spencer: i feel bad that her money is gone, but i feel bad that she's lost a son. and i feel bad that michael's lost a mother. and they're not gonna get that back. and no amount of money is gonna get that back for them. it's friday. it is the last day of april. it is time to literally and metaphorically look ahead to brighter skies and it's time for "options action. carter wurth is is looking out and professor khaou. beauty stocks having a strong start to the year despite the pandemic largely keeping consumers inside with a reopening on the horizon there could be more beautiful returns ahead. carter, break it down for us >> sure.

before we get to the charts, there are recent patterns emerging of purchases whether it's in the apparel, people buying dresses wanting to get out of their sweatpants, makeup and other sort of things that make you feel good but what you might need as you start to get out of the house look at estee lauder first of two charts. comparative. two-year chart of estee lauder versus lvmh. look how tight they are. lvmh is the biggest stock in all of europe at 380 billion market cap. the biggest financial. allianz is only 100. total only 120 estee lauder is a junior version of it. this is a ten year comparative chart of he is tai lauder and all of those brands. interestingly there was all of

these thoughts during recessions people buy lipstick because they want to feel good. heads you win, tails you win some estee lauder charts on their own. here's a one-year chart. definition of an up trend. 45 degree angle. next chart, look at the channel. mathematically parallel lines. i think we worked the top of the channel. we're not extended and i think the way is higher. last two charts, the first is a two panel. you're looking at a five-year chart of estee lauder and on the bottom is relative performance to the s&p last chart, same exact chart, two panel. estee lauder look at the performance. estee lauder is just now breaking out of relative tops that have been in effect for three years. we think it's excellent and want to be long. >> charts look great for el, michael. what's the trade >> i think the fundamentals for the business look pretty strong as well. right now we are seeing them

recover much more quickly than the company had expected, than a lot of observers have expected as carter mentioned, they sell premium products and that offers them significant pricing power we're anticipating to see some margin expansion and a return to that 6 to 8% top line growth, double digit bottom line eps growth of course, their second largest market is china. that is an enormous market and right now the average chinese consumer is spending 1/10th what a south korean consumer is spending enormous growth opportunity here i want to point it out, it is priced for that. it is priced very much like a growth stock the price to earnings ratio is essentially all-time highs priced to sales at all-time highs. we have a lot of that growth priced in. good operating business, relatively high valuations on the promise of what futures might bring. the way to play earnings,

they've done historically well, so out of the last 11 years of reported earnings, 44 reported quarters, the stock has been higher three weeks later about 2/3 of the time. when it is higher, it is typically higher by more, close to 8% than it is down when this does decline 1/3 of the time down 6.4%. em i'm comfortable making a bullish belt but i want to use options i feel the evaluations on a lot of stocks are pricing in a lot of news that the future might bring. i was looking at the july 3.10 call when i was looking at those, those were about $18 and selling the may 3.30 calls against it. those are about 4.25 i would be spending 13 bucks to put that spread on the stock was higher at the time i looked at this it was around 3 p15, 316. i was choosing the in the money stock calls.

it priced lower at the calls you can get in around $11. obviously you have to see how it opens on monday. the idea as always, try to take advantage of the fact that the short dated options are slightly elevated relative to the longer dated ones that we're looking to buy. >> the charts and the fundamentals are lined up. do you like mike's trade though? >> i do. i mean, this is one of those stocks that's loved all around if you look at the technicals as carter showed, it's extremely strong there are some signs of exhaustion on the chart. that's more of a concern for a pause than a pull back the relative strength here is really what's to look at from a charting perspective whether you're looking at it from staples or consumer discretionary, estee lauder is at all-time highs. 40 times next year's earnings, that's really the concern here from my perspective, the margin expansion michael is referring to speaks to the shift that

they've recently had success in in shifting more towards an ecommerce strategy and restructuring the brick and mortar those are the things that elevate the valuations they're currently trading at for those reasons i like the trade specifically regarding the fact that it's overextended and using a diagonal like this, especially a diagonal slightly in the money the long call in the money, that helps reduce the extrinsic value mike has to pay and by shorting that short out of the money call option further reduces the time decay on this. even if the stock just stays where it is on earnings or even moves slightly lower, this is a strategy that will either be a net zero or a small positive here and then buys him a longer term bullish outlook for estee lauder. >> carter, did you see signs of exhaustion in the charts >> it's all about your time frame. what tony cited, right, is probably rsi you might be looking at -- i

don't know what indicator he's talking about. in terms of the relative performance to the s&p, it is very firm and that is either the opportunity or the problem, meaning if you haven't made any progress to a benchmark in two years and you're just starting to move above a relative high, do you break out or don't you? that is both the situation, the opportunity or one would say the defect and at that point it's a judgment. >> all right much like beauty, gazing up at the sky and seeing pictures in the clouds is highly suggestive. the same can be said for cloud stocks tony is seeing something he does not like in one name tony, a lot of people see things they don't like in a lot of these names. what are you looking at? >> yeah, so the theme of this particular quarter for earnings is really strong performance for many stocks in terms of earnings but poor stock performance after the fact, and i think fastly is one of those stocks that may underperform on earnings next week if we first take a look at the

chart here, fastly did break out to new all-time highs this year. on the earnings last quarter started to break below a major support level at $75 and has struggled to get back above that and is acting as resistance. more importantly, relative to its sector, the technology sector, fastly continues to print new lows here against the sector those are some of the telltale signs you typically see poor relative strength going into earnings suggesting a poor earnings performance that's what i saw in netflix and intel over the last couple of weeks. if you look at the business itself, it's a fairly interesting business but the one thing that i really can't get my head around right now is the fact that quarter over quarter revenue growth has slowed down to single digits and losses continue to widen. stocks that have rich valuations, that's not something that's going to work very well going into earnings next week. so if we look at the earnings itself, it's implying about a 13.4% move versus the average over the last seven quarters was

actually a fairly sizeable 15.7% but the implied volatility here is extremely elevated going into the event. the trade structure i'm using as i'm going out to may, the 28th weekly options i'm selling the 65 by 70 call vertical for $2.10 that's going to collect more than 40% of the width. that means i'm reducing my risk on the call spread down to 59% of the width that's the risk/reward i like to see selling the call spread going into an event. >> what do you think of fastly >> fastly is in that space we're talking about a company that's trading double digits times their revenues and they are not actually making any money. of course, whether that valuation makes sense is largely in the eye of the beholder that's one of the reasons you want to look to technical analysis i'll leave it to the other two

to make that determination speaking to the options trade, selling call spreads, selling credit spreads like that are very attractive ways, especially for people first looking at ways to get into options to do so the reason is this there's really only three things that can happen between now and expiration to the price of the stock. it can stay where it is, it can decline or go higher if you shorted the stock, if it stayed where it is you wouldn't make or lose any money if it declined, you have unlimited risk to the up side. by selling an up side call spread you'll see profits if it declines if it stays where it is, you will also see profits. if the stock for whatever reason, you see valuations expand more than they have and takes off as some stocks have, you actually are limiting your risk to the distance between the strikes less the premium that you collected. it's lower risk to the up side what does that mean? three things can happen. two are good and one is less bad than shorting the stock. for that reason i like the options. >> carter, what's your take on fastly >> well, i mean, one of the

things about having had such a run, things are dreamy and to be in the last year 20 to a high of 136, dreams that good can turn into nightmares. that's essentially what's happened to plunge as it has from a high of 136 to essentially 58 and bouncing around here in the low 60s, consider this, if you were to look at all stocks in the russ 38,000,000, that performane talking about poor relative strength puts you in the bottom of all listed securities and that means something is wrong. >> wow the bottom decile. still to come. there is a scene in the animated movie ratatouille where they order a serving of perspective professor khaou is chef khaou. while you're on our website sign up for our newsletter. "options action", the show, will be right back.

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♪ ♪ ♪ ♪ ♪ . welcome back to "options action." individual stocks and trades aside, if one backs up and looks at the bigger picture, earnings and earnings from the biggest companies in the market, the markets have actually been flat so, carter, what's the story with this? >> well, that's right. it's an interesting circumstance where in principle the results, if you will, corporate profits,

earnings results have been great. banks put up great numbers the top six stocks the names we know, microsoft, amazon, google, facebook, tesla, you're talking about 24% of the s&p and they were all, quote, blowout numbers. but the market didn't really move, and a lot of those stocks in the end of the day didn't move then it begs the question, were they blowout snums and the end of the day there's no such thing as good news or bad news there's only news. and it's how the stock reacts. so you can have a stock that beats, guides higher, talks about the biggest buyback ever says the gross margin will be better than ever if it's down, only up 1%, then the news cannot be anything but either outright boring or bad despite what the beat was. so that's the circumstance i think we have in the market, which begs the question, what's the follow-on act from here? after all these things that have

been revealed and they are from the leading financial institutions and leading tech names and so forth, what do we get to move the market higher? there's a thoughtful case to be made that we are making an intermediate top, 2, 3, 5 months, that kind of thing i think that's the way to look at the market at this point. >> mike, these insights from carter got you thinking and this leads us to our call to action for the week what is it, mike >> yeah. so we're taking a look at using zero cost put spread callers now hedging one's portfolio, depending on how you do it, can cost a lot of money. so in addition to wanting to mitigate the down side risk, which is obviously one of the objectives of putting on a hedge, and preserving the up side otherwise we would unwind our positions, we're trying to look for a way that we can put on a hedge and lay out very little options premium that's what we're trying to do

when we put on a zero cost put spread collar. i'll use spy, the etf. it's probably the easiest proxy for market holdings. if you happen to hold spy or if you have a portfolio that behaves like it, as many do, because that's the s&p 500 you can look like a trade like this one to give yourself a buffer without spending some premium. i was looking specifically at the 375, 400, 435 put spread collar in july you'd be selling the july 375 puts, buying the 400s and selling the 435 strike calls by selling the outer put win and the up side call, you are financing the purchase of a closer to at the money put in this way you still have some up side exposure up to the short call strike. in this case it was spy 435, you would see protection along the

long strike 400. this isn't disaster insurance, enormous tailhead, it's just a situation where if we're starting to see some stocks, big stocks that are behaving like they're running out of energy despite the fact they're putting up good numbers, essentially what we're looking at is the potential for perhaps a little bit of a correction. you'll notice the short put strike that i've selected is down about 10% from where spy was trading. bear in mind, if you don't happen to own spy, if your portfolio looks different, you could use the cues or you could look to put on a structure like this in the key holdings that you happen to have the idea buying a put spread, financing the purchase by selling an up side call against stocks that you own. >> tony, what are your thoughts on the markets given the price action we've seen this week? >> well, first of all, i kp completely agree with the price actions on the market.

this is one of the reasons i've been taking short moves. stocks that have outperformed in theory on the earnings event underperformed on the stock. i think mike's trade is one of the most creative ways of using options. you shift away exposure to buy some down side protection at zero cost because the most difficult part about buying portfolio protection comes down to how expensive it is this is a very creative way by selling that july 435 call option to purchase that put spread i do think that even for viewers here who may find this trade structure a little too complex, i hope that this illuminates for you how creatives you can use options to shift different risk profiles to suit your outlooks >> right coming up, ups delivering some big gains this month. that's good news for one of our traders. we'll tell you why stay with us "options action" will be back right after this n idea for a tr.

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. ♪♪

when traders tell us how to make thinkorswim even better, we listen. like jack. he wanted a streamlined version he could access anywhere, no download necessary. and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim web. 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 at a couple of our open trades. a couple of weeks back tony set up a way to play intel into earnings. >> this is a stock that has

continued to under perform in sectors since june of last year. despite this year's strong performance, this failed to under perform. that type of poor relative strength is what i see going into earnings that is potentially a factor for fading this particular strength i'm selling the 65, 70 call spread collecting 1.6$1.68 in ts of a credit which is 33% of the width. this is the type of trade structure that allows me to profit as long as intel stays below $65 at expiration. >> tony, how are you managing this one >> so this is one of these trades where the trade went exactly the way we expected to we sold it for $1.68 you can buy it back for five cents. my suggestion is to buy it back, remove the obligations and free up the margin for the next trade. >> all right back in march mike laid out a way to play ups. >> this is a name that actually

is trading at a relative discount to the market, trading about 17.6 times forward earnings when you look at this you might say there could be some valid reasons for that among those, of course, we did see that big uptick in ecommerce as a result of the pandemic. the problem for transportation companies like ups, b to c aren't quite as good as they are in b to b. people are looking beyond the pandemic thinking that tail wind turns into a head wind i was looking out to june looking at the 165 calls and selling nearer dated april 170 calls against it when i was looking at this earlier today it would cost a little over $5 to put that trade on 165s were 7.25, then you're collecting a little bit less than 2 to sell the170s in apri against it the idea as always is try to collect premium in the faste decaying near side up side options. >> well, the stock has gone up quite a bit since then mike, what are you doing with this trade >> yeah. so the only part of the trade

that still exists, of course, are the longer june 165 calls. you would have had to cover those april calls at expiration on the 16th. these are deep options i would take profits on the longer dated calls or roll them up or out so you're at an at the money or slightly out of the call option. you want to take some of your profits off the table here. >> what do you think of ups, carter >> the setup, we looked at fedex. we thought it would break out and ups has. >> tony, tiebreaker here mike laid out two options. what would you do? >> i think that i would roll it out and keep holding on to further gains because i do think this is a strong stock. >> up next, we've 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.

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♪♪ ♪♪ ♪♪ welcome back to "options action." time for a tweet

jonathan bradley asks on cvs with earnings this week i was looking at the may 7 $78.50 call with a cost of a little less than 1 per share what do you think? >> the stock has averaged a move of 3%. the options market is implying 3% it's fair money bet. considering it hasn't performed. i like it as a low cost way to make a bullish bet. >> what do you make of the charts for cvs >> cvs has been bottoming for quite some time. i think it's finally time to get out of the bottom and up and out. much better than walgreen boots. i like cvs. >> tony, what would you tell jonathan >> i like cvs it's primed for a breakout. time for the final call. carter worth, what do you say? >> estee lauder, long. >> tony zhang? >> fastly slowing down, selling a call vertical. >> mike khouw? >> for hedging consider put

spread callers. >> that does it for us here on "options action. we will be back here next friday at 5:30 p.m. eastern time. don't go anywhere though "mad money" with jim cramer starts right now have a great weekend - [narrator] the following program is a paid advertisement for nuwave oxypure smart air purifier sponsored by nuwave llc featuring deborah norville, an award winning journalist and new york times best selling author. - coming up, we'll learn about the nuwave oxypure smart air purifier. we'll hear from an expert who says, this isn't just an air purifier, but an important tool to protect your family so you can breathe easier during these troubling times. - [narrator] as you're watching tv right now, take a deep breath, how clean is the air you just breathed? the air in your home may look clean to the naked eye but look closer,