happy friday, "options action" fans another great show lined up for pup here's what's on deck -- >> announcer: everything going on it would be easy to overlook the fact that apple's out with earnings next week as the company regains our collective attention, carterworth is plotting out whether the stock can regain its leadership position. then -- could old ge be one of bestways to play the new biden add mun strags tony plugs you into what's happening in that stock. lots of hints there. and --

welcome newbies! lots of you jumping on to the options chessboard, but word to the wise you can quickly get caught as a pawn let us help you develop a long game strategy to stay out of check. professor cwith us. and carter worth explaining what is cooking. carter >> you bet it's one of the simplest setups in market. not am but the setup itself. we will examine it first, a few sort of bullet points, if you will, on the sequence what do we know? one, apple peaks september 2nd around $138 a share. since then it's dead flat. made no progress in almost five

months the s&p has gone up seven-plus percent. two, we know it dropped 25% from that peak. in two weeks to 103 on september 21st three, it's returned to its former high. which in principle is a setup for a breakout to new highs. very straightforward sequence. in terms of the pattern, visuals, optics of that, the first chart, you see it there. no drawings or annotations by me the next chart, now i've added the lines. this is the setup. optically. a well defined up trend and gets ahead of itself. pulls back to trend. reapproaches the highs about a month ago. backs away but shallow now here we are reapproaching it again. this is the moment where you typically break out. then the final chart, another way to draw the lines. one can call this a cup and handle it doesn't matter what you call it

what it is, is more often than not the setup that foreshadow as breakout stock closed 139, spot 07. thinking 150. >> all right thank you for that, carter from carter's jacket, tie and pockets we go to mike in a vest. what is the trade, mike? >> actually made of wool, this vest at the nasdaq, i thank them. they're the ones who sent it to me as part of this christmas package sent out thank you for that it's keeping me warm interesting thing. talk also about earnings look at the last eight quarters apple moved average 4.5% often we talk implied moves. wondering how to calculate that, best way, back of the napkin, looking a-of-at the weekly options. at-the-money call and put. this case, trading 137 when looking at it earlier today. closed slightly higher obviously. add that call. did that, $8.75.

approximately 6.4% of the current stock price. what the options market is thinking could happen next week. so the trade i think we want to take advantage of the fact that the options are implying slightly higher than average volatility we want to sell some of the options. i was looking at the march-july 140, 155 call diagonals. what am i doing? buy the jill 140 calls trading abouts 13ds. sell the march 155 calls for $3. net-net lay out $10 a share to put on the trade important thing to consider when you use a diagonal like this, putting, spending less money than the distance between the stripes, in this case it's $15 spending 10. difference is 15 you have profit no matter how high the stock goes. not true to a straight calendar. diagonal, one of the reasons we're setting it um this way down side, maximum risk, $10

why do this rather than buy the stock? hearing on "fast" actually looking at apple, certainly over the last ten years or so right now price to earnings at about 40 is probably about as high as it's been by a good margin here's the amaze thing the size of the company, it is a little bit of a value stock, believe it or not. sales anticipated to grow by about 16%. earnings maybe 22% grows earnings increase about 39%. wi why? a billion iphones and max out there great platform to build on seem to be delivering. why it's pricing more like a growth stock basically it's a less risky way to make a bullish bet than just going out and buying the stock. >> tony, you like this trade jnc >> i do. i like the trade set up. the breakout as of today's cause. broken out above that 138. i love the technical break out

and and line itky an earnings release, that with relative strength like 20 see it going into an earnings event look at earnings itself. a lot of investors focus this time on the services business. seeing growth there. i certainly want to see that actually i think one of the things we should look at is actually the mac laptop business moved off intel chips. brings iphone, laptop into the same chip. potentially run iphone apps on your laptop. a game-changer going forward and add on top of that augmented reality, what they just said this week about allmented reality as well ap autonomous driving going out to 2024. i like the setup for this. mike's diagonal. also he said, only spendings 10 for a diagonal 15 wide even if apple has a blowout quarter no losses to the upside. you need have apple move substantially lower for him to

risk that full $10 or only about 7 7.5 percent of the stock price for that reasons i real like the stock setup. >> kauv caveats given what we s across technology this week? >> great point right? seen a big run and a lot of times in situations where we want to own the stocks, want to continue to hold the stocks but just a little bit nervous about the valuation. trade structures like this one allow us to continue to participate to the upside. give us a lot more protection to the down side in the case of things turning sour. when you see headier valuation that's a possibility. >> move on to another classic name general electric stock could see renewed interest in greener energy. tony explains this one tony >> exactly this company is 130 years old, but the turnaround story for ge is starting to take hold here easy specially as you said

president biden has a $2 trillion green climate infrastructure build he's trying to pass through. i think that's going to put significant weight behind the power in renewable business ge has, currently about one-third of revenues, offsetting softness we're seeing from the aviation business, another one-third of revenue here for ge. look at the long-term chart here fo ge. over the past five years the stock greatly has underperformed its sector industrials over the past couple of years the stock started to form a base here and starting to break out of above resistance levels here at $11 over the past couple weeks. zoom in over the last six months where ge has greatly outperformed after underperforming a long period of time ge up 57% over the last six months versus 22% for xli, industrial sector. the type of relative strength i like to see going into an earnings event next week

look at earnings itself. currently implying about 7.6% move versus the actual move over the last eight quarters, only about 6.3% options are implying a sizable move here. so implied volatilities are relatively elevated. when you take into account this stock has had a very strong run over the last three months, i am concerned of how much more upside the stock can have on earnings and the fact that options are really expensive actually g ly going to use the e structure mike used for apple. call diagonal. the february-june, 11, 11.5 call diagonal buying june 11 calls for about $1.29 and selling february 11.5 calls against it for about 42 cents. net-net here paying 87 cents for a diagonal that's 50 cents wide. unlike mike's trade where he was paying less than the distance between the two strikes i'm

paying slightly more than that down side if ge blows out earnings and goes above $13.50, you'll see losses. that's a relatively low probability here. >> how does that ge chart look to you, carter >> sure. well, i think what's so important here is where the stock basically found its footing? to think its peak was as far back at 2000 at $58. i mean 20, 20 years got down to a low may 15th market bottomed in march and ge still making new lows at $5.50 remarkably close to its financial crisis low, which was $6.50. own low $6.50. undercuts it by $1 $.50 with go-round with the pandemic and comes to life in a big way the way tony described in terms 6 price objectives, one thing we can target, right, is its prepandemic high 12 high. many stocks, the market itself,

rovered to the prepandemic high 23 that is 1325 stock closed 11, night here. >> quick thought on this trade, mike >> yeah. i like it as an options trade. ge obviously we know about troubles in the power beusiness and other things for years able to engineer earnings stuffing skeletons into closets when they start to come back out you don't know how many but i believe new management is trien to stayton out the company it's a big ship and hard to turn around. check out our website on pp "options action. while there check out or newsletter. >> announcer: continuing to rocket higher. if that's how you got here, welcome. but be warned -- quick mobile trades of momentum is a betting strategy. not an investment strategy professor mike khouw, ho to keep

your account from burning up in the atmosphere plus, calling all "options action" fans, reach into your pocket, not your phone, and tweet us questions if it's nice we'll answer it on-air, when "options action" returns. >> announcer: "options action" responsible 0erred by -- we're excited to do business with you but before we sign i gotta ask... sure, anything. we searched you online and maybe you can explain this? i can't believe that garbage is still coming in.

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♪ ♪ ♪ ♪ ♪ welcome back to pkz. if you caught "fast money" yesterday. of course you did. you mirecognize this next graph. more than 21 billion contracts changed hands blowing traffic out of the water now bob pisani is here to tell us how the retail investors can

drive this higher in 2021. bob good to see you. >> good to see you as always, melissa. stock trading volumes exploded in 2020 and they're up even more in january, believe it or not. three signs point to retail investors as the primary reason overall trading is up. first, the tape that reports retail trading known as the trade reporting facility or trf for short has seen a dramatic increase in the last year to a record percent of the overall trading volume second, monthly trades at retail brokes like charles schwab, interactive brokers also hit a record finally, equity option trading is way up. december average of 32.7 million tract trades on all the equity options trades on a daily basis. also a record. in january so far, 39.8 million contracts a dap ty trading. a record and another indicator of retail activity another one. trading in single contract

options doubled in market share from 4% to 8% of the contracts and tripled in volume in contracts per day. that's retail trading. institutions are not buying and selling a single options contract as for the options trading in general, traders tell me that the same if a non nom na we talked a few months ago buying out of the money call options so popular in 2020 continues in january. there is still a lot of interest in these short-dated calls those are the options with longest odds against the buyer, because they decay rapidly but keep working long as the markets and individual stocks keep going up sign retail traders are getting more cautious? remember, tom petterfi told me in december his clients were net short in the market prior five days call buyers predominant in the pashgt melissa, volume in equities a lot of volume is in the bottom rung of the nasdaq and nyc

$2 and $3 stocks a lot of activity in the conference rooms and the chat rooms, and that seems to be back again in a very, very big way. bear that in mind. nos tesla necessarily. the bottom rung of the stock market back to you. >> right new chat room apparently, bob. thank you, bob pisani. whether joining u.s. tonight, new to the options game or the salt of the game, always risk to make more. tonight professor khouw reviews how to buy right here with the "calm to al to ac >> three categories to think about. bob is right using options the way they suggested. making directional bests short term in nature, leverage small a amount to capital but need something to happen to be profitable probability of profit is lower another possible use case? hedging. nice thing about hedging, redice overall risk smooth your returns.

buying insurance always comes at a cost generally speaking, cumulative returns lower. final use case and probably the one most people just starting out with options ought to consider is generating yield by overwriting. nice thing about this that you're going to enhance yield and carder pointed out last week, yields, dividends, returns, those can over time be a very meaningful part of your investment returns overall an important thing to consider pick stocks you want to own for the long term and try with the yield. example of this? microsoft, trading right around $228 today don't already own the stock, what you would do in a buy right is buying the microsoft shares at $228, 100 shares. then sell one call against it. that's the writing part. writing a call option. specifically i was looking at the march 2345s. microsoft paying 56 cent dividend put the dividend together with

the yield collected for the call and you get more than a 2.1% yield from now until march expiration if you bought the shares just go sideways, collecting a little over 2% yield. may not sound like a lot but less than two months over time that begins to add up. when those expire, do the same process. essentially rinse and repeat only thing is, of course, sell the upside, capping potential gains but upside gains are more than 9% in a trade like this one over 6 a days. >> thanks, mike. carter a chart for us? >> we do look at it identical to apple meaning where did it peak? september 2nd like apple ahead of themselves and now fully rested microsoft breaking out as netflix just done and we believe apple will. >> and tony, use this strategy, too? >> i do. actually one of the best strategies for beginners to start with, because number one, it allows an investors who's getting into options to actually hold an option all the way

through expiration this allows investors to understand how a call option responds to the stock moving higher and lower also how it responds to time delta and two of the most important reits. great way for users to get exposure to those two and for those reasons i really like the strategy for someone starting out. >> up next, how one stock really lived up to its name for one of our traders. plus taking tweets send them @optionsaction back right after this. turn on my tv and boom, it's got all my favorite shows right there. >> announcer: "options action" sponsored by -- 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?

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i have an idea for a trade. oh yeah, you going to place it? not until i'm sure. why don't interior decorator. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪♪ welcome back to "options action"'s in our final show of 2020 tony laid out a way to get the best set of best buy take a look back at the trade. >> you've had a recent breakdown below the 105 dollar support level.

actually came back to retest that level as resistance and got rejected easy specially look at best buy to its receptor, xrt retail sector. severely underare performed the sector itself. the severe underperformance for me is actually the opportunity that i see to take a look at this stock i chose to go out to january 29th, weekly options sell a put spread. sold the 102.95 put spread collecting about $2.75 >> well, tony knocked this out of the park and able to take profits in it. tony what are you doing next >> yeah. we sold this for about $2.75 earlier today could buy it back for about 2 cents. 99% of max profit. i see a lot of investors may be inclined seeing these expire also worthless to leave them to expiration i encourage in1re6789ers to buy back the credit spreads remove the obligation in case best buy does, unlikely event collapse over the next

week you can remove yourself from the obligation of buying the stock. take profits and move on to the next trade. >> yeah. what is your outlook at this point, mike? go to you. on a best buy? >> you know, first of all, i think tony's making a good point. trade management 101 you don't want to leave your short options when there's just so little money left to collect. just whether it's just a naked option or vertical spread like that makes a lot of sense i don't think anything is likely to fall out of bed unless we get very bad news on any particular front right mow. the things bolsters growth stocks and the market remain generally intact a lot of political uncertainty behind us. still retilyanlave se one, i think. up next, your tweets and "the final call. >> announcer: "options action" is sponsored by -- that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning content is tailored to fit

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♪♪ ♪♪ ♪♪ welcome back to p"options

action." taking your tweets how will boeing be next week the 737 approved for canada and the eu next week what do you tell this guy? >> good news, but i don't think completely out of the woods yet. i like the trade structure we used earlier on the show diagonals. think buyinging 225s or 230s against it. >> johnson & johnson going into earnings bullish using a call spread. is this a good call? carter, your two cents >> sure. great-looking chart. important relative strength to the health care sector at 163.55 close today, i think you've got dead it right 161.80. >> "final call." tony kick us off.

>> i think ge electrifying the future with renewable energy call diagonal spread. >> carter? >> apple poised to break out. >> mike khouk. >> new traders think about five rights. >> does it for us on my mission is simple, this make you money i'm here to level the playing field for all investors. there's always a bull market somewhere, and i prom mise to hl you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to make you money. my job is to entertain and teach. call me 1-800-743-cnbc or tweet me @jimcramer. how is business holding up not talking about how covid is affecting the econom