because it's tempting to say that this is a city built on music, but in reality, it's built by the people who make the music and by the people whose businesses help take us along for the ride. first "options action" of 2021 while 2020 could be called a year of extremes, this new year is only pushing the envelope even further for you traders, this is when options shine brighter with me, carter and tony zhang the indices and everything that goes into everything, commodities, are running right along with them. carter thinks just because everyone, or in this case everything is doing it again, doesn't mean you should, too carter, what are you looking at? >> that's right. i mean, it's been an

extraordinary period for the dollar and big moving rates, equities in general. we thought we would zero in on the move in the dollar and the move in commodities. so the first chart, this is just the u.s. dollar chart, and it's in a free fall we know this just to put this in context, not shown here, there are only nine instances in history going back to the 1970s where the u.s. dollar index has not had that trend move back towards the 150-day moving average this long basically we're up to nine months that's a probability of occurrence of 0.08%. take a look at the next chart. we are now down in the u.s. dollar right to those lows of late 2017, 2018. you can see the circle at this point, based on how rare it is to go this far without some sort of counter trend move,

that's what we're thinking so third chart, what we're thinking at a minimum is that the down trend line in effect since the peak that we throw back, we kick back to that down trend line now, that would be a 3% to 4% move in the dollar up, and so the thinking is the commodities, which have been on a tear, of course, will suffer a bit. next chart, this is the continuous commodity futures price index, the old crb and it has everything in it, but we know copper is up 90% from its march low, corn is up almost 70%. so you can see that it's virtually a straight line, but it's the reciprocal of the dollar so the next chart, i've done the exact opposite of the dollar i've drawn the trend line off of the march low, and at a minimum i think we check back to trend now, keep that chart right there

in your mind's eye and look at the final chart, john deere. it's identical in fact, it literally is identical. and so john deere having tripled was $100 in march, is basically $300 now, we think that it checks back. so just to end, it's trading 40% above its 150-day moving average t highest ever recorded going back to the 1970s. and then of the 21 analysts that cover it, their price target is $283 that's lower than where the stock closed we're sellers of commodities, fade the move, and john deere. >> mike, what is the trade on deere then >> yeah, so i mean, basically it's been a perfect setup for deere so far coming through to these highs that we find ourselves in right now i mean, as carter was pointing out, we have higher commodity

prices, that's obviously good for the agricultural sector and obviously deere more than some of the other industrial equipment makers like cat and so on, they get most of their business from that the other thing you have supporting all of this is very low rates. these types of goods are often financed, so this is an attractive time for farmers to invest in equipment. those are positives as well. one other thing i would say, oil has recovered sharply but we're far from the all-time highs there. and the reason is commodities are doing so well, it isn't simply just the inverse of the dollar we also fundamentally have a good setup if we take a look at the price to earnings ratio of deere or the enterprise value or any of a host of metrics, what we're seeing is that it's approaching basically the all-time highs that you typically get in these stocks and they tend to be

cyclical does this mean deere is in big trouble? it doesn't mean that but it does feel like we're getting to a level where any further gains are going to be harder to come by. we see slightly elevated options prices so i was looking at a diagonal put spread. the advantage is that if the stock trades sideways or if it goes up slightly or drifts lower, all of these are ways that we can see profits. of course there will be various degrees of profits specifically the trade i was looking at was the march 290, february 280 diagonal put spread so i would be buying the $290 march puts and selling the february $280s, $7.75. net-net, you would be laying out $7.25. also notice that because it's a diagonal and the amount we're spending is less than the distance between the strikes,

this is not a situation where you can be so right that you're wrong. in other words, if the stock really rolls over this trade will be profitable no matter how low deere goes i'm not expecting it to completely fall out of bed, what i'm expecting is the rally is not going to continue. >> tony, what do you think of the structure of this trade? >> i particularly like the structure of the trade because, as mike said, the business is still fairly strong here you have john deere that generated almost $7 billion in cash flow last year and pays a 3% yield and it weathered covid very well, but carter is right on the charts. by any stretch if you look at this, it's overextended, it's overbought, it has classic signs of exhaustion here if you look at the weekly rsi, it's above 80 now, which is a level that we haven't seen since january of 2018. so for all those reasons, i like the fact that -- i like the business, but i do expect there's a bit of a pullback and mike's trade structure is more

of a neutral play than a bearish play and i like that especially if you look at softs like corn and soybean, i don't think that these commodities are going to pull back i think there's strength and they can continue moving higher. so i like this more neutral play risking only about 2 1/2 percent of the stock's price. >> so many of these trades are predicated on a weaker dollar. how much of a bounce would you anticipate in the dollar index >> well, hard to know, but it's the principles of the behavior of money think about things that are in great big uptrends they have givebacks, like bitcoin. things that are in down trends have throwbacks. meaning counter to the trend are a natural and normal part of how money behaves, if you will and so whether it's a 2% pop in the currency -- and remember

currencies don't move very much, but whether it's 3%, the thinking is that it's likely to do something along those lines rather than just continue to sink and, again, to think that it's only happened nine other times going back to 1970, that's extreme. >> that's amazing. another good encapsulation of everything we've been discussing, airlines, tony zhang notes that glide paths can all be different and there's one stock with a reason to have heart. tony, what are you looking at? >> well, i love luv, southwest airlines, which i think is going to be the airline that's going to weather the covid storm the best out of the three major airlines if we start off by taking a look at the chart, southwest recently broke out above a $44 resistance level on the pfizer and moderna vaccine news and so far it's been able to hold that level and it's been actually outperforming the s&p since august here. so i think that there is a base forming here above this $44 level and with earnings coming up in about two weeks, that

could be the catalyst that needs to break out above this base and continue moving higher here. if you look at the business itself, what's interesting about southwest compared to the big four is the fact that during covid southwest, which traditionally has been number four in terms of seat miles has now moved up to number two, so that's a big move considering the fact that they are solely focused on domestic leisure travel, which is the only aspect of airline travel that has seen any type of gains since the start of the pandemic. and if we look at the balance sheet here for southwest airlines, it's fairly different from any of the other big three. it has a negative debt position which limits some of its upside potential, but i think investing in uncertain times for airlines, i would prefer safety over riskier assets like american airlines or united lastly, if we look at the fact that during covid southwest airlines is the only airline expanding their network versus all the other airlines are

trying to pull back. so i think southwest is going to emerge out of this as a stronger airline. so if you look at the trade structure here, southwest currently has a relatively low implied volatility and i want to take advantage of the fact that there's earnings coming up in two weeks and that's a potential catalyst event for it to move higher i'm going out to march and buying the $45/$55 call vertical, spending about $4.40 for the march $45 call option, which is a call option that's actually $2 in the money and i'm selling the march $55 calls against it for about 95 cents. net-net i'm paying about $3.45 it is quite expensive, about 7% of the overall stock's price, but i'm chudsioosing the call on to reduce the time that i'm paying for this. >> tony, i have a quick question and that is why did you pick earnings as a catalyst when all

the things you like are long-term for the bullish outlook on the stock. >> i've been a put seller of southwest airlines because of the fact that i like the stock but because of the earnings announcement, i think that is the catalyst that will help it break out of the range it's currently trading in i still have a long-term outlook for the stock and i would look to roll that higher if southwest does break out higher, and let's say earnings comes out fairly poor, i'm reducing my risk by a fair amount by using an option strategy rather than buying the stock for a long-term investment. >> mike, what do you think of southwest and what do you think of this trade in particular? >> so i like southwest relative to the other airlines. one of the things that i would think about is pent-up demand, so i think business travel might potentially be slower to recover than leisure travel. that would be bullish, i think, for southwest airlines, which

really caters to individual travelers. as tony pointed but, they have a very strong balance sheet and as of their last reported quarter, they have something like $14 billion in change, which is greatly in excess of the cash burn they're experiencing this year so very comfortable position there. the other thing i like about his trade is that although it's true implied volatility in southwest has fallen considerably since the peak that we saw back in march, it's still about double where it was a year ago so we're looking at 41%, 42% implied volatility versus 21% or so in december of 2019 and that's why using the in the money call spread makes a lot of sense. he's basically trying to minimize the amount of extrinsic options premium, and so i think the trade structure also makes sense. the other thing that is when you're using verticals like this one, you want to keep them

relatively short date d, so that if it does run up to your short strike you're going to get most of the difference in the strikes in terms of value. >> carter, what do you think of this airline >> sure, well, remember, this is the quality name, so to speak. it's the largest in terms of market cap, it has the best balance sheet and also what we know is that it has done the best in terms of working off of its march low. so to think that luv was as high as $58.60 in february before the pandemic hit, hit a low of $25, and now it is just at its november sort of moderna, pfizer news day spike it's the best of the bunch and i think tony has got it right. >> still to come, we still have open trades and mike is going to add more sense to the dollars and figures that are almost beyond comprehension don't forget to check out our actions and while you're there, you can sign up for our

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." we just broke down some trades about the dollar's impact on commodities. now let's talk about the dollar's impact on the dollar. the green back is bouncing off lowest levels in three years, rallying off of a dismal jobs report is this bounce a blip on the radar for a dollar that is headed much lower or is it the

beginning of a rally that could have legs? mike is going to attempt to answer some of those questions with a call to option. mike >> a lot of people have been struggling to figure out what's going on in these markets. we had some unprecedented things take place in 2020 for example, we went from the lowest recorded unemployment, 3.5% at the beginning of the year to the sharpest spike as the pandemic and the response to it broke out so you would think that that would obviously be extremely contractionry and here we are, risk assets are essentially all trading at all-time highs. what caused this is what is the impact on things like the dollar well, some of the things that bolstered risk assets we talk about a lot but maybe we should throw some numbers on it to give it perspective we've talked about very aggressive monetary policy the fed's balance sheet increased by $3.2 trillion from the beginning of 2020 until the end. that is absolutely remarkable.

long-term rates fell essentially to zero. and in the midst of all of that, we had an unprecedented fiscal response as well if you take a look at what the cbo was predicting for the federal budget deficit at the beginning of 2020, it was $1.1 trillion. the actual number for the year, $4.4 trillion, an increase of $3.2 trillion over the forecast number put those two things together and just think about what the net impact is going to be on things like risk assets, that's an increase of $6.4 trillion, that's more than 30% of the $20.5 trillion us gdp. so we had a lot of trades that were trying to play, we made bullish trades in things like gold and silver for those that were lucky enough to get on that train. they bought bitcoin or they just bought equities. but now we have to also remember that there are other countries that are facing similar problems now we might have a situation

where on a relative basis our currency is going to be priced off of theirs as well. so we don't just operate in a vacuum so we put some bearish trades on the dollar, in fact in november we bought the 25 strike puts that expire in march to make the bearish bet and we rolled that into december for people who are watching, you'll remember that right now that march put, the 25 put is trading for about 90 cents. we are thinking that maybe now is the time to take profits on those types of bearish trades and potentially play for a little bit of a bounce some of the other things we're starting to see, rising rates. if you have an improving economy and if you have rising rates, all else equal, that can support the local currency and of course other central banks and governments are doing many of the same things that ours have been doing, so on a relative basis their currencies are going to face the same precious that ours have. i was looking at march, now the 24th strike calls. those were trading for about 50

cents when i was looking earlier today. this is a way you could play for a short-term bounce. as carter pointed out, currencies tend not to move that much, they are very stable generally speaking, certainly relative to some of the other risk assets we're talking about. but you can buy at the money calls, typically that's what you would want to do, buy it close to or at the money and give yourself a little bit of time for it to play out. >> as we mentioned before, there are a plethora of trades that are tied to the dollar weakening and so i'm wondering where you think the most vulnerability may be at this point >> well, that was sort of the hope at the top of the hour, to do the commodities trade in the sense that we made a big bet, mike and i, to short the dollar thinking that it was going to do what it was done, which is collapse, and yet referring to those statistics again, it has such a long period of time without a counter trend move, we think we take the road less

traveled, flip it around and make a bet for a dollar bounce and in principle a dollar bounce, the most immediate thing would be a giveback in commodities. >> we've actually got breaking news out of washington >> melissa, we're just getting a statement from house speaker nancy pelosi essentially supporting a move by her members to present articles of impeachment next week. i'm going to read the statement from the speaker as it appears in full. it says, today the house democratic caucus had an hour's long conversation that was sad, moving and patriotic it was a conversation unlike any other because it followed an action unlike any other. it is the hope of members that the president will immediately resign, but if he does not, i have instructed the rules committee to be prepared to move forward with congressman jamie raskin's 25th amendment legislation and a motion for impeachment. accordingly, the house will preserve every option, including the 25th amendment, a motion to

impeach or a privileged resolution for impeachment with great respect, our deliberations will continue. so clearly pelosi is backing all options that congress has available to it to remove president trump from office. notably absent from the statement is whether she received the blessing from president-elect joe biden with whom she spoke this afternoon and was going to discuss this very issue, but certainly pelosi had been weighing her own position earlier today, but the fact that she is putting out this statement suggests that she has received a signal to proceed, melissa. >> timeline is tight, kayla. it doesn't seem like they would be able to get it done and yet they proceed is this simply just a marker to say this is where we stand on this issue with this president >> perhaps it is some of the draft articles of impeachment that have been circulated today were very short in nature, citing the events of this week at the capitol and siting the president's phone call with georgia election

officials over last weekend. it is a very tight timeline, but so far house democrats are expected to present the articles formally at the beginning of next week. that is what our colleagues at nbc news are reporting and they want to make a statement and put on the record how they feel about the actions of this president, whether they could actually complete these proceedings and whether or not they could actually get a changed outcome in the senate this time around is still unclear. but just this evening, melissa, there is also an explosive interview from republican senator lisa murkowski, also calling on president trump to resign so perhaps they are just hoping that these calls would reach a fever pitch and he would make that decision, although knowing how the president responds to things like this, it is unlikely he would do so. >> kayla, thank you. "options action" will be right back stay tuned turn on my tv and boom, it's got all my favorite shows right there. i wish my trading platform worked like that.

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final call, carter >> john deere, just too far, too fast sell. >> tony? >> luv, buy call spread. >> mike? >> diagonal put spreads in deere. >> thanks for watching "mad money" with jim cramer starts right now - [announcer] tg program is a paid advertisement for nuwave oxypure smart air purifier sponsored by nuwave llc, featuring deborah norville on award winning journalist and new york times bestselling author. - we are all living in strange and unsettling times. never in history has everyone on the planet been challenged by the same thing. covid-19 has changed the way we work, the way we interact and we're all still trying to figure out what it means for our future. amidst the uncertainty, all of us are trying to take care of our families as best as possible. i've lost track of how many masks i've made and we've all been wiping down door knobs and surfaces.