if everybody's making fortunes and the champagne is flowing, you know it's all gonna come to a crashing halt. happy friday time for "options action." here's what's on deck. >> black rock. a lump of coal, a case of mistaken identity. carter helps you from getting scrooged this holiday season then, speaking of gifts, tony zhang has one for the home dpa gamers and finally, facebook has recently become the poster yb

child for anti-trust how it could become the post posterchild for a market pullback time to risk less. >> there's a growing sector of the bank any time there's a growing activity in the banking seccer it to could be time to take a breath carter >> that's right, with the bump up in rates, regional banks have come back to life in a big way there's been m&a in the asset management space so we're going to look at some of these areas of the market in relation to the republican and zero in on blackrock the first chart you have three lines even though it looks like two. the top line is the s&p. the three-year chart, s&p up 38%. the two other lines are

tightical and two separate industry groups in the s&p the first is s&p 500 investment banks and brokers, that's goldman sachs, morgan stanley and others and the other is s&p 500 asset managers and trust banks, things like t. rowe, blackrock, invesco, state street and so forth imagine on a three-year basis having no gains. look at a chart since the financial crisis low what you see is there are gains but investment banks and asset managers up 175%, the market up 350. big laggards the final comparative chart is adding blackrock which has obviously taken on a life of its own. the biggest asset manager of

all. it outperformed the s&p. it's a beta trade on the market. the final chart is a chart of blackrock and blackrock is fairly steep, uncorrect ed and too far above trend. so close around 695. today. >> thanks, carter. mike, how do you trade that downdraft? >> so it's an interesting thing. carter was alluding to the fact blackrock is the 800 pound gorilla of asset management. the biggest, arguably the best the valuation is trading a little under 21 time earnings. not hugely expensive there could be some margin pressures when you consider there has been preshsure on fees

part of what has supported blackrock has been the strength of the markets generally that's good for asset managers as assets grow if the market is going to take a pause necessarily those that outperformed are going to pause as well. in general we are seeing elevated options premiums. i'm not inclined to short the stock but i believe it is probably going to hit the pause butt button i'm looking at the 710, 7 call spread, a $30 call spread. you could sell earlier today $17.50 for the 710s. net-net $9.50, $10

a third of a distance between the strikes. the break even would be up around the 720 level in order to lose money the stock would have to break out by new highs by january expiration. if it goes up or falls, those are all instances where the trade would be profitable >> tony, what do you think of this trade >> i like this trade a lot we have to give for the rally. the lack of fiscal support and the economic recovery starting to slow down here, what you might see next week from the fed is rhetoric or continuation of trying to push longer term yields lower here. that will stem the rally i think it's a good opportunity to fade this momentum we're

seeing in financials if you look at mike's trade here, selling a call vertical credit spread is the right structure. even if blackrock doesn't fade you'll be able to profit as long as it stays around the $700, $910 level mike is choosing to use the january monthly options which you have 32 days left to expiration you have a higher point of theta and elevated gamma if blackrock fades quickly over the next week, you might be able to take profits quickly. >> tony getting the greeks in. carter what, do you see over the ten-year yield here? >> on the ten-year yield by all accounts put in an important base

this is not a tailwind for now >> mike, final word, are you bearish overall on banks they seem to be a reopening trade which could be coming around the corner. z>> i indicated i was positive. i thought they were undervalued when a lot of other things in the markets you couldn't say the same the issue here is not whether or not they were balanced it's material since october and certainly since that late august/early september time frame. some of these things are up 50% or more. it's an issue of whether it's going to continue. this trade isn't so much gee we'll go back to the august levels or september levels i'm saying i don't think we'll see an unabated continued increase over the next 30 to 45 days bank stocks aren't a hot gift for the holidays for you, with millions of americans hungry at home, the video game

trade has been red hot this year electronic arts up more than 25% year-to-date activision blizzard up 40% it's game one for one of the names. tony, take it away >> the rise in covid sayses put locktown stocks like electronic arts back into favor i want to look at the communications sector, largely a sector that will overperform the markets. xlc breaking out above the $65 resist as level, coming backing to retest that level as support and now starting to trend higher here you have a communications sector starting to show some strength here and if you look at electronic arts, one of the stronger names within the communications sector. electronic arts has been consolidating since august

putting in a large flag or wedge formation here recently breaking out higher here and the confirmation of the breakout above 135 along with the relative strength to the communications sector i think is constructive for electronic arts to continue back up to its 145 highs and if you look at the company itself, there's a lot to look forward to in 2020. xbox and playstation just dropped. ea is strong on the mobile space. during lockdown, mobile games have been extremely strong and you look at some emerging technologies, vr and ar, starting to gain some traction here ea is cheap relative to activision and take two. the trade structure i'm looking to use accounts for the fact that markets are losing momentum here and i want to make sure that i limit the amount of downside risk that i have on this trade while playing for this upside.

i'm going out to january 29th because ea doesn't list february options and buying the 135-145 call vertical spending about $6.55 for the $135 call. implied volatilities are elevatedoffsetting that using the debit spread, paying $3.70 for this debit spread, only 2.7% of the stock's value and the goal is to minimize the risk to 2.7% of the stock's price. >> tony, quick question here is it weird or unusual that ea does not list options for february and what is behind the thinking of going closer to this, as opposed to going beyond february >> unfortunately, the only other option that was listed, going out to march, i thought that was a little too far out at the moment it really comes down to

liquidity. ea is not one of the most liquid names in this particular space but that's why we have a list of options here for february right now. >> mike, what do you make of the trade? >> so, you know, it's interesting, electronic arts is one of those companies where their product offering has better visibility in many respects than some others. we're not dealing with some kind of a trendy short-term thing we're not talking about candy crush here you're talking about madden type games. and i have kids, they play these things they're using digital distribution now and there's additional monetization, i'm sorry to report, for ongoing users, to spend money while they're playing these games, and of course, people are playing more of them. so it isn't just a one-time sale these are companies that i think have much better long-term visibility on their revenues than gaming companies did in the past so i do like ea. i do like its valuation. i think the short term that tony is using actually isn't just an issue of whether or not the february options, this is

basically a winner or a lose situation going into the holidays, will they do exceptional sales, i think they probably will but if they don't, you will basically have a trade that will pay off or not by january. a longer term option spread wouldn't necessarily monetize entirely if it ran up to the short strike i like the trade structure the duration in particular and i like ea. >> don't forget we have a website, and we have a newsletter, options action.cnbc.com. and we have a lot more coming up in the show. misinformation, monopolistic practices, lately, facebook ha been the poster child for a lot of things starting with the letter m tonight, we will add one more, markets. call 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.

♪ ♪ ♪ ♪ ♪ welcome back to "options action." i want to call your attention to a big mover in the after hours dropbox, jumping more than 9% right now. not exactly clear why. there is not any direct news that would cause the stock to move there is some takeover chatter that was out there this morning. the information putting out a story earlier laying out

possible takeover targets in the software space and that included dropbox along with box and mongo db but we are seeing a rise in the stock of 6%. and any other unusual activity in the options market, mike? did you see any other unusual activity in the options market >> well, it's not unusual activity above and beyond the speculation that was already out there. just a couple of observations i would make first of all, you're dealing with a cloud-based company obviously if there is m&a activity, we've just seen a lot of activity in that space. so that obviously makes some sense there. so synergies, people are trying to exploit that and we're sort of in an m&a happy environment that's the first thing i would say. secondly, with respect to valuation, this thing traded up to 23.70 or so earlier this year one of things you always want to think about when you hear takeover chatter like this, what might the share price be one thing you can probably guess for sure is that the board is not going to go for a price what is below a recent high so that suggests that we would have, if there was a takeover, it is likely going to be higher than $24 a share and when you take a look at the forecasted

ebitda, it is not totally out of reach, it's not like the multiples here are so out of step with reality. so is it possible? yes, it is certainly possible and with the price north of $24. where it is currently trading, i think so. >> let's move on here. today's market sell-off and tech's recent volatility has us thinking about volatility and the vix is relatively low compared to preelection levels there is something under the surface that has investors spooked. should it spook you? not one, but not two, and all three of the option actions traders are looking at the volatility vexation, try to say that five things fast and let's kick it off with a call to action professor khouw? >> so we've been talking a little bit about what the options markets have in store for us in the early and maybe into the middle part of next year and what we are seeing is somewhat elevated volatility so right now, the qqq, which obviously is a fairly tech heavy, the six month volatility

is about 40% above its ten-year average. if you look at xlk which is obviously an even more tech heavy etf, it is 45% above the ten year average and combine that with the fact that the nasdaq 100 index in terms of the multiple to earnings, whatever, 37, 38 times earnings, that is about 70 plus higher than its long-term average. translate that into what's going on so we're not at that total red panic zone and we're not at the fully complacent zone, as far as the options market is concerned. we're kind of in this cautious little area. we have higher implied volatilities and traders should be aware. you can expect to see your portfolio bouncing around significantly more than we traditionally would. >> all right, thanks for that, mike carter, you're the chart master. what you are looking at? >> -- what are you looking at? >> a couple of things.

but one thing, evaluation is not, valuation is not a good typing tool but when valuation does stretch, it is the circumstance that does set on drawdowns. in terms of the month of january, we might have some stats here on the screen, i mean basically it is the fourth best month of the year, and the odds of being up are around 63% and you can see the median, mean, there around 1.5%. and i would point out though that some of the greatest drawdowns of all time have also occurred in the month of january. the 73, '74 bear market in january is when it started and then most recently consider, this the drop in january, 2018, two years ago, the ten session plunge, was the steepest ten-session drop ever reported, including any ten sessions, and big drop occur in january. something to keep in mind. >> tony, what's a trade that can wrap this all up >> yes, so the one stock i wanted to take a look at was facebook, because as technology shares start to underperform the

market, especially compared to what we saw earlier this year, in terms of momentum, for investors here that are holding facebook stock, news this week hasn't been particularly strong here with the anti-trust suit this week coming out. i think it this has spooked some investors. but if you think about this the news event here, the anti-trust suit in itself doesn't necessarily mean it is a good time to necessarily sell your stock. the risk of a break-up here at the moment here is still relatively low and it's likely to drag out in the courts for the next two to three years. so for investors that are currently holding facebook stock, i don't think it is a good time to initially go out and sell your stock but due to the high implied volatility that mike was referring to, and the fact that you have potentially limited upside here for a name like facebook, it's a great opportunity to potentially sell some covered calls and with the elevated implied volatility right now, you can collect quite a bit of premium so the best practices for selling covered calls generally speaking is to go out 45 days from expiration and sell about a

30 delta call. so for facebook that translates to the january 29th weekly expiration and selling about the $300 call option which corresponds with the recent all-time highs here, and selling that call option here, will collect 2.5% of the underlying stock's value over the next 45 days and that's quite a bit of premium that you're able to collect here so i particularly like this. because for the stock to get it right, facebook has to get to new all time highs back by the end of january. >> a nice juicy option carter, what do you make of that level? >> it is a great level because once you sort of stall, to the extent that a stock like this is stalled, remember the stall is a post-condition of proceeding strength. and facebook off its march low, much more than the stock market, up, quite extended and now the stalling, whether it's the pause and the rest before going higher, or the stall that ends up being a rollover, selling premium above, great technique >> mike, what do you make of it

all? >> yes, two things about it, when implied volatility is high, it's hard to shield your portfolio by buying options, because they're suspense in. and instead of shielding, you should be looking at yielding, and that's what this one does. you're collecting about 2% of the share price over a relatively short period of time. and that, by the way, in a very low yield environment, generally, and as both of these guys were pointing out, the worst thing that could happen to you, if you own facebook, right now, and you do this trade, versus not doing it is, that you will be compelled to sell the stock 1% above its all-time high which isn't a bad outcome for any shareholder. whether you bought it today, last month, last year, or several years ago. >> instead of shielding, you should look to yielding. that is a winner up next, we are taking your tweets you can send us your questions at optionsaction and we will answer some of them on air we'll be 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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option calls expiring in december with a strike price of $96 to 103 tony, do you have an answer? >> the breakout of above $90 on the chart looks fairly constructive and it may seem like it could reach that 96 breakout high to 103 but the one thing to point out is the relative performance of amd to the semiconductor chart is concerning to me. >> we think most are extended and i don't think there is enough time to pull off a 96 to 103 strike >> okay. up next, we have the final call. stay tuned 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.

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>> blackrock $8.5 trillion in the market, if you're worried about the market, sell your blackrock. >> i like electronic arts. >> mike? >> sell call spreads in blackrock. >> "mad money" with jim cramer starts right now see you next weekend [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,