i think he was an adrenaline junkie. i think he thrived on winning. he took it way too far. i think he definitely flew too close to the sun. ♪♪ happy friday, "options action" fans another great show lined up for you here here's what's on deck -- >> 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, carter worth is plotting out whether the stock can regain its leadership position. then -- could old g.e. be one of the best ways to play the new biden administration tony zhang will plug you into what's happening with that

stock. lots of hints there. and -- welcome newbies! lots of you jumping onto 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 khouw is your knight in options >> carter worth explains what is cooking. carter >> you bet it's one of the simplest setups in market. not apple, but the setup itself, and we will examine it but 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, a low on september 21st. three, it's returned to its former high, which in principle is a setup for a breakout to new highs. a 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 then it 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 foreshadows a breakout stock closed 139, spot 07. thinking 150. >> all right thank you for that, carter from carter's jacket, tie, and pocket square, 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, take a look at the weekly options, the money call and put. in this case, the stock was 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. so that's 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 slight letter higher than average volatility 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 about $13. 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 strikes, 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. but diagonal, that's one of the reasons we're setting it up this way. to the downside, our maximum

risk is $10. why do this rather than buy the stock? you know, we were 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%. why? there's a billion iphones, ipads, and macs out there. a great platform to build on seems 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, do you like this trade? >> i do.

i like the trade setup the breakout as of today's cause. broken out above that 138. i love the technical break out and like it with an earnings release, that with relative strength like 20 see it going into an earnings event when we look at the earnings itself, a lot of investors focus this time on the services business i like 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. i think that's a game-changer going forward. and then you add on top of that the augmented reality, what they just said this week about augmented reality as well as autonomous driving going out to 2024 i think i really like this setup here for this. and mike's diagonal, as he said, he's only spending $10 for a diagonal that's $15 wide that means even if apple has a blowout quarter, he doesn't have any losses to the upside

you need to have apple mov substantially lower for him to risk that full $10 or only about 7.5 percent of the stock price for that reasons i real like the stock setup. >> any word on this trade, mike, and the caveats, given what we saw across technology this week? >> and that's a great point, right? we've 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. all right. let let's move onto 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 g.e., i think, is starting to

take hold here especially as you said president biden has a $2 trillion green climate infrastructure bill he's trying to pass through. i think that's going to put significant weight behind the power in renewable business g.e. has, currently about one-third of revenues, offsetting softness we're seeing from the aviation business, which is another one third of the revenue here for g.e. so if we look at the long-term chart here for g.e., over the past five years, this stock has greatly underperformed its sector in 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. now f we zoom in here over the last six months, this is where g.e. has greatly outperformed after underperforming a long period of time g.e. up 57% over the last six months versus 22% for xli, industrial sector. so this is the type of relative strength i really like to see

going into an earnings event next week. if we look at the earnings itself, it's currently implying about a 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 i'm actually going to use the same trade structure that mike is using for apple, using a call diagonal the february-june, 11, 11.5 call diagonal so i'm buying the june 11 calls for about $1.29, and i'm selling the february 11.5 calls against it for about 42 cents. so net/net here, i'm 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 g.e. blows out earnings and goes above $13.50, you will see some losses, but i think that's a relatively low probability here >> how does that g.e. chart look to you, carter >> sure. well, i think what's so important here is where the stock basically found its footing. to think that its peak was as far back as 2000 at $58. i mean, 20 years got down to a low may 15th market bottomed in march and g.e. still making new lows at $5.50. that's remarkably close to its financial crisis low, which is $6.50. so its own line low, $6.50 undercuts it by $1 50 cents this go-around with the pandemic and it comes to life in a big way the way tony described

in terms of price objectives, one thing we can target, right, is its pre-pandemic high 12 high. many stocks, the market itself, recovered to the pre-pandemic high, that is $13.25 stock closed at 11, right here >> quick thought on this trade, mike >> yeah. i like it as an options trade. g.e. obviously we know about troubles in the power business 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 trying to staying out of the company. it's a big ship and hard to turn around. check out our website on "options action. while there check out or newsletter. >> continuing to rocket higher here's what's coming up next. >> use of options and continued trading is rocketing 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 has guidance on how 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. >> aa "options action" sponsored by thinkorswim td amare trade. we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car. whether it's a year old or a few years old. we wanna buy your car.

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." if you caught "fast money" yesterday -- of course, you did

-- you might recognize this next graphic. take a look at this options explosion. more than 21 billion contracts changed hands last year, blowing traffic out of the water now bob pisani is here to tell us how the retail investors can drive this higher in 2021. hey, 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 -- it's known as the trade reporting facility or trf for short -- it's seen a dramatic increase in the last year to a record percent of the overall trading volume second, monthly trades at retail brokers 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 day 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 phenomena we talked about 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 is there any sign retail traders are getting more cautious? remember, interactive broker tom

pet petterfy, he told me in december his clients were net short in the market prior five days call buyers predominant in the market 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. it's not tesla necessarily the bottom rung of the stock market back to you. >> red is the 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 not just how to buy but how to buy right. he's here with the "call to action." mike. >> that's right. what bob was talking about is a primary use of options, and there's three categories i lie 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 for that to be profitable. probability of profit is lower another possible use case? hedging. nice thing about hedging, reduce overall risk smooth your returns. buying insurance always comes at a cost generally speaking, your cumulative returns are always going to be lower. final use case and probably the one most people just starting out with options ought to consider is generating yield by overwriting. the nice thing about this is you're going to enhance your yield, and as carter pointed out last week, yields, dividends, returns, those over time can 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 if you don't already own the stock, what you would be doing

is buy right, 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 245s microsoft is paying a 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. that may not sound like a lot, but it's 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 your upside gains are more than 9% in a trade like this oneover 60 days >> thanks, mike. carter, you've got 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 presumptively will break out as netflix has just done, and we believe apple will too. >> and, tony, you 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 so delta and theta, two of the most important greeks. cover call is a way to get exposure to those two greeks, 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 we'll be back right after this turn on my tv and boom, it's got all my favorite shows right there. i wish my trading platform worked like that. >> "options action" is sponsored by thinkorswim by td ameritrade.

n 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? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪♪

i have an idea for a trade. oh yeah, you going to place it? not until i'm sure. why don't you call td ameritrade for a strategy gut check? what's that? you run it by an expert, you talk about the risk and potential profit and loss. could've used that before i hired my interior decorator. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪♪ action"'s in our final show of 2020 tony laid out a way to get the best set of best buy let's take a look back at the trade. >> you've had a recent breakdown below the $105 support level

actually came back to retest that level as resistance and got rejected easy specially look at best buy to its receptor, xrt the retail sector, it's veerly underperformed 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 was 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, which is about 99% of the max profit. i see a lot of investors may be inclined seeing these expire also worthless to leave them to expiration i encourage investors 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. that's just 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 so i think 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 now. the things bolstering growth stocks and the market remain generally intact there's a lot of political uncertainty behind us. still relatively sanguine, i think. up next, your tweets and "the final call. >> "options action" is sponsored by thinkorswim by td ameritrade. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter,

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♪♪ ♪♪ ♪♪ welcome back to "options action." time to take your tweets our first viewer asks how will

boeing be next week. a lot of big orders recently the 737 is approved for canada and the eu next week mike, what do you tell minerva's market guide >> 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 buying 225s or 230s against it. >> our next viewer asks how about johnson & johnson going into earnings next week? he's bullish, using a 160/180 march 19 call spread carter, is this a good call? 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 g.e. electrifying the

future with renewable energy call diagonal spread. >> carter? >> apple poised to break out. >> mike khouw. >> new traders think about buy rights >> that does it for us on "options action. see you bath here next friday. mad munn starts right now. - [ang 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.