you wanna talk about streets of dreams? take a walk down harbor drive and check out the blue gold of san diego bay, because this city has trillion-dollar dreams for what's to come. ham i happy friday, "options action" fans here's what's lined up >> with everything going on it would be easy to overlook the fact that apple is 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 ge be one of the best ways to play the new biden administration tony will plug you into what's happening with that stock. lots of hints there.

and welcome newbies. lots of you jumping onto the options chess board. a word to the wise you could quickly get caught as a pawn let us help you develop a strategy to stay out of check. your knight in options armour. "options action" starts right now. >> let's get right to it apple slices along the foundation of a classic pie. apple stock currently the foundation of a classic technical move carter worth explains what is cooking. carter >> you bet it's one of the simplest set-ups in markets not apple, but the set-up 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 peaked on september 2nd at around $138 a share and since then it's dead flat. made no progress in almost five months as the s&p has gone up 7

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 set-up for a break out to new highs. a very straightforward sequence. in terms of the pattern, the visuals, the 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 -- this is the set-up optically. a well defined up trend then it gets ahead of itself it pulls back the trend. it reapproaches the highs a month ago, back sway, but shallow, and now here we are re-approaching it again. this is the moment where you typically break out. and then the final just 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 set-up that foreshadows a break out. stocked closed at 139.07, we're thinking 150 >> thank you for that, carter. so from carter's jacket, tie and pocket square, we go to mike what is the trade? >> the vest is actually made of wool if you're at the nasdaq right now i want to thank them they're the ones that september it to me, part of the christmas package they sent out. it's keeping me warm we're going to talk about earnings here. if you take a look at the last eight quarters, apple has moved an average of 4.5% we often talked about implied moves. if you're wondering how to calculate that, the best way to do it back of the napkin is take a look at the weekly options, the at the money call and put. in this case the stock was trading 137 when i was looking at this earlier today. it closed slightly higher than that you add that call and that put together, when i did that, that

was $8.75, approximately 6.4 of the current stock price. 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 slightly higher than average volatility we want to sell some of those options. so i was looking at the march/july 140, 155 call diagonal what was i doing here? the july 135 calls selling for $13 and sell the march calls $3. net-net an important trade when you use a diagonal like this, if you're spending less money than the distance between the strikes, in this case $15. we're spending 10. distance between the strikes is 15 you have profit no matter how far high the stock goes. that's not true for a straight calendar necessarily in a diagonal, that's one of the reasons we're set being it up this way if the stock goes higher, there's no way it isn't profitable on the downside our risk is $10.

why would we rather do this than buy the stock? if you're looking at apple certainly the over the last ten years or so, right now the price to earnings at about 40 is probably as high as it's been by a good margin. here's the amazing thing for 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 by maybe 22%. maybe gross margins increase to 39%. why is that? because there's a billion iphones, ipads, and macs out there which is a great platform obviously to build on their services business. they seem to be delivering that's why it's starting to price a little more like a growth stock this is basically less risky way to make a bullish bet than buying the stock here. >> tony, you like this trade >> i do. i love the technical set up carter has laid out here, the triple top at 138. you already have the break out here as of today's close as carter said. we've already broken out above the 138. i love the technical break out especially when you align that

with an earnings release, that type the catalyst, with the relative strength, we like to citi that going into an earnings event. when we look at the earnings itself, a lot of investors are focused this time on the services business and seeing growth in there. i certainly want to see that i actually think one of the things we should look at is actually the mac laptop business because they've recently moved off of intel chips which brings the iphone, the ipad and the laptop all onto the same chip which means you can potentially runny phone apps on your laptop. that's a game changer going forward. you add on top 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 set-up for this. mike's diagonal, as he said he's only spending $10 for a diagonal, $15 wide even if apple has a blowout quarter, he has no losses to the

up side. you need it to move substantially lower to risk 10 cents or 7.5% of the stock price. for those reasons i like this trade set up >> last word, mike, given the massive run we saw across cap technology this week >> yeah, actually -- that's a great point, right we've seen this big run and a lot of times we're in situations where we want to own the stocks, want to continue to hold these stocks but we're a little bit nervous about the valuation. trade structures like this one allow us to continue to participate to the upside, but give us a lot more protection to the downside in the case of things turn sour when you start to see headier valuations that is a possibility. >> let's move on to another classic name, general electric the stock could see renewed interest with the new biden administration's focus on green energy tony is explaining this one. tony >> exactly this company is 130 years old, but the turn around story for ge i think is starting to take hold here especially as you said,

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

itself, it's currently implying about 7.6% move versus the actual move over the last eight quarters is only about 6.3%. so options are implying a sizeable move here so implied volatilities are relatively elevated. when you talk into account the stock has had a very strong run over the last three months, i am concerned of how much more up side 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 i'm using the february/june 11, 11 1/2 call diagonal so i'm buying the june 11 calls for about a dollar.29 and i'm selling the february 11 1/2 calls against it for about 42 cents. 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 a slightly more than

that, so there is downside here if ge blows out earnings and goes above $13.50, you will see some losses. i think 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 that its peak was as far back as 2000 at $58. i mean, 20 years and what we know is it got down to a low on may 15th. remember the market bottom ge was making a low. it was close to the financial crisis low online low 6.50. it under cuts it by a dollar, 5.50, this go around with the pandemic and comes to life in a big way just as tony has described. so in terms of price objectives, one thing we can target, right, is its pre-pandemic high, it's

feb 12 high. many stocks have recovered to the pre-pandemic high. that is 13.25. the stock closed at 11.11. that's nice eating from here >> mike, your quick thought on this trade >> yeah, i mean, i like it as an options trade. ge we know the chart was in the power business and a lot of other things this is a company that for years was able to engineer its earnings by stuffing a lot of skeletons into closets when they start to come back out, we don't know how many there are but new management is on track trying to straighten out the company. it is a big ship and hard to turn these kinds around. owe for early "options action" sign up for our newsletter here's what's coming up next >> announcer: use of options in retail trading is continuing to rocket higher. if that's how you got here, welcome. but be warned. quick mobile trades on momentum is a betting strategy. not an investment strategy professor mike coe has guidance on how to keep your account from

burning up in the atmosphere plus, calling all "options action" fans reach into your pocket, grab your phone and tweet us your question at "options action. if it's nice, we'll answer it on air. when "options action" returns. (announcer) carvana's had a lot of firsts. 100% online car buying. car vending machines. and now, putting you in control of your financing. at carvana, get personalized terms, browse for cars that fit your budget,

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." if you caught fast money yesterday, of course, you did, i might recognize this next

graphic. take a look at this options explosion. more than 21 billion contracts changed hands in the market last year, blowing 2019's traffic out of the water now bob pisani is here to tell us how the retail investor could drive options trading even 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. now, three side points to retail investors, the primary reason overall trading is up. first, the tape that reports retail trading is 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 and interactive brokers have also hit a record finally equity option trade sergio garcia up december saw an average of 32.7 million contract krad on all the equity options exchanges

on a daily basis, also a record. but in january so far, 39.8 million contracts a day are trading. that's another record. and it's another indicator of retail activity. here's another one trading in single contract options have doubled in market share from 4% to 8% of the contracts, and crippled in volume in contracts per day. now, 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 that were so popular in 2020 continues in january now, there is still a lot of interest in these short-dated calls. those are the options with the longest odds against the buyer because they decay so rapidly but they keep working as long as the markets and individual stocks keep going up is there any sign retail traders are getting more cautious? remember, interactive brokers chairman tom peterfy told me am december his clients were net

short in the market in the prior five days. traders tell me that call buyers are still predominant in the market melissa, one thing about the volume in equities a lot of the volume is in the bottom rung of the nasdaq and the nyse $2 and $3 stocks there's a lot of active in conference rooms and chat rooms. that seems to be back again in a very big way bear that in mind. it's not tesla necessarily a lot of it is the bottom rung of the stock market. back to you. >> it's the new chat room apparently, bob. thank you. bob pisani whether you're joining us tonight new to the options game or as an old salt, as our slogan states, we risk less to help you make more. how to buy right here with the call to action, mike >> that's right. what bob was talking about is one of the primary uses of actions. there's three categories i like to think about one is using options the way he was suggestion buying short data calls to make

directional best short in nature, leverage a small amount to capital. the problem is you need something to be profitable the probability of profit is lower. hedging, the nice thing about hedging is it can reduce your overall risk, smooth your returns. buying insurance always comes at a cost cumulative returns are ultimately going to be lower the final use case and probably the one most people who are just starting out with options ought to be considering is generating yield by overriding. the nice thing is you're going to enhance your yield. as carter pointed out last week, yield, dividend, returns, those can over time be a very meaningful part of your investment returns overall that is' an important thing to consider pick stocks you want to own for the long term and look at enhanced yield microsoft was trading right around 228 bucks today if you don't already own the stock, what you would be doing in a buy right, you would be buying the microsoft shares at 228, 100 shares, and sell one

call against it. that's the righting part writing a call option. specifically ways looking at the march 245s you could collect $4.30 for that think about this microsoft issing also going to be paying a 50 cent dividend you put the dividend together with the yield you collect for that call. you get more than a 2.1% yield from now until march expiration. so if you bought the shares and they just go sideways, you're going to collect a little over 2% yield that may not sound like a lot, but that's less than two months. over time that really begins to add up when those expire, you do the same process, essentially rinse and repeat the only thing is, of course, if you sell the up side call, you are capping your potential gains. your up side gains are still more than 9% in a trade like this over 60 days. >> thanks for that, mike carter, you got a track for us >> we do look at it, it's identical to apple, meaning where did it peak september 2nd, just like apple they were all ahead of themselves they're fully rested microsoft will break out as netflix has done, as we believe apple will

>> tony, i imagine you used the strategy, too. >> i do, and this is actually i think one of the best strategies for beginners to start with of the because, number one, it allows an investor who is getting into options to actually hold an option all the way through expiration and this allows an investor to understand how a call option responds to the stock moving higher and lower, and also how it responds to time. so delta and theta, two of the most important greeks. so cover calls is a great way for users to get exposure to the greeks for those reasons i really like the strategy for someone who is starting out >> all right up next, how one stock really lived up to its name for one of our traders. plus we're taking your tweets, so send them at "options action." we will 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. 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? 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. ♪♪ welcome back to "options action." in our final show of 2020, tony laid out a way to get the best out of best buy. let's take a look at the trade >> a you've had a recent break down below the $105 support level. it actually came back to retest that level's resistance and got

rejected especially if you look at best buy to its receptor, the xrt retail sector, it's severely under performed. it's an opportunity to take a look at this stock i chose to go to january 29 to put a put spread i sold the 102, collecting $1.75. >> tony knocked this one out of the park and was able to take profits. tony, what are you doing next? >> yeah, so we sold this for about $2.75 earlier today you could buy it back for 2 cents which was 99% of the max profit. but i see a lot of investors may be inclined when they see these type of credit spreads almost worthless to leave them to expiration i encourage investors to buy back this credit spread, remove the obligation because in case best buy does in 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 >> what is your outlook at this point, mike? let's go to you on a best buy. >> yeah, well, first of all, i think tony is 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. whether it's a naked option or vertical spread like that. i think it makes a lot of sense. i don't think anything is likely to fall out of bed unless we get bad news on any particular front. the things bolstering growth stocks and bolstering the market in general remain intact we have a lot of political uncertainty behind it, so still relatively sanguine. >> up next we have your trades and the final call i'm searching for info on >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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,

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

think boeing's earnings will be next wednesday as well as price reaction, a lot of orders recently and the 737-max approved for canada and the e.u. next week? mike, what do you tell manirva's market guide >> i like the diagonals. you might think of buying two strike calls, 225s or 230s >> our next viewer asks how about johnson & johnson going into earnings next week? he is bullish using a 160/180 march 19 call spread is this a good call? carter, your 2 cents >> sure. great looking chart, important relative strength to the health care sector. and at 163.65 close today, i think you've got this dead to rights 161.80. >> time for the final call tony, kick us off. >> i think ge is going to

electrify in the future with green energy i'm buying a call diagonal spread >> carter? >> apple poised to break out >> mike coe? >> new traders, think about buy rights >> that does it for us at "options action. see you back here next friday. "mad money" starts right now - [narrator] the following is a paid commercial program for walkfit platinum. sponsored by walkfit platinum, llc. - [narrator] coming up, as part of our comfort spectacular, you can cradle your feet in comfort anytime you want with our all-new memory foam slippers, a $30 value for free. made of a soft and luxurious velour top with durable anti-slip soles. the form-fitting memory foam insoles shape to your feet for unmatched custom comfort. and they're yours just for tryineg th walkfit platinum orthotics.

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