like he's franchising come january 2021. lemonis: yeah. 'cause a lot of people are doing that right now. amber: [ laughs ] lemonis: like, i just -- i don't know that i see it thriving, but i'm glad that it's surviving, which is amazing. hello, there, happy friday if you're new to "options action," risking less to take more tonight, a directional plan. disney rolling the dice on mgm keeping cool with yeti lessons learned from a gray swan delivered by swaum carter worth, mike khouw, tony zhang. disney shares on a magical ride up nearly 28%, and the house of mouse could be heading to a fresh new all-time high.

mike >> yeah, so this is an interesting situation. we've got disney close did all-time highs here. if people are just taking a look at the historical performance of the company, one of the things you might be asking yourself is, we've got free cash flow for the year, that's probably going to be one-sixth of the peak it reached in 2018. we've got net income that's going to be a small fraction of what it was in 2018. the parks are closed what is the bull case here the bull case is a couple of things disney plus. just shy of 90 million subscribers, maybe the 2024 expectation of multiplying that by close to 4, 350 million subscribers, pet in perspective, soundly in competition with a company like netflix which itself has over a market capitalization of over $200 billion. this week we heard california legislators talking about the possibility of reopening parks in the state of california disneyland brings in about $4

billion a year in revenues, of course you're going to hopefully see as we come out of the back end of this pandemic people starting to go back and participate in those areas. right now they're taking a look, believe it or not, at close to $90 billion in revenues about two years out from now, that would be the highest ever. despite the fact that you have these high levels, that would be one of the reasons why people make a bullish case for disney. >> let's see what the outlook is technically, carter? >> it's a good setup, let's go right to the charts. the first one, this is a simple one-year chart of disney no judgments or adaptations by me next chart, one way to draw the lines. it takes a lot of buying pressure to move the stock up with the gap, typically news and often earnings stock after gapping up has been consolidating, doing nothing as the mark's gone higher and higher you can call it a wedge,

ascending triangle, they're usually resolved in the direction of the primary move. a longer-term chart, one of two. the third chart. disney broke out on its earnings above well-defined tops at a common level then it checks back, final chart, and the check-back, the give-back, reintroduces that ascending wedge or triangle. so a stock that basically returned to its prepandemic high, broke out on news, then has consolidated for the better part of two, three months. in rprinciple, the next directio move is up, not down so we like it for a good 8%, 10%. >> the fundamental case, the technical case, mike, lay out the trade. >> yeah, let's talk about the options case so typically over the last eight quarters, this is a stock that's moved about 3% right now the options market isn't playing double that. a move of about 6% after they report what does that tell us options

prices are elevated? when we know options are prices are elevated we try to take advantage by collecting some premium. we want to do so in a way that doesn't take a great deal of risk looking to march, the 180/160 put spread, that's a credit spread, sell that spread, collecting about $8.75 or so for the 180 strike puts. looking at that. buying 160 against it. net-net, collecting a credit of about $6.30 per spread, $6.30 per share when you put this trade on we're usually looking to collect 30% to 40% of the spread, this is toward the lower end of the range, but i think you're hedging yourself against the risk that you see. a disappointing quarter, i don't expect one, but if you, do that's the hedge we saw that in 2015, but this is a different dynamic now. this is one of the investment strategies you can list, essentially, if you're going to use options going into this one. >> tony, do you like disney, do

you like the trade >> yeah, so i like both the technical and fundamental reasons that mike and carter laid out i think pent-up demand with theme parks, as well as the streaming numbers that are coming out from disney plus, are very strong on the fundamental side the chart setup looks very strong for potential breakout. my only concern is after the stock jumped 150 to 175 december 11th when they came out with strong disney plus numbers, the stock has underperformed since then if we use comcast as a preview, as a company reported very strong earnings and the stock didn't jump at all off the back of those earnings. my concern is disney doesn't have that big breakout, but that's why i like mike's trade in two of the three scenarios, disney stock rises on earnings or trades sideways this strategy is profitable only if disney stock declines significantly do you see any significant losses here on this particular strategy so for those reasons i like the

trade itself. >> comcast is a parent company of this network. carter, what's your response to the point about the trading pattern, december, for disney? >> sure. i mean, that's the point when you rest after a great period of strain, it's usually the pause that refreshes the point is after an exertion like that, a sideways move is more often than not the preview, the setup, for the next directional move and of course, on any given week or month, you could have poor relative performance but that is either the opportunity or the problem in this case, disney not making any progress for two months, at the market's gone higher having trounced the market in the preceding two months, the set up or sequence would call for higher and that's the bet. let's roll the dice on another slice of the reopening trade, mgm reporting next week as well. tony says the casino stock could be about to hit the jackpot. >> i'm looking at mgm more so on

the online betting side with the super bowl this weekend. a lot of interest in the bet mgm side of the business that is expected to grow quite a bit here on super bowl weekend if we take a look at the chart on mgm here, over the past two years, we've had a pretty spectacular drop, about $34 high in january last year to $6 it clawed back here this week to make a new 52-week high today. i'm lag for a potential breakout here above this $34 level that it put in back in january as a potential breakout level all the way up to the $38 level, the all-time highs if we zoom to a shorter-term chart the last six months, the stock has been range bound from 30 to 32, recently broken out above that range here this week. especially if you consider the fact that it's been coupled with very strong relative strength, relative to its sector, that's the type of relative strength i

like to see going into an earnings event next week so if we shift our attention here to earnings, the market is currently applying a fairly sizable move here. 7.9% versus over the past eight quarters of only 5.5%. so the options market implying a sizable move, yet the implied volatilities here going out a little further in time is still relatively muted here. so for those reasons, i'm using a trade structure that allows me to take advantage of a breakout here and the relatively low implied volatilities using a debit spread going out to april, i'm buying the 35, 40 call spread, paying about $2.99 for the april 35 calls. collecting about $1.39 for the april 40 calls net-net paying about $1.60 for the $5 wide debit spread, which is a little under 5% of the stock's price to take this bet i'm risking -- i have about a roughly 2-1 risk/reward ratio

here, if mgm does break out higher and revisits its all-time highs around 38. >> mike, your take on this trade? >> yeah, so i think tony is hitting on a critical thing to think about. we often talk about the fact that if options premiums are elevated going into a catalyst and we're not expecting a move maybe as large as the market seems to be implying that we want to take advantage of that by being short optioned, that was the theory we were laying out in disney. by going to april, taking advantage of the fact that those options are not quite as highly priced, that's really something i think that people should be paying attention to when you are deciding to use a debit spread instead of a credit spread i like that. one of the things to think about, if this stock has a disappointing earnings, the value of the spread is unlikely to collapse to zero right away it actually is still going to have some time in a way, the amount of money that you're laying out, if you decide to revisit your thesis at the end of next week or the week after, is going to be still that

you have an opportunity to collect some premium if the stock goes in the wrong direction. if you're going to be long options, generally speaking, try to give yourself a little more time if you're going to be short options, usually you want to identify that catalyst where they're overpriced and sell those. >> your thoughts, carter >> we have big news out of wynn today, the s&p 500 casino and gaming stocks index, online stocks were up 6.5%. the tailwind positive comments about penn national. the interesting thing in terms of levels is as tony pointed out, toig with the prospects of breaking out considering the following, this stock's high before the pandemic hit, january a year ago, $34.64. today, it hit $34.66 literally to the penny back to its -- so many stocks have recouped losses but a lot of stocks moved above prepandemic high that would be the inference,

yeah. coming up, could it be the peloton of insulated drinkware the very cool story of yeti and how to retain the heat around the with options optionsaction.cnbc.com sign up for our newsletter

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." more earnings next week.

when things get hot, options can keep you cool. sometimes an amazing stock growth story can be under your nose literally as you sip your still-warm morning coffee. mike khouw's "call to action," tonight, take it way. >> if you go to central texas, one of the things you're going to learn is the brisket at the worst barbecue in texas on 360, rudy's barbecue at the shell station, is better than any brisket outside the state of texas. if you move to central texas, you're going to learn that you can have 90 days in a row when it's over 90 degrees i moved to central texas, lived there for five years i figured out that the only way to keep your drinks cool was to buy a yeti behind me i've got a whole wall of these things. these are great coolers. it's a really interesting company. it's not one that we've talked about very much. it's had a spectacular period of growth what's interesting about it is that if you take a look at full-year earnings, it's only trading about 35 times that number despite the fact you've got

about 15%, close to 20% eps growth looking at earnings, yeti moved just under 8% on average the last eight quarters. right now the options market is implying a move of over 10%. if you bought the march at the money straddle, this stock would need to move 16.5% higher or lower before you would begin to see profits. when i take a look at that, to me, this actually speaks to what we were talking about earlier in the show you want to try to take advantage of that situation by selling those overpriced options. i was looking at the march 80 calls and the march 65 puts. i could sell each for $3 and $2.60 respectively, doing that trade, i would collect about $5.60. then i can use those proceeds to help finance the purchase of a longer dated may at the money 72.5 call for $9.10. i'm trying to take advantage of the fact that the longer dated options are not going to decay as quickly, sell these nearer

dated ones which are likely to decay very quickly, going into a catalyst like this this gives me upside, up to, basically through the higher strike call that i'm short so that's basically upside of about 10% from here if the stock should rise. on the downside, if the stock fell, i could have that stock put to me. if i'm short a put, the holder of that put has the right to sell me those shares at that lower strike price, in this case, $65. remember, i'm still going to own that longer dated call in the midst of all of this try to take advantage of elevated short dated premiums going into a known event a company i really like, great products, great growth story on top of that, trying to take advantage of the fact that the longer dated options i'm buying are not going to decay as quickly. >> i wonder if rudy watches "options actions." you inconsulted rudy at the shell station by calling his beef brisket the worst in all of texas. >> by the way, rudy's is a chain, they have a sign that

says "the worst barbecue in texas. >> oh, okay, all right. >> it is phenomenal, maybe not as famous as franklin's, but if you want good brisket and you don't have time to go to franklin's, rudy's. >> being ironic, got it. carter, what are the technicals looking like for this one? >> they're good, but before that, the dallas community, 16 people covering it, they don't believe in it. 12-month for price target is exactly where the price is trading, 72, they believe there's no upside. three charts yeti the principles are the same regardless of the business a steady up trend, you can see the there, i've annotated a trend line second chart, it's also a channel. second line, north by northeast, steadily higher, never gets too hot. when it does, it pulls back. this stock lost 19% in the past two weeks before this week's bounce third and final chart, another way to look at it. channel with the midpoint. north by northeast steady as she goes higher.

never too steep and hysterical when it does get a little steep, it pulls back, and that's the setup for the next advance. >> tony, what do you make of the trade? >> first, i will say that i can't sit down in the mornings without my yeti mug with a cup full of coffee so the brand recognition here is certainly unparalleled in this particular space mike referred to 15% to 20% top of bottom line growth. i think that's fairly average but what i think is impressive is the fact that on a billion dollars in revenue, they've generated $273 million in free cash flow. over the past couple of quarters they've been able to grow profit margins from under 5%, over 17%. that's really where i think why the stock is trading so high -- has such strong performance this year compared to its sector, consumer discretionary as far as mike's trade goes, you can think of it two different ways mike talked about it in terms of selling a string angle to finance buying a long-term, longer-term call i think for some investors here who are watching the show who

may be a little confused about that strategy, another way to think about this is selling a put, he's selling a march 65 put, which i think from a fact call perspective is really important. because that 65 level is the last swing low which corresponds which a channel that carter's referring to using those proceeds to finance a call diagonal here he's trading the 72.5, 80 march-may diagonal here. if you just traded the diagonal itself, he would have been risking about -- a little over 8% of the underlying stock price to trade that diagonal by selling the put you've reduced the risk of the trade to just under 5%. reduction in risk here is key here you add a little risk if the stock declines significantly, but for looking at the fundamentals, i think the probability of that is relatively low. >> all right next, you can do all the fundamental research, tackle the technicals, your trade can be working, then the boss quits

lesson to be learned from a grey swan at amazon, how options can keep your feathers from getting too ruffled. send your tweets to us @optionsaction. 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. ♪♪

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welcome back to "options action." time to take a look back at one of our open trades last week, a bet on amazon into earnings. >> we're working into the apex, a wedge, triangle, doesn't matter it typically happens, equilibrium, buyers and sellers are matched off before something occurs many would say, yeah, it's going to break out through the bottom. that's not my bet, i think it's going to break out to the upside. >> a single share of stock would cost over $3,200 right now one round lot, 100 shares, would be $320,000. one thing we could do is look to buy a call option on the like amount of shares instead and then look to sell some of the elevated options premium in the more near dated options. i was looking at the june 3,300 calls. you could pay about $274 per share for those. obviously much less than a share of stock

every call option represents 100 shares, so multiply that by 100. then sell the february 2550 calls against it for $37.50. net-net, spending the equivalent of $236.50 per share >> all right, you know what happened amazon posted very strong results then announced jeff bezos will step away from his role as ceo. we'll get to mike with the trade, but carter, what's your take at this point >> right, the breakout for earnings for a resolution of the standoff five months sideways has been deferred, not canceled. which is to say, the operating business, the premise for the breakout in hand and delivered, and yet, of course, when the founder of an enterprise such as this steps down, people rethink it, at least on a short-term basis. so stay long and roll your calls, but mike will have a play for you. >> all right mike, what is it >> yeah, so it's interesting

i mean, this was looking great right after earnings, then, of course, jeff lowered the boom on us but what's interesting, of course, with this trade is that because of the decay in the near dated options and the fact that the stock actually has held up relatively well after suffering a little bit of a setback after that announcement, we can stay long those longer dated calls and essentially turn this into what we call a super calendar. that's the situation where we cover those short calls that have essentially decayed to nothing, then we sell another set, maybe another month out we own those june calls, remember we've got less capital allocated than we would have had we owned the stock. we are seeing mild profits, maybe not as good as we'd hoped. we can essentially continue to make this play through time. i still like the trade in the long side. >> all right next, i've got your tweets and "the final call. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh.

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action." time for tweets. is now a good time for a covered call on at&t, looking at march 26th mike, what do you say? >> i think this person's paying really close attention this is a smart expiration for two reasons. one, they reported earnings in january, they don't again until april. you're going to be selling an option that doesn't capture that this stock pays a big dividend, goes x dividend early in april there's no assignment risk by sell issing this near dated expiration this is a very smart expiration to choose. >> our next viewer asks, is there any way to know if a giant on the money call buy is someone buying insurance >> the reality is it's difficult to know the true intentions of any call buyer and what position they actually have in addition to the call that they've purchased. but i will say it's generally, i would say, uncommon for a firm to use out of the money call options to hedge a short stock

position time for "the final call," carter >> disney long into earnings. >> tony? >> betting on mgm, long a call spread. >> mike? >> i'm rooting for you, tom brady, take it home. >> have a great weekend. "mad money" starts right now - [g 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.