in a very short period of time. and the boys -- they're communicating properly. and that's the thing that i'm happiest about. damion: i'm happy to be in business with you both. simon: and me. we're almost there, my man. ♪♪ happy friday, "options action"s fans. we've got a great show lined up for you. here's what's ahead. >>. the tech sector. it's all about disruption and speed, or is it? carter wurth explains why the tech tort tosses could end up beating the hares. even if volatility takes its toll, tony zhang has another play that column ber higher. >> a life boat can only hold so

many passengers. have no fear, professor khow has it nasdaq closing out in the red. our chart master said there is one name in the space bucking the trend. carter, take it away >> sure. obviously there's more than one, but let's talk about in many ways the most marquee stock of all, microsoft let's go to the charts the first is a two-panel chart top panel, microsoft itself. just ascending in an orderly fashion over the past five, six, eight years. the bottom panel is relative performance to the qqq the nasdaq 100 what you can see, of course, is the divergence meaning as microsoft has continued higher, it's been a serious underperform jereltive

to the 100 largest nasdaq stocks but that relative performance line, which has been slumping down, has bounced beautifully off the up trend you can see that there we're starting to see outperformance to that end, consider this week, a bad week for tech and yet look at this table. what are we doing? microsoft basically up, versus the qs, amazon down 3 and fang index down almost 5. it's preceding under performance, now outperformance. two charts, microsoft up trend it is what it is it's come down to the trend line since its marleau and has bounced handsomely not only is it down in one way, final chart, it is also back to the level from which it broke out. so a well-defined juncture, acts well in a very red moment for tech in general and then of

course final, take a look at this this is a comparative chart to put in context going back for all data for the two, apple and microsoft. microsoft is almost 3x what apple has done which is to say $1,000 invested in apple right now 35 years ago would have given you 980,000. microsoft will give you 2.8 million. microsoft lower beta .89 versus the market it feels offense and defense. >> wow mike, what's the trade >> yeah, so i think microsoft is interesting just from a fundamental standpoint as well we often talk about apple as basically having a built-in customer base. microsoft has that, too. of course, they also are at basically the forefront of an important spot one is with teams, that is the product that essentially competes with slack. that's very well liked and

obviously is very well positioned i think as we increasingly see people working remotely even as we start to return to each other's offices, this has become part of people's workflow the other is cloud this is an area where we've had a tremendous amount. right now the company is trading 30 times over earnings that interestingly is where the s&p is although critics of that analysis might point out that the s&p earnings were hurt more than microsoft last year i would agree with you the reason is microsoft's earnings grew year on year they'll grow more in the next 12 months looking at microsoft, i fundamentally like it. volatility is high options premiums are high. we are looking to sell options and we've seen volatility. how do we take advantage of this setup? i was looking at selling the april 2.10, 2.50 selling the 2.10 put and 2.50

call taking in $6 and using that premium to help finance the purchase of af longer dated at the money 230 spread call action for $13.50 net-net spending $7.50 now bear in mind, april expiration is going to precede the next earnings event for microsoft which is going to take place on april 29th. we're essentially selling that win. take a look at where the stock has traded, 2.10 give or take has been the low and we're at 2.45 we're trying to sell options on the outer areas of potential support and resistance buy that at the money call even if the stock trades sideways, this trade should be a winner. >> tony, what do you think of the trade? what do you think of microsoft >> so i like this trade, both from a fundamental and technical thesis perspective carter talked about the breakout level, the 225 level, breaking out above that level, coming

back to test that level as support this week. the bounce off of that i think is fairly strong from a technical perspective. as mike said, on the fundamental side, this is extremely strong almost 60% of the revenue generated from the cloud-based basis. if you think about the thought that operating margins are north of 40% makes the 30 times next year's earnings valuation fairly attractive for both reasons i like this technically and fundamentally. if you look at mike's trade, i know for investors relatively new for options or experienced options trader may find the strategy a little complex. i think another way to look at the strategy is to break it down into two strategies that we use on "options action." which is a short put and a call diagonal mike selling the april 2.10 puts collecting a bit of premium to finance the purchase of the call diagonal here. by going out to the april 250s

that he's selling on the diagonal, what i like about the diagonal that's a $20 wide, fifteen microsoft rallies substantially, even if it rallies substantially, he doesn't see any losses to the up side the only adjustment i would make is i would get a little bit more aggressive on the short put. we've identified that 225 is a major support level. i would sell an april 220 put, collect a little bit more premium here to pay for that call diagonal. otherwise, i really like the trade. >> mike, what do you think of tony's adjustment? >> yeah, i mean, it's interesting, of course the thing is we saw considerable volatility in the markets last week we saw considerable volatility in the markets this week the thing about this trade structure that you ought to be thinking about is why would i do this instead of simply going out and buying the stock the reason you would do this instead of buying the stock is you get significant outperformance to the down side.

any price below 240 or thereabouts in microsoft or lower from now until april expiration you're going to outperform the equity. if you raise the short put strike, you'll narrow the performance. better up side but you would be taking more risk to the down side tony, younger guy, who's playing it more conservatively than the old guy. into the consumer trade like the rest of the market is doing as reflation and opening trade kicks into this. tony is taking a name that's go shopping and stay at home. take it away >> yeah. that's exactly that because the home improvement space remains one of the strongest categories of consumer spending still even as the reopening trade starts to take hold here and lowe's poor performance since they reported earnings over the past couple of weeks which were fairly strong i think is an opportunity here to play for a bounce if we take a look at the chart

here on an absolute basis the chart broke out above that 150 level here in august so far it's been holding that level even today bouncing fairly strongly off of that 150 level here, but also on the absolute basis to its sector xly consumer discretionary, this is a stock that's held up very well since the election remember, there are some pretty strong names in this particular space and not only has it held up along -- relative to its sector, it started to outperform the sector this week during the selloff. for those reasons i like this relative to the sector but also if you look at the subsector within the home improvement space, lowe's has outperformed the much larger rival since home depot since march. i like lowe's as a re-opening and playing a bounce off of these technical levels here. so the fundamentals here for me looks fairly encouraging for lowe's the fact that we've held that 150 level technically looks encouraging but i do have to

take into account the current market conditions which leads me to be more of a mildly bullish view here on lowe's. the trade structure is the relatively implied volatility for lowe's i'm going out to april and i'm selling the 140, 150, 160, 170 iron condor here for investors first-time sellers of iron condor, you can think of this as breaking it out between a put credit spread and a call credit spread on the same expiration day out to april selling the 150, 140 put spread for $3. i'm selling the 160, 170 call credit for $2.10 net-net i'm collecting $5.10 which brings my break-even price to be around 145 and 165 as long as lowe's stays between those two levels this strategy is profitable and i only have a max loss of just shy of $5 if

lowe's is below 140 or above 170. substantial price away from where it's currently trading now i will say lowe's has bounced quite strongly here today since i looked at this trade earlier this morning for investors who want to place this on monday morning now that lowe's has moved 7 bucks higher today, you might want to adjust the strike prices higher by $5 on monday morning. >> carter, does the chart look mildly bullish to you? >> well, i think one of the key things that tony said is its recent outperformance to home depot. basically since the '09 low lowe's has been a chronic under performer versus its bigger peer and it's holding up better as home depot has put out some negative news is very important. also we came right down to november low, we held and my hunch is that this is the better play than home depot. >> for everything "options action" check out our website

optionsaction.cnbc.com sign up for the newsletter while you're there here's what's coming up next. when everyone is full of energy, that might be the time to give it a rest. professor khouw explains plus, calling all "options action"s fans. reach into your pocket, grab your phone and tweet us your question @optionsaction. if it's nice, we'll answer it on air when "options action" returns.

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. welcome back to "options action." we have a news alert california saying it will allow theme parks like disneyland, major league baseball and live shows to resume capacity on april 1st. disney has been closed since mid-march last year. not too much action in the after hours. it is friday mike, what do you make of this it seems like a very positive step >> it is a positive step there have been rumors for a couple of weeks this is coming down the pike. it isn't an enormous surprise. based on what we have seen reopen out here in california, that even on a limited capacity basis there is a lot of pent-up demand if you have any question about that, go and try to find a place to eat tonight on a friday night or even on a tuesday or monday night. it's almost impossible people are hankering to get out.

when they do reopen they're filling the sights >> it's up 40% so far. far and away the best and performing magic possession of potential supply cuts. should you double down on the bullishness or as carter flagged last hour, last half hour, is the sprinting sector about to run out of juice mike is here to run out of questions and save you some energy he's here with a call to action. mike >> you know, obviously trying to pick a top, whether it's a near term top or an absolute top is always a difficult thing to do, but of course when take a look at xl e, it's not surprising it has coincided with oil closed 66 bucks a barrel not far off of five-year highs brent also just under $70 a barrel five-year highs $70 highs.

if you think that oil could potentially run out of steam, i guess that's more of a coal thing than an oil thing, you might start to wonder whether the stocks would follow suit when you take a look at the biggest constituency, exxon stick out. this is a company that still does face some major headwinds and challenges let's consider they have a big dividend and they're faced with tough choices. are they going to pay the dividend or invest in the future how much of a future is there for energy stocks. of course like so many other things, there's a situation where we're seeing basically you have very high implied volatilities as well that's not surprising because a lot of these companies have relatively high levels of debt and they're based on a commodity which is exhibiting a lot of volatility they're tied to something that is volatile which is the reopening. as i take a look at this, this might be an opportunity to expect that xle could hit the pause button here. so i was taking a look at potentially using a calendar put

spread i was specifically looking at the april 9th weekly june 50 put spread as a calendar spread. i was looking at those weekly options because those were the ones where we're seeing a very high implied volatility. i think we have a term structure of volatility chart here that shows just how high the short dated options premiums are. when i was looking at this earlier today, you would spend $3.65 for the june 60 spread clips. you can spell the april 90s for 2.10 net-net this is another situation where if xle is to fall, you'll see profits even if it doesn't, the decay of that near-dated option is the longer dated put option. >> carter, i'm sure you've got some charts for us >> and they're the exact same ones we just looked at let's drive the point home again. four of them all the same time frame. xle, first one, no lines drawn second one, back to a difficult level. third one, same thing, overhead

supply now in play fourth one, even more overhead supply the circumstances, this is a sector that has very good representation in the s&p 500 and there were great tin companies in the dow jones, there were leather companies, there were cord and 2009 companies, big shipping companies. things change. carbon fuel, its long-term prospects are not good it's a long way as a trade. >> what do you think of energy and what do you think of mike's trade specifically >> yeah. so what mike said, it's hard to call a top especially in the best performing sector in the s&p but there are some warning signals we're starting to see in xle and crude. if you look at the weekly chart of crude, it's extremely over bought the crude prices continue to make higher highs but momentum is no longer confirming the highs. that's what we saw in some of the high beta tech names before

they sold off two weeks ago. there's a high risk of a pull back because it's due to lack of supply rather than a strong surge in demand here, i do think that it's not necessarily going to see a strong collapse here. i have a more of a mildly bearish view which makes the calendar spread that mike is putting out fairly attractive. i think one of the great ways to think about this calendar spread, if you look at the risk profile of it, it's actually very similar to a short straddle here almost like an april 9th $50 straddle that mike is selling. unlike a straddle, you don't have unlimited risks to the down side and up side it's much more capital efficient. you're paying $1.55 to make it similar. the break-even price is about 45 to 55 there for xle. he has a very wide range for this calendar spread is going to be profitable on a pull-back here for xle. >> mike, last word on this trade? >> you i mean, i think the important

point to think about when we're putting these trades on, are you looking for big moves in which case you want to be a buyer of options or are you looking for more modest moves and a higher probability of profit? in which case you're selling options which is what we're doing here one of the things we don't like to do is sell naked up side. a short straddle which is one of the trades tony was talking about, those can seem fairly compelling if you have seen what has happened to short positions lately, you're reminded that's not what you want to do. >> right on target, we are breaking down how mike's big call is playing. you are asking and we are answering. send us your questions on @optionsaction. you might get answered on air. we're back 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

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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 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." time to take a look back at one of our trades. last week mike khouw said one big name was about to miss the target. >> it's trading cheap to many of its comps. that said i will say it is trading quite rich to its self sometimes when you start to see stocks run to the upper end of their own historical valuations,

i was looking at the march 170, april 180 put diagonal i'm buying the april 180 puts, selling the march 170 puts against it net-net i'm going to lay out $4.85. bear in mind because we had the upcoming catalyst in the form of earnings, near dated premiums are going to be outdated we're trying to capture the decay in the short-dated options and own the longer dated put >> mike hit the bull's eye on this one what's next, mike? >> yeah. i mean, actually it's interesting because the stock essentially ran right down to our short strike price right around the 170 level after they reported this week. some of you who put the trade on and based on the twitter responses have already taken your profits on this that's what you want to do you don't want to necessarily carry in the in the money profits. take your profits and run if you want to. press your bearish bets. you want to roll down and out. >> up next, your tweets and the final call

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welcome back i want to take another check on shares of disney up 2% in the after hours on news california will start to reopen theme parks starting april 1st that allows disneyland to reopen for the first time since march of last year up 2%. is tlt oversold setting up for a bounce back to $155? carter, what do you say? >> very much so. so if you look in the history of the tlt going back some 50 years, there's only two other instances where it has been this far below the 155 average. '09 low and 2016 when we had the growth scare, industrial recession, china scare so maybe not 155, but i certainly think you can get 150 out of it. tlt, i'm a buyer. >> final call time tony, what do you say?

>> i'm a buyer of home improvement. selling iron condor on lows. >> carter? >> microsoft with both offense and defense in one we like it all. >> mike? >> put calendars in xle. >> we'll see you back here next week "mad money" with jim cramer "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