a couple of weeks ago, alan called my manager, and he started working for camping world. in order for him to stay, he's gonna have to prove himself. but it helps me hold out hope for this family. ♪♪ 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 worth it looking at the setup, and finally professor khouw is pausing to take a breath and reflect on the bigger picture. let's get right to it. beauty stocks haviing a strong start to the year despite the pandemic keeping consumers inside with a reopening on the horizon there could be even more beautiful returns ahead. so carter, break it down for us.

>> sure, before we get to the charts, there are recent patterns emerging of purchases whether it's people buying dresses wanting to get out of their sweatpants, makeup and other sort of things that make you feel good but also you might need as you start to get out of the house. look at estee lauder ed first of two charts, it's a comparative chart. this is a two-year chart of estee lauder versus lvmh while they're different businesses, look how incredibly tight they are lvmh is the biggest stock in all of europe at 380 billion cap the biggest energy total 120, it is a major childrthing. estee lauder is in its own way a junior version of it this is a ten-year comparative chart of estee lauder and lvmh a very reliable business and interestingly there was always

this thought that during recessions people buy lipstick because they want to feel good heads you win, tails you win so some estee lauder charts on their own. here's the one-year chart. next chart, look at the channel, those are 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, it's a two panel. you're looking at now a five-year chart of estee lauder. on the bottom is relative performance to the s&p last chart, same exact chart, estee lauder and now look at the relative performance basically estee lauder is just now breaking out above relative tops that have been in effect for almost three years we think it's excellent, and we want to be long. >> charts look great, mike what's the trade >>. >> yeah, so i think the fundamentals for the business look pretty strong as well so right now we are seeing them

recover much more quickly, i think, than the company had expected, than a lot of observers had expected as carter mentioned, they sell premium products and that offers significant praising power we're anticipating to see some margin expansion and a return essentially to that 6 to 8% top-line growth, double-digit bottom line eps growth, and of course their second largest market right now is china, and that is an enormous market and right now the average chinese consumer is spending about 1/10 what the american consumer is spending on the same project, 1/10 who a south korean is spending on the same product enormous growth opportunity. one thing i want to point out is it is priced for that as well. we're seeing essentially the price to earnings ratio on this one at essentially all time highs, price to sale similarly at all time highs. we have good operating business, relatively high valuations on the promise of what the future might bring. so i think the way to play earnings -- and they've done

historically very well out of earnings i should add. out of the last 11 years of reported earnings, 34 reported quarters, the stock has been higher three weeks later about two-thirds of the time when it is higher, it is typically higher by more, close to 8% than it is down when it does decline one-third of the time i'm comfortable making a bullish bet, but i want to do so using options because i feel like the market has extended. i feel that the valuations on a lot of stocks including this one are pricingse in a lot of good the future may bring when i was looking at those around midday today those were about $18, ask then selling the may 330 calls. i would point out that the stock was higher at the time that i looked at this it was around 315, 316 that's why i was looking at the 310 calls because only $10 strikes are available. the stock actually priced a

little lower at the close. you could probably get into this trade at the closing prices around $11 you have to see how it opens on monday the idea as always try to take advantage of the fact that the short data options are slightly elevated in terms of their implied volatilities relative to the longer data ones we're looking to buy. >> the charts and the fundamentals line up, tony 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 rather than a pullback the relative strength here is really what's to look at from the charting perspective whether you're looking at this relative to staples or consumer discretionary, estee lauder continues to, you know, print all time highs here. as mike said, trading at these fairly rich valuations of 40 times next years earnings, that's the concern here. the margin expansion mike is referring to, really speaks to

the shift they've recently had success in shifting more towards an e-commerce strategy and restructuring their brick and mortar those are the things that really elevate the valuations they're currently trading at for those reasons i like the trade specifically regarding the fact it's over extended and using a die ag-- diagonal. that helps reduce the extrin sil value mike has to pay on that long call. shorting the call option further reduces the time decay on this or even if the stock stays where it is on earnings or slightly lower, this is a strategy that will be either a net zero or even 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 >> well, it's all about your time frame so what tony cited, right, is probably rsi i don't know what particular

indicator he's talking about in terms of his 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 well, much like beauty, gazing up at the sky and seeing pictures in the clouds is highly subjective the same could be said about some cloud stocks. toemy is seeing something he does not like in one name. 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 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 certainly one of those stocks that may underperform on earnings next week

if we take a look at the chart here, fastly did break out to new all time highs but on the earnings last quarter started to break below a major support level and has struggled to get back above that level and is now acting as resistance relative to its sector, the technology sector, fastly continues to print new allows against its sector the poor relative strength going into earnings that suggest a poor earnings performance. that's what i saw in netflix and intel over the past 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. in the stock that's trading at these types of really rich valuations, that's just not something that's going to work well going into earnings next week so if we look at the earnings its, it's implying right now about a 13.4% move versus the

average -- the average over the last seven quarters was a sizable 15.7%. the implied volatility is extremely elevated going into the event. the trade structure i'm using as i go out to the 28th weekly options, and i'm selling the 65 by 70 call vertical here, collecting about $2.10 that's going to collect actually more than 40% of the width, and that means i'm reducing my risk here on this call spread down to just about 59% of the width, and that's the type of risk/reward that i like to see selling a call spread going into an earnings event. >> mike, what do you think of fastly >> fastly occupies that same space, many companies do right now. it's very hard to get your arms around the valuation 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 selling call spreads, selling credit spreads like that are very attractive ways, especially for people looking 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 this stock. it could stay where it is. it can decline or it can go higher if you shorted the stock, obviously, if it stayed where it is, you wouldn't make or lose any money. you have unlimited risk to the upside by contrast, by selling an upside call spread, you'll see profits if it declines if it just stays where it is, you will also see profits. if the stock for whatever reason, see valuations expand more than they already have and it 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 upside. what does that mean? three things can happen. two are good, one is less bad than shorting the stk. for that reasons i like the options structure. >> carter, what's your take on

fastly >> one of the things about having had such a run, if 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 look at all stocks in the russell 3000, the stock is down basically 10% on a one-month basis. that performance alone, talking about poor relative strength puts you in the bottom decile. that means something is wrong. >> wow, the bottom decile. all right, still to come, there is a scene in the animated movie ratatouille in which a food critic tests the chef by ordering a serving of perspective, did you know -- while you're there, sign up for our news letter, "options action" the show will be right back

wanna help kids get their homework done? well, an internet connection's a good start. but kids also need computers. and sometimes the hardest thing about homework is finding a place to do it. so why not hook community centers up with wifi? for kids like us, and all the amazing things we're gonna learn. over the next 10 years, comcast is committing $1 billion to reach 50 million low-income americans with the tools and resources they need to be ready for anything. i hope you're ready. 'cause we are.

♪ ♪ ♪ ♪ ♪ . welcome back to "options action," individual stocks and trades aside if one backi s up and looks at the bigger picture 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 so then it begs the question, were they blowout numbers? 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 its gross margins are going to be even better. if it's down, only up 1%, then the news cannot be anything but either outright boring or bad, despite what the beat was. and 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 -- from the leading financial institutions and the leading tech names and so forth, what do we get to move the market higher and so there's a thoughtful case to be made that we are making an intermediate top, two, three, five months that kind of thing i think that's the way to look at the market at this point. >> so 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 collars. 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 downside risk, which is obviously one of the objectives of putting on a hedge and preserving a little bit of the upside because otherwise we would simply 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, and that's what

we're trying to do when we put on a zero cost put spread collar i'm going to use as an example spy to etf it's probably the easiest proxy for market holdings so if you happen to hold spy or have a portfolio that behaves a lot like it as many do because that's essentially the s&p 500 that you can look to a trade like this one to give yourself a little bit of a buffer to the downside without actually spending some premium. i was looking specifically at the 375, 400, 435 put spread collar in july what you'll be doing is selling the july 3, and selling the 435 strike calls by selling the outer put wing and the upside call, you are financing the purchase of a closer to at the money put, and in this way, you still have some upside exposure up to that short call strike, in this case if it was spy 435, but you begin to see some protection below the long put strike of 400 and the idea here is that this

isn't a disaster insurance, this isn't basically an enormous tail head, it's just a situation where if we're starting to see some stocks, big stocks that have been 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 a little bit of a correction you'll notice that the short put strike i've selected is down about 10% from where spy was trading. bear in mind, if you don't happen to own spy or your portfolio looks different you could use the q's as a proxy for your portfolio or look to put on a structure like this in the key holdings you happen to have. the idea here is buying a put spread, financing the purchase of that put spread by selling an upside call against stocks you own. >> tony, what are your thoughts on the markets given the price action we've seen this week? >> well, first of all, i completely agree with the price action of the markets. this is one of the reasons why i've been taking a lot of short

positions going into earnings events because that's exactly what we have seen, stocks that have outperformed in theory on the earnings event underperformed on the stock itself afterwards. i think mike's trade really speaks to why we call mike the professor. it's one of the most creative ways i've seen of utilizing options where you shift away upside exposure to buy some downside protection at zero cost the most difficult part about buying portfolio protection comes out to how expensive it is and this is a very creative way by selling that july 435 call option to purchase that put spread, and i do think that even for viewers here who may find this trade structure a little too complex. i hope this illuminates for you how creative you can utilize options for to shift, you know, different risk profiles to suit your outlooks. >> all right, coming up, u.p.s. 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 right back. >> "options action" is sponsored by think or swim by td ameritrade 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 tony set up a way to play intel into earnings. >> this is a stock that has

continued to underperform its sector since june of last year, and despite this year's strong performance, it has failed to underperform, and 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 here collecting about $1.68 in terms of a credit, which is about 33% of the width, and this is the type of trade structure that allows me to profit as long as intel stays below $65 at expiration. >> so tony, how are you managing this one >> so this is one of these trades where the trade went exactly the way we expect it to. we sold it for $1.68 you can buy it back today for roughly $0.05. my suggestion is to buy it back, remove the obligations, and free up the margin for the next trade. >> all right, now back in march mike played out a way to play u.p.s. >> 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 e-commerce as a result of the pandemic, but the problem for transportation companies like u.p.s. is that that b to c business, margins on that aren't quite as good as they are on b to b people are looking beyond the pandemic, and they're thinking maybe that tailwind starts to turn into a headwind i was looking to june, looking at those 165 calls and selling near dated april 161 calls against it when i was looking at this earlier today, it would cost a little over $5 to put that trade on, those 165s were about 7 1/4 and you were collecting a little less than 2 to sell those 170s in april against it. the idea is to try to collect premium in those faster decaying near dated upside options. >> 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 have covered those april calls at expiration on the 16th so the thing is, these are very deep options right now i would either take profits on those longer dated calls or roll them up and out so that you're into an at the money or slightly out of the money call option either way, you want to take some of your profits off the table. >> what do you think of u.p.s., carter >> if you recall the setup was we looked at fedex fedex breaks out let's make the bet that u.p.s. will it has i think you take the money and run. >> yeah, all right, well, tony tie breaker 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. i do think this is a strong stock. >> 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 ♪ visit tdameritrade.com/learn the first survivor of alzheimer's disease is out there. and the alzheimer's association is going to make it happen. but we won't get there without you. join the fight with the alzheimer's association.

♪♪ ♪♪ ♪♪ welcome back to "options action b action.

john than bradley asks on cvs with earnings this week, i was looking at the may 7, 78.50 $call with cost a little less than the share. >> the stock has averaged a move of about 3%. t it's a fair money bet. considering the stock hasn't performed that well around earnings historically, i like it as a low cost way to make a bullish bet. >> carter what do you make of these charts of cvs? >> cvs has beenbottoming for quite some time. i think it's finally time to actually get out of the bottom and up and out and much better than walgreens boots, i like cvs. >> i like cvs, it's prime for a breakout. >> all right, time for the final call now, it's already that time carter braxton worth, what do you say? >>es estee lauder, long. >> tony zang. >> 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 next friday at 5:30 eastern time don't go anywhere "mad money" with jim cramer starts right now. have a great weekend - [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer with smart integrated probe. sponsored by nuwave. we all love fried foods, but yuck, that means scoops of grease, blobs of butter or gallons of oil, just to fry. this adds up to a lot of unhealthy fat in your diet, year after year. stop! now you can cut out all the added fat and still keep all the flavor with the new brio digital air fryer with smart integrated probe by nuwave. best rated air-fryer by consumer reports. coming up next, you'll see how brio's compact design, despite the smaller footprint,