the creativity of people who are desperate for money. i guess it's just kind of tailor-made for scam artists, you know? because they prey on those type of situations and those type of people, you know -- good people who want to genuinely help people in need. -- captions by vitac -- happy friday, "options actions" fans. i'm brian sullivan we've got a big show for you on deck here is what's ahead >> location, location, location. that's what they say about real estate but carter worth says it's more about knowing where you are on the charts he'll explain. then -- perhaps you're checking out some local real estate while you're walking your new dog. the pandemic pets business has exploded and tony has a tree for you to

bark up. and finally -- we're not just shopping for options here in the u.s professor mike khouw believes now is the time to look overseas and pick up a little baba. it's time to risk less and make more "options action" starts right now. welcome, everybody happy friday hope you're having a good friday maybe an end to your week, wherever you may be. thanks for joining us. as the world attempts to emerge from lockdowns, real estate, whether it's offices or warehouses is maybe the single biggest industry trying to figure out what the heck a new normal for work and other things may look like. but from a stock perspective, carter worth thinks that most of the major uncertainty is behind it and he has got, as always, some charts to prove it, which is why we call him the chart master carter >> hey, brian. thanks before we get to the charts. just what you seed

reits represent a broad swath. health care, apartment reits, industrial, warehouse, it's endless. what we know is actually reits are very good week this week best performing sector the best part is year to date, having underperformed for so long, 4 of the past 5 years, reits have underperformed realty reits even beating the s&p let's look at some charts. four the first is a two panel it's the etf for all reits, iyr, on the top and the bottom panel is relative performance to utilities. the xlu. and what we can see is that it bottomed in march but then had a double dip and that double bottom formation on the relative chart to xlu is very important take a look at the second chart. also a two-panel relative chart. again, iyr on top and here again on the bot orges relative to performance to utilities as

measured by xlu. we have a double bottom formation on the relative. a break above a down trend very important action. third chart, it's just the iyr itself and what we know, of course, it plunged as all assets did during the pandemic but it's not made it back to its prepandemic high. final chart, fourth chart, i've annotated that high. a circle and the line drawn across basically reits are headed back to their prepandemic level and that would be about an 8% move from here and we like them long by virtue of what a broad representation they are >> carter, thank you all right. there's the charts mike khouw, what's the trade >> you know, so we're talking about iyr here this is the real estate reit etf. an important point, and you were touching on this, carter, too, is this is a diverse base of real estate companies that we're

dealing with everything from warehaaser, which is a timber reit american tower, the largest reit that deals with wireless towers, data centers in here we've got logistics. basically the warehouses that serve companies like home depot and fedex and amazon and oftentimes people have been looking at the real estate business and thinking mostly about one of the other constituents, simon property, things like retail you look at the top 50% of the representation of iyh, retail is a small percentage of it most of the businesses we're talking about are stable the principal reason that people would typically buy something like iyh is for dividend yield if you look at it recently, it's only yielding about 2% that has an important implication when looking how to trade this with options. if you buy a stock or etf, you're entitled to collect the dividends. if you trade the options, you're not necessarily. when the dividend yield drops and you might instead look at the potential for capital

appreciation instead of the dividend yield, using something like call options becomes more important. another characteristic about iyh, it's relatively low volatility it has volatility commensurate with the s&p or maybe even slightly less. considerably less than a lot of other sector-based etfs. what we want to do here is keep the trade relatively simple. when i was looking at this earlier today, i was looking at the june 91 calls. iyh was around 91.40 these were 40 cents in the money at the time. $3.10 to buy those calls the important thing to think about is the extrinsic premium that's the decay that option is going to incur over time which is about $2.70 or about 3% of the strike or the underlying value of iyh shares. this is a way that you can risk relatively small amount to bet that this rally that we've been seeing in iyh, particularly relative to some of the other

yield etfs could continue. >> all right, mike and carter, thank you for that from real testate to retail tony is here with a trade that could capture the upside in the pandemic pet boom. all right, tony, sounds like you're barking up the right tree i'm going to leave you and take it away. >> yeah, thank you, brian. so the stock that i want to take a look at here is petco. we've seen a significant sell-off this previous month with the other retailers but they recently just reported a fairly strong earnings here last week. the stock is down about 10% yet this is the opportunity for investors to step in because this category is likely going to continue to see some pretty strong spending even after the reopening. so when we look at the chart itself, the ipo was just in mid-january. we don't have a lot of history the stock has been fairly volatile i seem to find a little support around the $20 level but the primary, interesting thing that

i want to point investors to that are looking in this particular space, petco is actually outperforming its faster growing digital rival chewy here over the past three months or so it's interesting to see this retail store beat out the e-commerce side right now from a performance perspective. and when we look at the business itself, it looks fairly compelling 16% year over year quarterly growth gross margins over 40%, which is either on par or better than most of the retailers within this particular space. yet it trades at a fairly substantial discount at only 1.5 times enterprise value to sales to not only other retailers, but also to the pet care companies here so the valuations here look fairly compelling and the chart, i think, is potentially a good potential opportunity to look for a long position. so the trade structure that i'm using here reflects the relatively elevated implied volatility for this stock in the 60% implied volatility here. i'm going out to june.

i'm buying the 20 25 $25 call spread pay 3g for the june $20 call option. collecting about $1.40 for the june 25 call option. net/net only paying $1.60 on this $21 stock which is risking about 7% of the underlying stock price. the key is that i'm using an option that's already in the money. so the break-even price is only about 3% higher. so i have about three months of time where the stock only has to rally about 3% and that includes the next earnings release in order for this strategy to be profitable >> all right tony, thank you. carter, he laid out the trade. you look at the charts, the technicals what do you see on petco >> right tony talked about the chart. one thing we know is, obviously, it's struggled since coming out of the gate. in january 14th, the stock first prints at 30 and as low as 18. it's worked back to 2021 where

it is now. so recent outperformance to chewy, but the chewy stock is something that's been up fivefold, a great winner that's pulled back. i think this is a case where you have to do it through options because the stock is sort of range round stuck if you will. >> all right carter look at that chart on chewy. it's been hot until lately up 257%. mike khouw, petco, chewy, what do you think of tony's trade >> yeah, so really important element of what tony is doing here if you are thinking about why you would use a call spread rather than going out and using a simpler trade like the one i was using in iyr i misspoke earlier i was saying iyh the implied volatility in this stock is very high take a look at the june 22 1/2 calls as an example. they are about 2 bucks very nearly 10% of the current stock price.

by using an in the money call spread, that's the trade that topeny outlined, you're reducing the decay and the upside break-even considerably. and actually putting out less premium than you would by buying that call. the trade he's chosen if you have a bullish thesis is a far better one probably than buying the stock, which has its own risks, of course, but actually much better than the alternative of doing a simple options trade of going out and buying that june 22 1/2 call which would cost you more money, have a much higher break even, much higher de decay. really it's important to keep an eye on trade structures and the one tony chose here, i think, is the right one. >> there you go, guys. maybe a couple of ways to make money on petco for everything options action, you know it by now check out the website, option optionsaction.cnbc.com if you haven't already in the last ten years or whatever, sign up for the newsletter. we're not done yet tonight here's what's coming up. >> professor khouw is opening up

to an alibaba play we'll tell you the secret reason why, next. plus, calling all options action 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.

so jeff, you need all those screens streaming over your xfinity xfi... for your meeting? uhh yes. and your lucky jersey? oh, yeah. lauren, a cooler? it's hot. it's march. and jay, what's with all your screens? just checking in with my team... of colleagues. so you're all streaming on every device in the house, what?!! that was a foul. it's march... ...and you're definitely not watching basketball. no, no. i'm definitely not watching basketball. right... ( horn blaring )

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all right. welcome back to options action alibaba shares getting a boost today. still down about 5% this week. it's been hit along with nearly all the broader china tech trade. bob pisani told you that at the top of "fast money." mike says, don't sweat the weak. there can still be a baba boost ahead. he's breaking it down in his "call to action. mike >> yeah, so i'm taking a look at baba there's interesting parallels when i think about alibaba relative to amazon now when you take a look at the company, there's a few things i find interesting first is monetization which you might look at and say it's rather weak. their monetization, which is essentially their commissions on the gross market value of sales that take place across their platform that's about 3.7%. i look at that as a potential positive because, of course, this company has been growing rapidly and they have an opportunity to expand that monetization that could obviously improve their margins considerably

you know, another important thing that i would think about here is that they have a huge footprint, nearly a billion active customers on their platform right now their target, believe it or not, $2 billion that's obviously a very large number so finally one of the things i would think about is cloud this is an area they're expanding into we've seen the benefits to microsoft. we've seen the benefits to amazon if they can do the same thing, obviously, that represents a material opportunity and there's something else we ought to be thinking about with baba, too. it's relatively cheap. this company is trading less than 20 times forward earnings and growing top line revenues at more than 30%. compare that with the s&p trading 22 times forward earnings and growing nowhere near that same rate. to me, a lot of the headwinds and concerns that we have about chinese tech are one of the reasons this company represents an opportunity but i'm still willing to acknowledge that those risks persist. so i was taking a look at using a diagonal call spread here.

the july 2.30 calls. a little over 50 bucks to buy these and sell the april 30th weekly, 245 calls for a little over $3. net/net spending less than the distance between the two strikes in this diagonal call spread trying to take advantage of the fact that nearer dated call spreads decay. why was i looking at the april 30th weekly i'm trying to avoid being short options going into the next big potential catalyst for baba which is earnings. this is a company that's cheap it still has and is demonstrating a tremendous amount of growth opportunities, and we've seen other companies like it expand into the same areas they have and improve their monetization for all of these reasons baba represents a relatively interesting opportunity and we can use options to mitigate some of the risks associated with the china tech trade >> all right, good stuff going to follow that, i'm sure, in the weeks ahead carter, what are the charts telling you about alibaba?

>> the setsup excellent. let's look at them four charts in total first chart, five-year chart no drawings or judgments we know it's an uptrend. from 100 to about 320 and pulled back that's the opportunity second chart, look at this draw down it's no different in many ways than the draw downs the stock experienced along the way over the past five years. i've highlighted them there. 22% down 39, 22, 26 and this one 31 here's the most important part next chart look where these draw downs have stopped each time. literally to the penny on a well-defined trend line. in effect the past five years. final chart is just the chart. the five-year chart with the trend line we've come down, touched the line, buy it for a bounce here >> all right tony, chime in on alibaba. obviously getting swept up everything is down but baba may be a specialty case. what do you make of this trade

buy on weakness? >> so the charts look fairly attractive, right, as carter was showing you, both on an absolute and relative basis it's trading near some major support levels it's oversold so i think from a technical perperspective, you he a buying opportunity here. and the fundamental side, the valuations are very compelling, considering the growth potential that we have here. what i don't love is as mike pointed out, the risk with these chinese tech companies, especially the big ones like alibaba that's in the crosshairs of these chinese regulators. mike did mention the cloud business that's important, but the cloud business right now is still only about 7% of their total revenue. and it's not particularly growing at a very fast pace here at the moment. i'm not sure that is, in my opinion, a reason to go along this particular stock. i do think the only way to tiptoe into this opportunity right now is through options and i do like mike's trade structure using a call diagonal. the trade structure gives you a

payoff graph similar to being long the stock but it only risks 5% of the underlying stock's value to do so and if you get a small bounce here, you're able to participate in the upside and potentially own the stock and have a longer term bullish thesis here by selling the april 30th 245 calls, he's being fairly tactical because you have a fairly strong resistance around 240, 245 that could put a short-term cap here on the rally in the short run >> yeah, michael, circle back. we talked about alibaba. listen, vip shop down 30%. recently you've got this kweb coming down. do you have a broader thought along the china internet trade generally? is there opportunity there or just too much risk with these s.e.c. rules floating around >> well, i mean, there's -- we have the rules issue and as tony was appropriately pointing out, that's not the only concern you have when dealing with making

investments into chinese companies. there is always the risk, of course, it is a single party rule in china. and if they suddenly lose the favor of the chinese government, that is a huge risk. and i think that's also priced in here. there's no way that a company with the fundamentals of baba would be priced the way baba is if it was a u.s. or european company, for example that's the risk. that's also the opportunity. and arguably that exists in some other spaces the one thing i would say that probably insulates baba better is how they touch such a broad base of consumers. when you have that, you, obviously, have a lot of popularity and, of course, that does present a little bit of a counterbalance to the threat of regulators, whether they are domestic or in china so as far as i'm concerned, this is a way that -- i'm not getting long china overall necessarily i think baba represents a fairly unique case, though. >> all right, mike, thank you very much. a lot of talk there on baba. up next, what you maybe have

been waiting for we'll answer your tweets, along with several follow-ups on some of our open trades that's coming up 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. ♪♪

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all right. welcome back to "options action." it's time to take your tweets. and our first viewer asks, i bought the xle energy etf spread on monday. the april option jumps around like a bunny will we be rolling it out? it's a newby question. thank you. mike, we also appreciate the politeness there what's your take on that trade >> yeah, so that's a great question and, yes,the answer is we do intend to roll it out. when you look at these spreads, something to think about, take a look at the next option expiration and see what the prices are like. when we initially talked about these trades, that option was 225. the last time 205. today, 125 it's decaying rapidly. one week shorter dated option is only 75 cents. probably want to roll this one out next friday. >> all right our next viewer asks, recently carter flagged mastercard for a

breakout the breakout happened, but quickly faded. the technicals either looked like it's resting on top of former resistance or a head and shoirlds pattern is forming. what is in the trade for mastercard please? carter >> clearly you've read the chart, and i think your appraisal is dead on meaning we know the stock has a well-defined range at the 260 level. it broke up almost 8% to close to 290 and now has pivoted back right to the tops, as you cite them, a level of support and a big bounce this week i like it long i'd add to longs >> all right and our next viewer asks this. tony, when you say, if the stock is below a dollar amount for a few days, our these sis wrong and we close the trade how long is a, you know, x number of days

or what doctor loss or percentage loss or something else do you then use to set the stops in the trade excellent question, by the way >> yeah, i think that's a great question because when we enter a trade based on a support or resistance level and that support or resistance level is broken, we consider the trade no longer valid we usually need about three to five days of trading history to be able to infer that opportunity to cut losses and get out of a trade as far as setting stop losses go, we usually use a percentage to set our stop losses and the general rule of thumb is when we buy an option at a debit, we cut our losses at 50% of the premium that we've paid if we're selling an option for a credit, we want to set our stop loss when we've lost about 100% of the premium that we've collected. >> all right tony, thank you very much. up next -- more of your tweets and the final call. that's next right after this i'm searching for info on options trading,

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