mike: see you later. lemonis: slow and steady wins the race, and there's no kleenex required. cry-free zone, barb. you did really well. [ laughter ] mike: you kick ass. ♪♪ 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 is at a crossroads 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 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 index report earnings in the single calendar week, apple, 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 worth 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 the same week interestingly it's all been the same week. we have a table. 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 q4, the peak trough declines in that table are pretty substantial look at the second slide this is on the week how the market did, and so what you see here is in each instance it doesn't have to happen again one could say just coincidence it's not a hard statistic. you need many inputs it is something to keep in mind. 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 mike soft. let's look at several charts the first, this is a basically a one decade chart a period where microsoft has ascended six fold, 50 and now where it is an uptrend how can we pressure thmeasure t

uptrend. you can see the stock in the channel. next chart, we're right on the mid midpoint this looks like the one i just had up it's depicting the midpoint of the channel. microsoft is literally ascending in that channel near perfectly we think it can get to the top of the channel two more charts here and now this is the here and now chart what we're doing here is connecting the march pandemic low to the current lows and it's a perfect trend line, and you can see it's up. the final charlt rand this is important. it's the exact same daily chart we looked at but the bottom channel depicts the relative performance of microsoft to the qqq the top five, the ones we're talking about here are 50% weight, and 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 >> all right, thanks for that carter mike, you 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. i think they're very well-positioned in that space for growth, maybe even better than amazon is which probably was more focused towards, you know, younger companies that were sort of making that migration a little sooner. plus, they're also well-positioned at enterprise spending for those industries that are not likely to migrate completely to the cloud. those would include things like financial services and health care obviously they've demonstrated their ability to perform looking at earnings, the options market is implying a 3.6% move that's in line with the 3.6% or so that the kaine has averaged over the course of the last eight quarters one thing i would point out is

at about 35 times earnings these are valuations for microsoft we haven't seen in 18 years 2003 was the last time we saw the stock trading at the multiple it has been recently. the way we can make a modestly bullish bet 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 against it spending about $5.70, we're looking at about 2%ish 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 migrates up towards that 270 strike of the calendar we're using if it overshoots that by a significant amount, that would be a situation that would favor a diagonal spread. that doesn't seem likely to happen this is a stock that seems relatively muted earnings.

>> tony, what do you think of the trade? >> this is one of the few stocks where pretty much everything lines up you have 23 sell side analysts every single one of them has a buy rating an average price of $270 on that when you look at the technicals and fundamentals, carter's charts show you the stock trading on all time highs relative to its sectors, also at all time highs these are really strong charts when you look at the fundamentals,microsoft's busines cloud based. if you compare it back to 2003, they're very different companies to going back then so i do think the valuations here are actually fairly reasonable, especially when you have linkedin and xbox still growing at mid-20% 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 more upside here for microsoft going into earnings i might go into the may weeklies but sell maybe a 280 call against it giving me a little bit of upside here on microsoft because i think it is very strong. >> mike, what do you think of those tweaks >> yeah, one of the points i would quickly make is 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 trying to take advantage of the fact the stock doesn't tend to move that week they report earnings if you give it more time this is a stock that could move substantially higher, maybe even higher so if you are going to move to a diagonal and use a longer dated expiration, you definitely want to choose a short strike that's a little further out of the money than

the 270 on the straight calendar >> another name on deck to report next week, next week's big one is nio, they've struggled mightily this year the stock could be prime for a big rebound. tony, what's your take >> this was the poster ev stock in 2020. it's had a pretty significant pullback this year i do think this pullback is now the opportunity going into earnings next week when we take a look at the chart itself you have 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. that's the opportunity which merges well with the 200 day moving average, which the stock recently boubnced off the stock broke out above the 21-day moving average. that signals to me this current down trend is coming to an end and we could potentially start looking for upside here. if you look at the business itself, nio delivered 20,000

vehicles in 2001, which is about 420% year-over-year growth for the quarter, which is in line with its much smaller com competitors here in china. for those reasons it really shows that the battery's swapping technology nio was 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 trong whe strong this particular quarter it's only implying a 10.8% move, which is still sizable, but fairly small compared to the 13.9% we've seen over the last eight quarters the structure i'm going to use is similar to the one i just suggested from microsoft i'm going out to the may, august, 40 by 47 call diagonal so i'm buying the august $40 call option giving me a longer

term bullish view here on nio but i'm going to sell a short dated selling 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. we see a substantial move to the upside this is not a strategy that's going to underperform orturn unprofitable. >> mike, what are your thoughts? >> yeah, so taking a look at the longer dated option that he's buying this is one of the reasons you want to take a look at using something like call spreads, vertical spreads in names like nio. notice that that call although it's slightly in the money is more th more than 15% of the current stock price. that three-month option or so is a two-year low in terms of its viability. he's picking that up as cheaply as one could have over the

course of the last two years i think using the higher priced shorted dates options to help finance the longer dated at the money or in the money call makes sense. these are stocks that can move around 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. >> carter, what do you make of this chart >> you're talking about an epic sort of affair at the pandemic level is a $3 stock. 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 a high of 67 to the lows of march at 31.32. a 52% decline.

now a nice little bounce back. it's held a critical low three times and that is the encouraging thing. >> all right, for everything options action, check out our website and sign up for our news letter here's what's coming up next coming up, that cheeky analogy from last week's show open actually came true. the netflix trade really was like an episode of blake mirror. we have some serious reflection to do. plus, calling all "options action" fans, reach into your pocket, grab your phone and tweet us your ques question @optionsaction. if it's nice we'll put it on air when "options action" returns. "options action" is sponsored by think or swim by td ameritrade

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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 relatively poor to be unchanged in eight months, nine months when the russell 2000 is up 35, 40%, the s&p's up 20 is that the problem or is it 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. we think it gaps up again. >> it's implying right now about a 7.5% move. that may not sound like much

that is in line with the eight-quarter average. this is a very big company and a very high share price. 7.5% would represent a big move. i was looking at the july 560 calls, buying those and selling the weekly 580s. net net you would be laying out $23 to do that trade. >> mike's trade is not as bullish, it's mildly bullish only risking 4.5%. i do see that potential surprise here for netflix is the international segment. they have been testing mobile only plans that are relatively cheap for the international market utilizing options with limited risk is the way to play this in my opinion >> well, as you know, since then netflix has flopped. 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 we start off with you, on twitter already you acknowledge the wrong call you made, but what do we do here >> right, so the first thing

about any trade -- and the word is trade -- is if you're there for a reason, technically for a breakout, fundamentally an earnings result that would cause the breakout and it doesn't happen first loss best loss is one of the market adages there is, which is to say you walk away. in terms of what's happened to the pattern in the stock, conceptually not much, which is to say, it's simply fallen back to where it was three weeks ago. yes, a lot has happened if you have 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, has no c catalyst and i think the downside is capped because it is dropped and gapped into the range. now look at the second chart, this depicts the range if you have a longer term, this was sort of the discussion with

clients all week it's something to continue to add to because ultimately the breakout will come and netflix will be meaningfully 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, oftentimes when we'll say is if you put premium into a trade and give back about 50% or a little bit more right after a catalyst like this one that you just 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, so that's over and done with, you would have lost, still 2.5% is quite punishing in the grand scheme of things if you are now inclined to believe that the stock is -- 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. if you have a new thesis you can play it and if you have an existing position you can use it if you still own those july calls and you're still inclined toplay netflix but now believe it's going to be range bound for a time, you could convert the existing structure i was looking specifically at selling the june 470, 450 put spread and selling the june 550 calls against it we own the july 560s it's a little bit of a twist on the iron condor. the idea here would be if you sold those options you would collect about $12.25 that's approximately how much we ended losing in premium between last week and this week on the long leg we still carry. this is a situation where you could play a new thesis if you chose to i know that some people have been and i believe that some of carter's clients are actually engaging in trades like this but again, you know, 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 the new thesis. >> last week you were trying to play devil's advocate, so what do you say now >> so i agree here from the perspective with what carter said is the fact that not a whole lot has changed. it is trading near the bottom end of this range. typically with a trade like this, my suggestion would be simply cut the losers, move on i do think it is exploring this way mike has come up with to potentially prepare this long call with an iron, broken wing iron condor here the thing that i want to point here is the fact that the $500 level for netflix has held for those reasons i do like selling the put spread, but i would actually be a little bit more aggressive, i would sell the 500, 475 put spread, as long as that $500 holds, the 500 level holds, that kind of put spread would be profitable you'll collect a little bit more

pre premium. net net you're going to collect about 15.5 bucks on this iron condor adjustment and that will pretty much get you back to break even if netflix holds above $500 and stays below 550, which i think based on the current levels that's likely going to happen. >> up next, 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 just last week mike called up a trade on at&t. >> when we do a buy right, here are the important things to consider typically you want to do this on a stock that you want to own you want to do it so, though, on a stock that has maybe only modest upside potential. why is that, you're going to 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. you could sell those june 31 calls for about $0.50 against it now 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? >> yeah, i mean, the key thing when you do a buy right, the best thing that can happen to you is for the shares that you purchased to run to the strike of the option that you sold by expr expi expiration it did run to the strike slightly through it. we still have a considerable amount of time to go until expiration and there's a lot of intrinsic premium. you want to hang onto those. i would look to roll those up and out when the extrinsic premium gets to $0.50 or less. when we start to see that decay come out, take a look at the share price. when you take that intrinsic premium out, how much is the call left? that means the decay essentially has been erased. at that point you're going to want to roll it up and out >> what would you, tony? >> i actually have this trade on

myself, you know i made the adjustment that i suggested last week with the may 31 calls as opposed to the june 31 calls i'm doing exactly as mike said i'm hanging onto these, i'm letting them get towards two to three week from expiration when the extrinsic value declines and i'm likely going to roll this out to june depending where the stock is trading at the time. >> all right, 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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visit tdameritrade.com/learn ♪♪ ♪♪ time now for the final call. carter, what do you say? >> microsoft, it's as steady as it gets. it's beta at 0.89 is lower than the consumer staples sector and utilities. steady as she goes up and to the right, buy it into earnings. >> stony. >> i think china's electric vehicle market is about to heat up with nio's battery swapping

i'm buying a may august call diagonal. >> michael >> 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 into it. >> that does it for us here, see you next friday 5:00 p.m. eastern time "mad money" starts right now - [presenter] the following is a paid advertisement for plexaderm skincare. watch this, it's all 100% real. witness what happens to this woman's bags under her eyes in an actual time lapse in just minutes. nothing has been doctored or tampered with. the very real problem will disappear before your eyes and hers with a revolutionary topical formulation that works in just minutes and the effects will last for hours and hours. over one million people are successfully using this topical technique to visually reduce puffiness and bags. it works on sagging jowls, even fine lines and wrinkles on the face and forehead.