out through the top of the range extended, crowded, far along, take measures. >> all right so, mike, what's a trade >> yeah.

so looking at the semis as carter pointed out, since the election we've seen this sector outperform the broad market by about 10%. since the march lows by about 40%. over the past two years by about 90%. this is a sector we often thought of as being cyclical and if we look at where it's come from, it's come from multiple expansion the multiple of this particular sector outperform that of the broader market significantly. so that's where a lot of the out performance is coming from granted, there are secular tail winds. 5g, expansion in p.r., gaming, work from home actually potentially good reasons some companies will do better, but it does feel a little bit rich, a little bit extended to me. we can take advantage of the fact implied volatility in areas has come in a lot. looking at smh, looking to hedge or take a risk mitigated bearish position, i was looking out to february, the 200 strike puts

those were priced just over $5, about 2.5% of the current level of smh when i was looking at those earlier today. you may be looking at those saying it's some bit out of the money. doesn't have to go through the strike to be profitable if smh rolls over before then just trading a single put option we have the opportunity to potentially spread or roll or something like that. so we're giving ourselves flexibility, keeping the trade fairly simple and giving yourself time for it to play out. >> what if one out there is still looking for a way to get in on the semi surge tony's got a name that could be right for a breakout when reporting earnings next week tony >> yeah. look at broadcom i think it's actually positioned really well for 2021, especially with the growth of 5g phones and devices. if you look at the broadcom business itself, i think it's a very solid business. in 2020 expecting to generate about $11 billion from free cash flow management executing pretty well

on expanding into higher margin software businesses now making up about a quarter of their revenue and for all of those reasons, i think it's trading at a very reasonable 18 times forward earning. so i think a very reasonable valuation and about 3.75% dividend yield here is one of the strongest within the semiconductor space. i kind of agree with carter's assessment that semis are overextended a little, not too concerned about broadcom as a business, and i think that next week they're going to report a pretty solid earnings here look at the chart for broadcom a pretty steady uptrend over the last roughly eight or nine months but it's a stock that actually underperformed the smh sector over the past couple of months but i think the earnings catalyst here next week is potentially what it could need to catch up here so look at earnings announcement so far, the options market implying about 5.8% move while over the last eight quarters the stock only moved about 4.2%.

so the stock doesn't actually move a whole lot on earnings the trade structure i'm looking to eutilize here is taking advantage of the fact that implied volatilities fo broadcom are fairly elevated and going out to january and selling a put spread here and specifically selling the 410, 390 put spread here collecting about $20.70 to sell the january 410s and paying about $11.70 for the january 390s net-net collecting about $9 on a $20 wide credit spread which is about 45% of the width so a fair amount of income for the risks that i'm taking here for this credit spread >> mike, what do you make of the trade? >> yeah. so contrast what tony is doing to some of the activity that bob was talking about at the beginning of the show. day trader trying to buy calls, reaching, hoping a stock will move up in a short period of

time tony's trade doesn't do that this is a trade that will actually profit if the stock just sits here and does nothing. if it goes up it obviously will profit more quickly. down side limiting risk to $11 a share, significantly less than if you bought it at current stock price. as he pointed out, while we were talking about smh massively outperforming the general market, that isn't necessarily true for broadcom. i like the structure and the company as well. >> the chart, carter >> well, you know, just a touch on that again. put this into perspective. year-to-date, up 30% versus semis up 52. over the three-year base, only up 60%, the semis are up 130 five year, doubled performance of evago yet it's a perfect setup of a long term semi w

winner >> that's so old school to call it evago broadcom, the ticker it's confusing there. check out our website and sign up for our newsletter. in the meantime, here's what's coming up next >> announcer: grab your hat. investigating a volatility mystery. professor sherlock holmes is investigating a mystery because as he once said, you see, but you don't observe. plus, calling on "options action" fans reach into your pockets, grab your phone and tweet us your question at "options action. if it's nice, we're answer it on-air when "options action" returns "options action," sponsored by -- a live bookkeeper is helping

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♪ ♪ ♪ welcome back to "fast money. just a few minutes ago we talked about the explosion in options activity, and why it's happening now. one reason volatility. especially in the commodity space. oil, copper gold, going wild with potentially massive amount of stimulus on the way so is the dollar looking to protect your port grohl -- portfolio against an uncertain global backdrop but aren't sure how, you're in luck. the professor is here on "call to action. mike, take it away. >> interesting

looking at the vix, indices we look at when we're thinking about volatility the spot vix dropped considerably since we saw the big highs back in march, and it is poised potentially to it drop below 20 before we get to christmas, but if you look at the longer-term vix futures going out about six months what you're going to see is they still remain carrier blonsidera elevated you may wonder, why is that the case by the time six months rolls by, past the inauguration, by that time presumably that will be distributed. it's possible to me if we're looking at the situation tha maybe what's going on is more macro. what we might be dealing with, basically dealing with the cure rather than symptoms itself. take a look, as you pointed out, at commodities like gold, that's another one of those places we see forward volatilities elevated, like gld, for example. one of the things that

corresponds is actually rising prices spikes in oil, in natural gas, gold, silver, things like this, oftentimes that's accompanied by elevated volatility. if we see elevated forward volatility, it could be potentially bullish for the metal. of course, opposite side of that trade, the u.s. dollar if you think about everything that's being done right now, to essentially deal with the situation we're in, a lot of that is potentially bearish for the dollar you may remember, if you were watching before, carter and i outlined a bearish trade on uup you might wonder now that we've seen it decline we might unwind that position. i for one am not inclined to if you did not participate in that trade i'm looking out to june 24 strike puts, you could spend about 45 cents for those a way to put on a bearish bet on the dollar bear in mind if what's going on with our economy to basically depress value of the dollar potentially going on in other economies in the basket of

currencies, you might see on a relative basis you my not get quite the move you expect if you do see upticks in things like inflation. i do think the same things we're doing to support the economy, on a monetary and fiscal bay sus, are bearish for the dollar >> the dixie is on track for a yearly performance of the worst since 2017 carter you do you see down side ahead? >> sure. the point of putting that uup trade on and walking through the dollar charts just a week or so ago, at a critical juncture. '92 level on the bx index and broken hard. a break like this is hard to stop and really ultimately down to the levels seen in 2014. >> tony, what do you think of mike's trade and there are many, many ways to play a weak dollar, not just a rise in commodities. >> yeah. absolutely so just a comment on the trade

itself the fact if you did place that first trade this is a great example how to roll some of the profits from the march puts mike had into a further dated put option here going out to june, and the fact as carter said, we broke $92 on the dixie, about 25 on the uup i think we're headed down to about 23.5 i particularly like this trade but to mike's comment earlier about the fact that if other currencies also debase and devalue their currencies you may not see dollar decline as much one of the things you can do and we have done here in "options action" is diversified this short dollar trade we have a long fcx trade, also in a similar vein, also long eem. i do agree you necessarily don't, shouldn't necessarily have all your eggs in one basket and short uup. but also take a look at long gold, long emerging markets, scx, these are all other ways you can diversify this

particular trade a comment on vix the term structure the reason you have spot vix so low here is because in the short run there's a lot of optimism with vaccines potentially two weeks away you have a peaceful transfer of power into the new year. consumer spending is strong here as you look towards three to six months out, equity markets i think are priced to perfection here there are concerns whether consumer spending will still continue at the same pace. everything from deldelinquency s and vaccines three to six out on the vix you see elevated premiums. >> quick last word, mike >> yeah. one other thing to wait and see about, of course, most big equity market declines are basically coming from credit markets first. i think we'll see a much better window on what's going on there as we go into the new year than lately when there's been a lot of support and basically

deferrals and things like that on payments. >> up next, as tony mentioned, big gains lately great news for one of our traders. tell you why, and what rock to look under next. plus, taking your tweets send us your questions at "options action. we'll answer some of them on air. we'll be right back after this it's a thirteen-hour flight, >> announcer: "options action" is sponsored by -- sink or swim by td ameritrade. 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. ♪ that selling carsarvana, 100% online wouldn't work. but we went to work. building an experience that lets you shop over 17,000 cars from home. creating a coast to coast network to deliver your car as soon as tomorrow.

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welcome back to "options action." time to take a look back at one of our open trades a few weeks back tony took a shine to mining stock. >> this stock peaked at around 2014 around $40, declined 90% down to $4 in less than two years and now it's one of the strongest stocks in th s&p 500 and on the verge of a massive breakout from my perspective i see upside target about $24 in the next two to three months. the trade structure i'm looking to use is going out to february, giving me about 90 days worth of time and i'm buying the $20, $24 call vertical spending about $2 for the february call options and collecting 75 cents for the february $24 calls. >> that trade turned out to be solid gold jumping well into the green. tony, this one expires in

february what are you doing to it >> yeah. like i said, my price target was $24. about 60 to 90 days out. we've exceeded that. when you have a trade like this on a debit spread, exceeded upper strike you have two possible options first, take the profits and run. right now up about a little over 100, 120% on this particular trade and nothing wrong with taking profits and being comfortable with that. but you can also turn what is a small winner into a much larger winner and rolling it up i have so much time left here, looking at february 25 by 28 call verticals here, rolling it up to february 25, 28, trade it for about 1$1.66 credit, which means i'm going to take about a $40 profit and still have this debit spread for free. >> carter, this one still look good >> here's the thing. first of all, talking about a home run

this stock is on a tear. how much of a tear, though if you're simply looking at trend analysis, how far above whatever moving average you want, in my case 150, freeport has only in its history going back to mid-1990s been this far above its 150 day moving average. happened off the financial crisis in '09. just about this point gave back a good 20%, 25%. extend it. we think you sell. >> up next, tweets and "the final call." >> announcer: "options action" is sponsored by, think or swim by td ameritrade. 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. visit tdameritrade.com/learn ♪

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♪ ♪ time for "the final call." carter >> stock market up 15% year to date semis up. >> time for "the final call," carter >> stock market's up 15% year to date, semis up 51. too far too fast sell them. >> tony? >> i like broadcom going into earnings next week

selling in january, 410, 390 put spread. >> mike? >> hedge your semi exposure with smh put spread and i don't think the dollar debasement is over. >> that does it for us see you back here next friday. 5:30 p.m. eastern time "mad money" with jim cramer starts now. [announcer] the following is a paid commercial program for rotorazer, sponsored by razor tools llc. (upbeat music) - uh-oh. can't find the right saw for the job? you need a handsaw for this, a circular saw for that, a bandsaw, a miter saw, and a jigsaw? and with all the different blades, that job's turned into an expensive jigsaw puzzle. not anymore. (saw buzzing) hi everybody, i'm joe fowler, and this is the rotorazer. over 3000 screaming rpms of workshop muscle, to make any do-it-yourself project so fast and easy, you'll actually enjoy doing it yourself. can your saw do that?