happy friday "options action" fans, i'm melissa lee. a nice trading lineup. here's what's coming up on the big show >> pop the champagne and prep those puts it's the final "options action" of the year. funny how time decays. so, as we gear up for 2021 tony, mike and carter lay out their ultimate options trades for the new year, but before the ball drops, we've got to get through

christmas. bah humbug don't be such a scrooge. tony zhang is the perfect stocking stuffer, the one retail name he's playing for some holiday cheer, and later, tesla is living life in the fast lane. the car company cruising into the s&p 500. so what does that mean for tesla options? professor koh breaks it all down it's time to risk less and make more "options action" starts right now. ♪ rocking around the christmas tree ♪ >> let's get right to it you see the clock and heart music. that's right it's just one week until christmas, and that means it is crunch time for the shippers, but the chartmaster sees some trouble in the transport group as a whole is about to stall carter, take it away >> well, of course, it's an important index. it's the oldest that we have going back to the late 1800s and it's cyclical, right we now the two big package haulers ups and fedex are a 24%

weight before airlines, truckers add up to 40 and the big four railroads about 35 concentrated index, and it is stalling of late let's look at three identical charts and then one or two at the end. the first of three it's a two-panel chart on top is the iyt, the "i" shares that mirror, the dow jones transportation average, and you can see, of course, that it broke out and it's now above its pre-pandemic high but look at the bottom panel. relative performance to the s&p is nowhere near the level of the january swoon. second chart another way to draw the lines. the vertical line i've drawn, you can see transports have considered higher absolute over the past two months, and yet look at their relative performance to the s&p you can see the air i've drawn, stalled, not progressing, meaning not delivering alpha third two-panel chart. another way to draw the lines. you can see that the transports

are still on an uptrend and yet relative performance is just now starting to break trend, so where might the transports as an aggregate, as a group, as a theme be headed? final two charts here's simply the iyt and you can see the trend line drawn i think at a minimum we'll come down to trend as has been the case several instances since the march low, and so the final chart is that chart you just saw, and yet it's including the draw-downs there have been four distinct draw-downs, you can see them there, an 11% drawdown, 14% and then a 2%. i think we're setting up for another giveback, pullback, dip, decline, whatever nomenclature you choose in the transports. >> all right that's pretty clear. mike, what's your trade off of that >> yeah, so there's a couple of things i would quickly point out. i mean, obviously when we think about the secular trends for the transports and especially the

largest constituents of this index that carter is talking about, iyt, the biggest of which is fedex, it would seem they have plenty of tailwinds here. we have the current global situation going on, but generally speaking, you know, package shipping is a good business to be in overall. there's something else i would say is when you're deal with cyclical stocks, you know, a lot of times we talk about fundamentals like price-to-earnings ratios and things like that but it's important to remember with cyclicals that oftentimes you'll see the highest pes basically at the trough of the cycle, so sometimes a high pe doesn't necessarily mean that stocks are poorly positioned, but in this particular instance we do have a confluence of two things which is we do see those high pes, but the stocks actually are trading close to these all-time highs. this is not the cyclical trough, so something else is probably going on in these technicals that carter is identifying the other thing i would add, of course, is that we still do see, as we keep referencing on this show elevated implied volatilities in a lot of spaces, and this is one of them.

right now iyt implied volatility is probably 50% above its longer term average, so we do want to take a look at a spread. i was looking out to federal reserve board. it the 2/15 195 put spread when i was looking at that earlier today, could you spend about $4.50 to buy that put spread that's a little less than 25% of the distance between the strikes which means that the payoff, if you hold it to experation and the underlying drops below that short strike, is going to be a little bit better than 3-1, and, of course, spending $4.50 against an etf that cost over 200 so you're risking just over 2% of the current stock price. not a great deal of risk to make this bearish bet going through the holidays, and, of course, you know, if we do see next year's news on shipping as a real positive, you're not risking a great deal, but i, like carter, think that we might be seeing a near-term top here. >> tone, what do you make of the trade? >> yeah. i like the trade if you look at the iyt and etf, there are clear signs of exhaustion here as the etf is making higher highs, momentum is

not confirm these higher highs and that usually is a clear sign of a potential pullback here but also as carter mentioned the constituents, you have almost 40% of the weight of this particular index in trucking, and we've seen retail sales decline month after month over october and november so you've got two back-to-back month declines in retail sales, and trucking has almost a 55% exposure to retail sales, and the big weight, fedex, down almost 6% here on earnings it broke below the 50-day moving average. i think that could be another catalyst for this index to start moving lower here, so for those reasons i like the trade and mike has laid out, you know, exactly why this debit spread works. you're paying less than a quarter of the width here and you're risking only 2%, a very small amount of risk here for a trade to play for a short here in my opinion. >> carter, tony mentioned the weakness of the truckers and the exposure to retail i wonder how you think fedex itself looks versus the other big chunky parts of this -- of this index

>> sure. so, again, fedex beginning the biggest weight and then after that i think it's unp, but fedex has had a great move, and i think it's an example of, you know, buy the rumor, sell the news everyone knows they are jammed, they are busy, and yet, guess what the stock has appreciated quite a bit, and its action today is telling. >> all right let's move on here tony is getting into the holiday spirit, aren't we all. he says this retailer could be the perfect present for your portfolio this year, so tony, why don't you unwrap this one for us >> yeah. i want to take a look at best buy because this is one of these stocks that just continues to surprise us year after year. you know, recently the stock recently declined about 15% after announcing earnings a few weeks ago, and i actually think that now is an opportunity to pick up the stock going into the end of the year. now, if we first look at the chart itself, the chart actually looks quite weak you've had a recent breakdown below the $105 support level it actually came back to retest that level as resistance and

actually got rejected. especially if you look at best buy to its receptor, the xrt, the retail sector, it's actually severely underperformed the sector itself so the severe underperformance is actually the opportunity that i see to take a look at this stock now, if you look at retail sales, i did mention that november, we've seen the decline in month-over-month retail sales, but if you compare november to the same time last year, we're still up 4% versus same time last year, but conum sumer electronics is up 29% compared to the same time last year as consumers are mostly working from home and taking schools from home, so all the zoom materials requiring us to buy electronics, i think best buy is an interesting opportunity in the backdrop of strong retail sales, but the stock is down 15% since the earnings the stock itself is very strong. it hasn't cut a dividend one of the few retailers that hasn't cut dividends this year t.generates alarming amount of cash flow, almost $6 billion in cash which it could return to shareholders by share buybacks

or dividends so for those reasons i really like the stock. now when i first took a look at this, i was actually looking at selling january $100 puts. they were collecting about $3, but given the current weakness that i'm seeing from this particular stock i am a little concerned that you might see some further weakness so i chose to go out to january 29th, the weekly options, to sell a put spread i've told the 102.95 put spread, collecting about $2.75 which is roughly the same that i would collect from that selling january $100 put option, but i have limited risk here by buying that $95 put for about $2.10, i'm limiting my risk here to just a little over $4 on this particular trade, and i'm still collecting about 40% of the width on the credit spread, and this really allows me to gain some potential upside exposure in best buy and potentially own this stock if i see a little bit of weakness between now and the january 29th expiration. >> interesting because goldman sachs just cut this one to a rare celebrating on wall street,

mike koh, citing, you know, pull forward. people bought a lot of laptops, bought a lot of stuff that tony had mentioned already. they are not going to buy it again. what do you make of the trade, mike, both the direction and the trade itself >> yeah. so let's talk about the trade structure first. i mean, if i was going to look to sell puts at this point with the market not trading that far off of all-time highs. we've seen a massive run-up here we have plenty of bad news that seems to be percolating out from a lot of quarters, and owl of those things could present material weaknessful market rolls over so telling puts untight or naked is a risky proposition. you get to take advantage of the fact you see elevated premiums you still get to use basically a yield-collecting strategy to make your long directional put so selling a put spread makes a lot of sense obviously i can understand where goldman sachs' rating is coming on the stock it's interesting because tony actually mentioned this. this is a stock that people have

basically counted out, i don't know how many times over the last several years this was just a sense that the bricks and mortar retail, and also electronics retailers in particular as they were basically the only surviving one among them were basically as good as dead, and yet they continue to thrive what we've seen is some retailers have been able to transition to basically the more modern economy they seem to be making their way through it, so i'm not going to count them how the just yet. they are trading at a slight discount to the market, a little bit higher than their historical premiums, but i think the trade structure makes accepts if you like it here. >> carter, what do you make of that chart >> well, tony said it. he said the chart is not good, and so he qualified it by saying that, and perhaps this is a so bad it's good moment it is making a new 52-week relative lows to the xrt and almost to the s&p 500, so weakness is sometimes an opportunity. you get to buy something at a more favorable price, or it's weak for a reason. maybe the goldman sachs judgment, for instance, and

there's more trouble ahead it's on a knife's edge here. the risk to the downside, just for what it's worth, is the stock gapped up on its earnings be on july 22nd, on a big beat from 90 to 100, and that gap looms below. this is the kind of thing we have to do with your options, buying the stock outright here is too risky >> all right for everything "options action" check out our website optionsaction.cnbc.com while there sign up for the newsletter here's what's coming up next buckle up "options action," fangs. tesla just zoom the its way into the s&p 500. professor koh takes the wheel and explains why that's a big deal for the entire index. plus, calling owl "options action" fans, reach into your pocket, grab your phone and tweet us your question @optionsaction. 'lanert nice, wel sw ion air when "options action" returns. ♪

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♪ ♪ welcome back to "options action." a check out shares of tesla. they are moving lower in the after hours as the company zooms into the s&p 500 with a market cap of roughly $632 billion. tesla is now the sixth largest company in the entire index, and mike says it's time to pump the brakes on this high-flying ev stock. he's here with his call to, a. mike >> you know, this is an interesting situation, tesla, isn't it i mean, basically you could kind of think of tesla as the most popular but arguably the rowdiest party guest as it enters the s&p right here. we're measuring popularity by its multiple if you compare the multiple

missing trading 20 times sale and it's had an epic run particularly extraordinary given the business they are in if you think of an auto or industrial type of company, consumer discretionary company, extraordinary multiples and this is a stock that right now despite the very high valuations this is also a very volatile stock as well. if you compare the volatility of tesla to all of the other top ten names in the s&p, names like microsoft and amazon, this is trading at more than two times the volatility, so there's really going to be implications both for tesla having entered the s&p and then the s&p itself as a result of it so, you know, when i think about the s&p, i just want to point out that when its biggest constituent -- the biggest constituents are more volatile and they are more correlated with each oh, the s&p itself could also see some increase in volatility you are highlighting the increase in valuations basically by seeing cheaper stocks falling out and more expensive ones coming in like tesla earlier on "fast money. i think that given the fact that

the short interest has dropped considerably, the stock is trading at all-time highs, we've already seen the boost that comes from the split, we're already seeing this big boost that came from the entrance into the index, that maybe there isn't as many things lying around to basically continue to propel the stock to new heights, and so i was inclined today to take a short bet on tesla, and the way i did that earlier today, and i should point out the stock closed very close to 100. it was about 670 when i did this trade. i decided to sell the january 700 720 call spread. i put the 720s to cover my upside and collected $1.50 in order to do that spread. the thing is i'm expecting this stock to either stall or potentially fall back. this is one of those situations, you know i mean, tesla is obviously a very popular company they make very popular products. i'm not saying any of that is going to inning cha, but what is going to be the marginal buyer

once all of the indexer have purchased it that's the hard part for me to see, especially at these very heady valuations, and with the short interest dropping, that was basically the last layer of support that you had in other situations, and i don't see that one here. >> carter, what's your take on this crazy chart >> yes it's -- we have a couple of charts, but first put this in context. i mean, the market cap at 658 billion, and yet the total value of shares traded today, 148. 148 billion and the value traded, only 45 companies in the s&p in the entire market cap is worth that said differently, 220 million shares in volume on a billion outstanding, a quarter of the float turned over today. tesla charts, the first one, no drawings, judgments, an owetations made. you see it for what it is. now look at the second one, i tried to characterize it this way. you have strong advances, and then you get periods of consolidation, and then you advance again. it's the way an army moves forward. it's the way an athlete works

out at the gym you assert yourself and then you rest so take a look at the next chart. you can see this big powerful advance and then you consolidate and you rest, a powerful advance and you rest it's good sequencing, but the final chart, the sequencing, even if it's intact, it calls for a rest you can see that there. this is not a time to be chasing tesla. in fact, it's a time to sell calls or to reduce exposure. >> so tony, after all of that, what do you say? >> yeah. i couldn't agree more. i can't help but think that the highs that we saw today is likely what we'll see as the relative highs for quite some time for this stock, but this is one. toughest stocks historically to ever short, and mike has a good reminder of this on his book shelf with a pair of the tesla short shorts but i hate to say this had i do think of it a little different this time in terms of pushing a short and the credit spread he's spelling here isn't quite a short. if you look at the stock itself. it's run up 60% since the news

it would be included in the s&p 500. that's a hell of a mount of a front-running for this particular stock because i do feel like that's gone too far to fast and stocks that make a big run-up before being included in the s&p 500 average a 1% gain over the next month after they are actually

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>> that's all for o'option happy holiday, happy new year. stay tuned "mad money" with jim cramer starts now hey, i am cramer welcome to "mad money," welcome to cramer america. i am trying to make you some money. my job is to educate and teach you, call me at 1-800-743-cnbc, or tweet me @jim cramer or will be