people were bidding. they were buying. the economy was good. so, it was really the right time for rudy kurniawan, for him to come onto the scene 'cause people weren't asking too many questions, and they were raising their paddles a lot. and that meant profit. it is friday and you know what that means "options action." here's what's on tonight >> like a comet or volcanic eruption, or looking forward to mondays. next week will be only the fifth time in history it's ever happened we'll tell you what it is and how you can play it. then, out with the old, in with the nio. the electric carmaker's at a cross roads and we're riding shotgun. plus, about netflix. now, we did include a warning. but, yeah, we triaged the trade

at the very heart of our catchphrase. 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, microsoft, amazon, google, and facebook if you're trying to pick a horse in this race, you might be best off picking the turtle carter werth explains. carter >> sure. so 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 in the same week and interestingly, it's not been a particularly good week we have some tables. let's look at two and get to the charts of one of those, 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.

and you see there in 2015, it was in january, reporting in q4, and the peak, the trough declines are pretty substantial. on the second slide is how the market did in each instance, it doesn't happen to happen again one could say st just statistics it is something to keep in mind. and so, we have this circumstance coming again. one of the ones that seems sort of the most sort of reliable, orderly, steady, if you will, it's almost the johnson & johnson of the 1980s would be microsoft. let's look at several charts the first, this is basically a one-decade chart a period where microsoft has ascended six-fold and now where it is. an uptrend how can we measure the uptrend next chart it's a perfect 45-degree

channel. you can see the stock in the channel. next chart, now, we're right on the midpoint this looks like the one i just had up, but it's not, it's depicting the midpoint of the channel. microsoft is literally ascending in that channel. near perfectly i would think we could get to the top of the channel two more charts, here and now. this is the here and now chart we're connecting the march pandemic low to the current lows and it's a perfect trend line and you can see the arrow i've drawn. the judgment is up final chart, and this is important. it's the exact same daily chart that we just looked at, but the bottom panel depicts the relative performance of microsoft to the qqq now, we know that the qqq is a hundred stocks, but the top five, the ones we're talking about here are 50% weight. so microsoft's relative performance for an entire year has been poor to the qqq, but is now emerging and that makes it very

interesting. we think this is one of the five to be long going into earnings >> thanks for that, carter mike, you've got the trade >> yeah, so you know, microsoft, from a fundamental point of view, i think they're very well set up what we have here is probably a little bit later stage migration by more mature companies to the cloud. and i think they're very well positioned in that space for growth maybe even better than amazon is, which was probably more focused towards younger companies that were sort of making that migration a little bit sooner plus, they are also well positioned in enterprise spending for those industries that are not likely to migrant to the cloud, and those would include financial services and success. and obviously, they've demonstrated their ability to concern. the market is implying a 3.6% move that's in line with the 3.6% or so that the company has averaged

over the last six quarters these are valuations from microsoft that we haven't seen in about 18 years, 2003 was the last time we saw the stock trading at the multiples where it has been most recently. so a way that we can make a modestly bullish bet but not have a lot of exposure if the market should pull back or valuations should start to come in is using a call calendar. i was looking specifically at the weekly 270, july 270 call calendar, buying that july 270 call and selling the weekly 270 calls, spending about $5.70. so we're looking at about 2% or a little bit more of the current stock price to make that bet the idea is, this would be most profitable if the stock migrants up about 3.5%, towards that 270 strike of the calendar that we're using. now, of course, if it overshoots that by a significant amount, that would be a situation that would favor a diagonal spread. but that doesn't seem likely to happen this is a stock that tends to see trivial muted moves on earnings >> tony, what do you think of

the trade and what do you think of microsoft >> so this is one of the few stocks where just pretty much everything lines up. you have 23 sell-side analysts every single one of them have a buy rating, an average target price of $227 on that. and when you look at the technicals and fundamentals, they look really strong. carter's chart show you the stock's trading at all-time highs, relative to its sector, also at all-time highs these are really strong charts and when you look at the fundamentals, i know we talk a lot about azure and microsoft 365 as microsoft's business, but 60% of microsoft's business is now cloud-based and sasse revenue-based. so i think 35 times revenue is not particularly crazy if you compare it back to 2003, there are very different companies to going back then i think the valuations here are actually favorable reasonable, especially when you have linkedin and xbox growing at about 25% revenue growth here. microsoft is really firing on all cylinders.

for those reasons, i do potentially think about mike's trade, where i might adjust that to a diagonal. i think there is a little bit more upside here for microsoft going into earnings. i would go a little further out in terms of the weeklies i might go into the may weeklies, but sell a 280 call against it, giving it a little bit of upside here on microsoft, because i think it is very strong >> mike, what do you think of those tweaks >> so one of the points i would quickly make is that if you were going to extend the tenor, that is, the maturity of the short option, you definitely want to go further out of the money than the one i selected that straight calendar is just trying to take advantage of the fact that the stock doesn't tend to move that much the week they report earnings. if you give it more time, this is a stock that could obviously move substantially higher, up to the average analyst price target of 285 or even higher. fur going to move to a diagonal and use a longer-dated expiration, you definitely want to choose the short strike that's a little bit further out of the money than the 270 on the straight calendar using a

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

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

giving me a longer term bullish view on nio, but sell a short-dated may 47 call against it for about $1.15 net/net, i'm paying $5.35 for this call diagonal, less than the width of the diagonal. if nio does blow it out through earnings and we see a substantial move to the upside, this is not a strategy that's going to underperform or turn up unprofitable >> mike, what are your thoughts? >> yeah, so taking a look at the longer-dated option that he's buying, i mean, this is one of the reasons why you want to take a look at using something like call spreads, vertical spreads, diagonal spreads or even calendar spreads in names like nio where options premiums can be quite high notice that call, even though it's slightly in the money is more than 15% of the current stock price. i would point out that in terms of implied volatility, that three-month option or so is actually at a two-year low in terms of its implied volatility. so he's picking up that call probably about as cheaply -- as expensive as it is -- as cheaply

as one could have over the course of the last two years so i think using the higher-priced, shorter-dated options to help finance the longer-dated or slightly in the money call makes a lot of sense. these are stocks that tend to move around quite a lot. they can move around quite a lot on earnings. one of the reasons that the implied move is a little bit more muted than the long-term average that tony was talking about is that a lot of those big moves took place a little while ago. the last four quarters haven't seen quite the same magnitude of moves as the ones prior to that. and that is something that you often see with less mature companies. >> carter, what do you make of this chart >> well, you're talking about an epic sort of affair. you're thinking about, at the pandemic level, it was a $3 stock. and just in january of this year, it was $67 and the risk, of course, has been, not removed, but by dropping 50% i mean, we basically went from january 11 high of '67 to the lows of march at 31, 32. a 52% decline and now a nice little bounceback.

the key is the level that tony has cited, it's held a critical low three times and that is the incursion thing. >> all right for everything "options action," check out our 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 came true the netflix trade really was like an episode of "black mirror." we have some serious reflection to do. plus, calling all "options actions" 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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♪ ♪ ♪ sn welcome back to "options action." last week, we risked less on netflix, but didn't necessarily make more. >> the relative performance is very poor, to be unchanged in eight months, nine months, when the russell 2000 is up 35, 40% the s&p is up 20 t is that the problem or is it simply because it was such a good performer proceeding the period of rest that's my thinking and last quarter, it gapped up in a big way. we think it gaps up again. >> it's implying right now about a 7.5% move. that may not sound like much, given how much the stock moved the last quarter but that is in line with the

eight-quarter average. this, of course, is a very big company and a very high share price. so 7.5% would represent a fairly big move i would looking specifically at the july 560 calls, buying those, and then selling the weekly 580s. net/net, you would be laying out about $23 to do that trade >> mike's trade is actually not as bullish it's more mildly bullish actually, fairly neutral here, only risking 4.5%. and i do see a potential surprise here for netflix is the international segment. they have been testing mobile-only plans that are relatively cheap for the international market that could surprise us to the upside so utilizing options with limited risk is the way to play this in my opinion >> well, as you know, since then, netflix has, well, flopped. but as they say in so many movies, we live to fight another day. let's go around the horn again and take a second stab at it. carter, let's start with you on twitter, already, you acknowledged the wrong call you made but what do we do here

>> right the first thing about any trade, and the word is trade, is that if you're there for a reason, technical 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 now, in terms of what's happened to the pattern of the stock, conceptually, not much which is to say, and let's look at two charts, it's simply fallen back to where it was three weeks. yes, a lot has happened if you have the trade on what 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 technically, it's dull it has no upside there's no catalyst. and i think the downside is capped because it's dropped and gapped back into the range and look at the second part. here it depicts the range. if you have a longer-term, and

this was 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 meaningfully higher over time >> so, mike, what do wow do now? >> okay, so, you know, the first thing is that obviously, as carter pointed out, if you get it wrong, oftentimes, what we'll say, if you put premium into a trade and give back 50% or a little bit more right after a catalyst like this one, that you just, you know, head for the exits immediately. and i could 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 about 2.6% of the current stock price. less than 7.5% that netflix gave back but still 2.5% is quite punishing if the grand scheme of things fur now inclined to believe, though, that the stock is rangebound, that's a new thesis and a new trade. this is not necessarily a

situation where we don't advocate trying to rescue a bad trade. but if you have a new thesis, you can certainly play it. and if you have an existing position, you can use it if you still own those july calls and still inclined to play netflix, but now believe it's going to be rangebound for a time, you can convert the existing construct i was looking at selling the june 440 put spread and selling the june 550 calls against it. remember, we own the july 560. so it's a little bit of a twist on the iron condor but the idea would be if you sold those options, you would collect about $12.25 that's 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 is a situation where you could play a new thesis, if you chose to and i know that some people have been and i know that 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 some of the existing positions you have to reflect your 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 that carter said, is that not a whole lot has changed. it is trading near the bottom end of this range. technically, with a trade like this, my suggestion would be to simply cut the losers and move on i think it's worth exploring this fairly creative way that mike has come up with to potentially repair this long call with an iron -- a broken wing iron condor carrier so the thing that i want to point here is the fact that the $500 level here for netflix has held so for those reasons, i do like selling the put spread to the downside to collect some premium, but i would actually be a little bit more aggressive i would sell the 500/475 put spread, because slas long as the 500 support level holds, that will be profitable, you'll collect a little bit more premium and taking on a little

bit less risk, and net/net, you'll collect about 15.50 bucks on this iron condor adjustment that will pretty much get you back to break-even if netflix holds above $500 and stays below $550, which based on the current levels, that's likely going to happen an at&t callback and we are 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 take a look back of one of our recent trades just last week, mike called up a trade on at&t. >> when we do a buy right, here are some of the important things to consider. typically, you want to do this on a stock that you want to own. you want to do it, though, on a stock that has maybe only modest upside potential why is that? you'll be selling an upside call this is a situation where you're worrying less about catalysts, less about capital appreciation, and more about yield you can look to buy that stock i was looking at that, it was about $29.50 earlier today, and you can sell those june 31 calls for about 50 cents against it. importantly, those calls expire before the next dividend date, so you actually are essentially

creating a new one for yourself by selling those, and the yield would be just under 1.7% on a standstill basis >> that trade ended up very much in the green, so, mike, what are you doing now? >> the key thing when you do a buy right, the best thing that can happen to you is that the shares that you purchase to run to the strike that the option that you sold by expiration. now, it did run to the strike, slightly through it, in fact, but we still have a considerable amount of time to go until expiration and there's still a lot of extrinsic premium to those calls. you want to hang on to those i would look to roll those up and out when the extrinsic premium gets to 15 cents or less so basically what that means is when we start to see some of that decay come out, take a look at the share price versus the strike price, when you take that intrinsic premium ut, how much is the call worth at that point? that means the decay has basically been erased. at that point, you want to roll it up and out. >> what would you do, tony >> i have this trade on myself,

you know, i made the judgment i suggested last week with the may 31 calls as opposed to the june 31 calls i'm doing as mike said, hanging on to these, letting them get to two to three weeks of expiration when the extrinsic value declines and then roll this out to june, probably to the 22 to 23 stock, depending on where the stock is trading at the time >> all right up next, we've got the final call >> 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, 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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visit tdameritrade.com/learn ♪♪ ♪♪ time now for the final call. last word from the options pits. carte carter, what do you say? >> microsoft it's as is steady as it gets in fact, its beta at .89 is lower than the consumer staples skpr sector and the utilities >> tony? >> i think china's electric vehicle market is about to heat up with nio's battery-swapping technology

i'm buying a may/august call diagonal >> mike khouw? >> i like microsoft fundamentally. it doesn't tend to move that much on earnings week. i think calendars and diagonals are the way to play it into earnings >> that does it for us here on "options action. see you next friday 5:30 p.m. eastern time "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.