it is friday, you know what that means, "options action", here's what's on tonight >> announcer: like a comet, or volcanic eruption, or looking forward to mondays next week will be only the fifth time in history it has ever happened, we'll tell you what it is, and how you can play it. then, out with the old, in with the neo, the electric car makers are at a cross roads and we're riding shotgun plus, about netflix, now, we did include a warning, but, yeah, we

triage the trade at the very heart of our catch phrase, risk less to make more. "options action" starts right now. >> as we mentioned, next week will be only the fifth time that the five largest stocks in the s&p 500 index report earnings in a single calendar week, apple, microsoft, amazon, google and facebook. if you are trying to pick a horse you might be best off picking the turtle, carter, explains carter >> sure. it is a rare circumstance in the joint history of the top five stocks that are the largest right now. four other times they've all reported the same week interestingly it's not been a particularly good week we have some tables. let's look at two and then get to the charts of microsoft so the first table, these are the four other times, the fifth being unknown, where apple, microsoft, google, amazon, facebook all report in the same

week you see in 2015 it was january, reporting q4 and the peak to trough declines were pretty substantial. look the second slide. this is on the week how the market did so what you did is what doesn't have to happen again, one could say it's just a coinc coincidence, it's not a hard statistic, you need many inputs but it is something to keep in mind we have this circumstance coming again one of the ones that seems sort of the most reliable, orderly, steady, if you will, it's almost the johnson & johnson of 1980 would be microsoft let's look at several charts the first, this is a basically a one-decade chart a period where microsoft has ascended six fold. and now where it is. an up trend. how do we measure the up trend next chart, it's perfect 45

degrees, you see the stock in the channel. next chart, we're right on the mid-point. this looks like the one i just had up but it's not. it's depicting the mid point of the channel microsoft ascending in that channel near perfectly we think it can get to the top of the channel this is the here and now chart we're connecting the march pandemic low to the current lows and it's a perfect on tread trend line and you see there, i've drawn, the judgment is up final chart is important it's the exact same daily chart we just looked at but the bottom panel depicts the he relative performance of microsoft to the q q&a q we qqq which is 100 stocks but the top five are 50% weight. so microsoft's relative performance for an entire year has been poor to the qqq

but is now emerging, very interesting, we think this is one of the five going long into earnings. >> thanks, cater mike, you got the trade. >> yeah, so microsoft, i mean, from a fundamental point of view i think they're very well set up i mean, what we have here is probably a little bit later stage migration by more mature companies to the cloud that are very well-positioned in that space for growth, maybe even better than amazon is, which probably was more focused towards younger companies that were making that migration a little bit sooner. plus they're well-positioned for enterprise spending for industries not migrating completely to the cloud, things like financial services and health care. obviously they've demonstrated their ability to perform earnings options market implying 3.6% move next week in line with 3.6 the company has averaged in the last eight quarters. one thing to point out, at 35

types earnings these are valuations from microsoft we haven't seen since 2003, last time the stock traded at multiples it has been recently the way to make a modestly bullish bet without a lot of exposure if the market 14should pull back or valuations come in is using a california -- calendar buying the july 2.70 call and selling weekly 2.70 calls against it spending $5.70 looking at 2% or more of the krnt stock price to make that bet, this will be most profitable if stock migrates 3.5% towards 270 strike of the calendar we're using, if it over shoots that by a significant amount that would favor a diagonal spread but that doesn't seem likely to happen. this stock tends to see relatively muted moves on earnings >> tony what do you think of the

trade? what do you think of the microsoft? >> this is one the few stocks pretty much everything lines up. you have 23 cell site analysts with every one with a buy rating average target price 287 on that and technicals look really strong carter's charts show the stock is trading at all-time highs relative to its sector, also at all-thyme highs. all-time highs we talk a lot about azure and office 365 but 60% is cloud base and saas revenue be base and 35 times revenue is not crazy compared to 2003 it's a very different company from back then the valuations i think are fairly reasonable, especially when you have linked in and xbox growing here, 20% so microsoft is firing on all cylinders

i do think of mike's trade, i might adjust that to a diagonal. i think there's more upside for microsoft going into earnings. i would go further out in terms of the weekly. i might go to the may week lip and sell 280 call against it giving a little bit of upside on microsoft because i do think it is very strong. >> mike, what do you think of those tweaks >> yeah, so, one of the points i would quickly make is if you were going to extend the tenure the maturity of the short option you definitely want to go further out of the money than what i selected. the straight calendar is taking advantage of the fact the stock doesn't tend to move much the week of earnings, but give it more time this stock could move substantially higher maybe up to 285 or higher. if you are going to move to a diagonal use a longer dated expiration you definitelywant a short strike that's further out of the money than the 270 on the straight

calendar using on the weekly. >> another name on deck to report next week is neo, the chinese ev giant struggling mightily down more than 15% but tony says the stock could be primed for a big rebound, tony, what's your take >> yeah this was the poster ev stock in 2020 but had a significant pull back here this year but i do think this pull back is now the opportunity going into earnings next week you had $56 resistance level the stock broke below in february and has completed what looks like a triple bottom formation around $35 that's an opportunity that merges well with the 200-day moving average which the stock just bounced off, couple that with the fact the stock broke above short-term 21-day moving average, that signals that this current down trend is coming to an end and could potentially look for the upside. if you look at the business, neo

despite chip shortages delivered 20,000 vehicles, q1, 420% year-over-year growth for the quarter which is in line with its much smaller competitors in china. it shows the battery-swapping technology is doing its job and potentially, especially its rivals in china have much longer term opportunities with autonomous driving so nio in the short-run is very strong. when you look at the earnings, this quarter it's implying 10.8% move, still sizable but fairly small compared to 13.9% we seen in the last eight quarters the trade structure i will use is similar to the one i suggested for microsoft which is a call diagonal. i'm going out to the may, august, 40 by 47 call diagonal i am buying the august $40 call options for $6.50 giving me a

longer term bullish view on nio but going to sell may 7.40 against for 1.15 net net i'm paying $5.35 for this call diagonal less than the width of the diagonal so if nio blows it out through earnings and see substantial move to the upside this strategy will not under perform or turn unprofitable >> mike, what are your thoughts? >> taking a look at the longer dated options he's buying this is a reason you want to use something like call spreads, vertical or diagonal spreads or calendar spreads in names like nio where options spread could be quite high. the call more than 15 persz on the stock price i will say three month option is two year low in terms of implied volatility so he is picking up the call as cheaply -- as expensive as it is -- as cheap

as one could have over the course of the last two years i think using higher price shorter dated options to finance the longer dated, or slightly in the money call makes a lot of sense. these stocks can move a lot on ans -- earnings one reason the implied move is more muted because a lot of the big moves took place a while ago. the last four quarters haven't seen the same magnitude moves to the ones prior, that's what you see often with less-mature companies. >> carter, what do you make of this chart >> well you're talking about an epic sort of affair. the pandemic level it was a $3 stock and in january this year it was 67. and the risk of course has been not remove but by dropping 50% we basically went from january 11 high of 67 to the lows of march at 31, 32. a 52% decline and now a nice bounce back. the key is at the level tony

cited it held critical low three times. that's an encouraging thing. >> all right everything "options action" check out the website and sign up for our newsletter. here's what's coming up next. >> announcer: coming up, whoa, that cheeky analogy from last week's show open actually gained true, the netflix trade was like an episode of black mirror we have some serious reflection to do. plus, calling all "options action" fans, reach in your pocket, grab your phone, tweet us your question at "options action" it's nice we'll answer it on air when "options action" returns. ♪

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welcome back to "options action." last week we risked less on netflix but didn't exactly make more >> the relative performance is very poor to be unchanged in eight, nine months when the russell 2,000 is up 40%, s&p is up 20. is that the problem? or is simply because it was such a good performer preceding the period of rest that's my thinking last quarter it gapped up in a big way, i think it gaps up again. >> it's implying a 7.5% move that may not sound much given how much the stock moved last quarter but is in line with eight-quarter average and is a big company and high share price so 7.5% would represent a fairly big move i was looking at july 5.60 calls buying those and selling weekly 5.80 net net you lay out $23 to do

that trade. >> mike's trade is not as bullish, it's more mildly bullish, actual li fairly neutral only risking 4.5%. i see a potential surprise for netflix is the international segment. they have been testing mobile-only plans that are relatively cheap for the market that could surprise us to the upside utilizing options with limited risk is the way to play this in my opinion. >> as you know, since then netflix has, well, flopped as they say in many movies we live to fight another day. let's take a second stab carl, on twitter you acknowledged the wrong call you made but what do we do here? >> right so, the first thing about any trade and the word is trade, if you are there for a reason, technically for a break out, fundamentally an earnings result that would cause the break out and it doesn't happen, first loss, best loss, is one of the best market adages there is,

which is to say, you walk away in terms of what happened to the pattern in the stock, conceptually, not much which is to say, let's look at two charts, it's simply fallen back to where it was three weeks ago. yes a lot has happened if you had the trade we were recommending but in terms of what netflix is doing after basically more than doubling from its lows, the rest is now likely to continue so technically it's dull it has no upside there's no catalyst. i think the down side is cap because it's just dropped in gap back into the range. look at the second chart, this depicts the range. if you have a longer term, this is the discussion with clients all week, it's something to continue to add to because ultimately, the break out will come and netflix will be meaningful higher over time. >> so mike, what do you do now >> okay. so, you know, the first thing is

that obviously, as carter pointed out, if you get it wrong, often time we say if you put premium into a trade and give back 50% a little bit more right after a catalyst like this one, that you just, you know, head for the exits immediately i can understand if a lot of people put this on might have done that. had you done that, so, ended up just selling the longer dated call because the shorter dated one expired this week, that's over and done with, you would have lost 2.5% of the current stock price less than 7.5% netflix gave back over the week they reported earnings but still 2.5% is quite punishing in the grand scheme of things if you are inclined to believe the stock is range-bound that's a new thesis and it's a new trade we don't advocate trying to rescue a bad trade but if you have a new theater sis play it if you have a existing position use it. if you are still inclined to play netflix but believe it will be range bound

for some time you could convert existing structure into a short iron kcondor i was looking to sell the june put spread and sell against it we own the july 5.60 it's an a twist on the iron condor ifyou should those option you collect $12.25 approximately how much we ended up losing in premium between last week and this week on the long leg that we still carry so this say situation where you could play a new thesis if you chose to i know some people have been i believe some of carter's clients are engaging in trades like this. again, don't try to rescue a bad trade but if, with new information, you have a new thesis you can convert existing positions to reflect the new thesis. >> tony, last week you were trying to play devil's advocate so what do you say now >> i agree here from the perspective carter said is the fact that not a lot has changed

but it is trading near the bottom end of the range. typically my suggestion would be cut the losers, move on. i do think it is worth exploring this fairly creative way mike has come up with to potentially repair this long call with a broken wing iron condor here so the thing i want to point out here is the fact that the $500 level for netflix has held for those reasons i like selling the put spread to collect premium by i would sell the 500. 475 spread because as long as that of 500 holds that put spread will collect more premium and take on less risk and net net you will collect $15.50 on this adjustment and will get you back to break even if netflix holds above $500 and stays below $5.50 which based on the current level that likely going to happen.

>> okay. up next. an at&t call back and we're back in two 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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because platforms this innovative, aren't just made for traders—they're made by them. thinkorswim trading. from td ameritrade. . welcome back to "options action", time to look back at a recent trade, just last week mike called up a trade on at&t. >> when we do a buy right here are the important things to consider, you want to do this on a stock you want to own, you want to do it though on a stock that has maybe only modest upside potential because you're going to be selling an upside call you are worrying less about capital appreciation and more about yield. you can look to buy that stock at $129.5 earlier today, and can sell the june 31 calls for 50 cents against it importantly those calls expire before the next dividend date so you are essentially creating a new one for yourself by selling

those. and the yield would be just under 1.7% on a stand still basis. >> that trade ended up very much in agreeance mike, what are you doing now >> yeah, i mean, the key thing when you do a buy right the best thing to happen to you is for t shares you purchase to run to the strike and it did, ran slightly through it in fact, but we still have a considerable amount of time to go to reach premium hang on to those and roll up and out when extrinsic premium gets to 15 cents or less when you see the decay come outlook at the share price minus the strike price, take the intrinsic premium left and how much is at that point you want to roll it up and out. >> what would you do tony? >> i actually

have this trade myself i made the adjustment i suggested last week with thema 31 calls opposed to june 31 calls i'm doing like mic said, hanging on to these and waiting for the action value to decline and roll it out to june to the 32 or $33 strike depending where the stock is trading at the time. >> up next, we got 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. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪

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♪♪ ♪♪ time now for the final call, for the options pitch, carter, what do you say? >> microsoft it's as steady as it gets, in fact it's beta at 0.89 is lower than the consumer staples sector and utilities, steady as she goes, buy it into earnings. >> tony? >> i think china's electric vehicle market will heat up with nio battery swapping technology

i am buying may/august call diagonal. >> mike. >> i like microsoft. i think calendars and diagonals are the way to play it into earnings. >> that does it for us on "options action" see you friday 5:30 eastern "mad money" my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to make you a little money my job is to train, educate and teach you. call me or tweet me @jimcramer next week is the most brutal stretch of the earning