pof that the american dream is alive, and i feel like anything is possible. happy friday, "options action" fans, we have a big show lined up for you tonight, here's what's on deck >> looking forward to starting the holiday weekend by kicking back with a cold one, professor khouw has your examination then, don't party too hard or you will wind up at the doctor's office. tony zhang already has one on speed dial, for a different reason of course and finally, carter sobers all us with the three r's, reopening, read and rates time to risk more

"options action" starts now. let's get right to it of the official reopening of summer is this weekend many will reach for an adult beverage perhaps you should reach for a whole company that makes them first round is on carter carter >> we're going to plunge right in with consellation brands. obviously an adult beverage manufacturer, if you will, popular beers like modelo and corona three charts, let's take a look. so what i have here is very straight-forward stz, just before the pandemic plunge, and you see that plunge, and then the recovery since. but i think the key here is that we did have that 14% drop this past march and look where that stopped. it stopped to the penny at its pre-pandemic high. and then the uptrend resumed second chart is another way to draw the lines, which is to say,

we're working into the apex here of an ascending wedge for one way to characterize it final chart, very simple this is the up here up close one-year stz chart and what you see of course is the authority of these tops that have been in effect since january the stock has made no progress since january and often is set up for a breakout is tight-range bound trading and then a move that exceeds the range so stz on the long side, we're buyers >> thanks for that, carter mike, what's your poison -- or your trade >> my poison is probably wine over beer, and they make some good ones in that category too among the brands they have, they have mount v, and prisoner, mondavi, those are among their wine brands, and of course they

have exposure to cannabis which is an interesting situation because we tend to think of companies like this to be slow and stable companies, if this he are starting to see growth in areas like hard seltzer and increased market share in some of the beer brands carter referenced, pacifica, modelo and corona all provide opportunity for potential growth and we are expected to see pretty material eps growth usually, if you anticipate good eps growth is relatively high earnings but what's interesting here, they aren't particularry compared to their own history and market 22 to 23 times forward earnings, obviously a very stable business, and growing market share, all things look pretty good it has a decent dividend as well, that will play into the options trade. we'll discuss that this is not a stock that tends to move with a great deal of volatility when we take a look at the

options available to us, obviously will have the first two months, that's going to be june and july. that's actually a pretty big gap until the next spiration available, beyond labor day to look at the longer dated options. so what i was looking at was a call spread in july, specifically i was looking at call spread in july. the july 240, 260 call spread. 240 calls cost $8.60 and sell 260 for $2, a net debit $6.60 for $20-wide call spread some folks may notice that is more of a difference between strikes than we usually look to spend. we often look for payoffs 3 to 1 this is better than 2 than 1 the reason for that is that call is exactly at the money. now, because this stock pays a chunky dividend, if the options expire beyond the next dividend date, these don't, then you have to concern yourself. that's one of the reasons i'm

looking to july rather than 60 or 90-day expiration that i usually to try to frame around carter's technical thesis because that's usually the time horizon he looks at. this is a way to look at it. another thing, they will be announcing earnings before this expiration and company does quite well out of earnings historically >> great point about the dividend tony, what do you make of the trade and the stock? >> i quite like this because as carter's chart point out this is prime for break out above 240 level. when you look at the business, while alcohol is the primary part of the business it's not particularly interesting from the perspective of the potential growth that we see from beer is likely going to be offset to some degree by wine and spirits side that are starting to see declines as michael pointed out the cannabis side is most interesting, 38% exposure to canopy, which is a stock that is up 20% in just the last two

weeks alone and recently just broke above its 21-day moving average, i think canopy is very interesting, and the fact they own options to buy a fairly significant chunk of cannabis licenses through acreage is upside here for constellation brands and mike's trade is smart to play near the breakout level but hasn't broken out just yet because you're risking less than 3% of the stock's value by trading a debit spread, and if you do see breakout on earnings you're getting paid 2 to 1 risk ratio. so a great way to limit your risk on a stock that hasn't broken out just yet. >> all right, from lots of alcohol to the doctor, not in the usual way, tony looks at an e-health company that's coming off a bender of its own, so to speak, tony, which one are you looking at >> i'm looking at teledoc,

and i thin we have a rare opportunity to purchase it at a substantially low valuation than we've seen in the past year. if we start by looking at the chart, itself, the chart is downright ugly, the stock is down 60% in the last three months or so but today broke out above it's 21-day moving average. that's the first signal that perhaps this significant down trend is coming to an end. if we look at the business itself, it looks very solid, 80% of their business comes from recurring memberships, specifically from corporate-sponsored plans, and they recently just launched employee-sponsored mental health plans which is what's driven a lot of the growth here 500% growth last year on these, well over 100% growth expected this year on the mental health side of the business so, if you look at the stock itself, it's down 36% from the same time last year. but revenues are 87% higher than the same time last year.

so trading at what i think is a very compelling valuation with the technical lineup breaking out above the 21-day moving average, i think it's an interesting time to look at teladoc so the trade structure i'm using is to try to gain exposure to this stock over the long run and i'm using a call diagonal i'm going out to the june, october, 155, 170 call diagonal. i'm paying $18 for the october 155 calls. and i'm collecting about $2.30 for the june 170 calls here, paying a net debit of about $15.70 for this call diagonal. it is risking about 10% of the stock's value but it is a very volatile stock and the goal here is to try to sell more calls through the july/august expirations to collect more premium to offset the cost of these relatively expensive calls

going out to october >> i want to go to carter, and get your take on the chart here? >> right the thing tony started with is really the opportunity, which is to say this is so bad it's good. you've had a bottomed out situation. if you consider this, the stock dropped, what, 308 in february and it hit 130 two weeks ago. you're talking about a 58% decline, and what's interesting about that in the short history of the company going back to its ipo in july 2015, just two weeks ago it was trading 35% below its 150-day moving average that's exactly where it was in 2016 and again in '18 and both times it snapped back dramatically it's perfect sign of oversold. >> mike, what do you make of tony's trade >> i think it's very intelligent. we often find ourselves with dilemmas when you have a stock

you think is becoming interesting from a fundamental valuation standpoint but has been very, very weak from a price-action standpoint for some time, trying to catch the falling knife to say, i'm going to draw the line in the sand and own it here, could be a challenge, when using a trade like this you're really reducing the risk he said the risk is 10% of the current stock price but for highly volatile stock that isn't a great deal the other thing, if you believe a stock is bottoming out but you don't know precisely when the rebound you anticipate is going to come, this is the kind of trade that will work, why, because you're giving yourself a decent amount of time to buy that longer-dated call and mitigating in the short-term by selling strike call and i think really that's intelligent to do because this is going to give him opportunity to participate to the upside, reduce the down side risk, collect premium on expensive options, of course, the only thing that would really

basically make this trade look a little bit less desirable is if the stock suddenly rebounded very, very violently, very, very soon but if we anticipate a rebound that takes place over a period of time this trade is perfect set up >> remember, check out our website and our newsletter here's what's coming up next. >> announcer: coming up, carter will shows why the sector regain its leadership. in the intersection of two other "r" words. plus call all "options action" fans, tweet us your question at "options action. if it's nice we'll answer it on air when "options action" returns.

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♪ ♪ ♪ welcome back to "options action." carter is continuing our ongoing rate theme sorts with reits and why they are poised to exceed their pre-pandemic highs carter, take it away >> sure, i mean, what we know, and you were all discussing on "fast" earlier in the hour that reits basically are stuck, despite consensus just a month ago when we were hitting 1.7 1.75 we were on the way to 2. we're here at 1.55, 1.56, and not moving so what looks good to my eye is the set up in reits. let's look at the charts

we're going to look at the iyr, the i shares u.s. real estate etf. the first chart is a two-panel, and the interesting thing here, think about how many sectors and stocks finally got back above their pre-pandemic level, you're talking about 70% to 80% of stocks in the s&p. but reits as a sector as a theme are just now approaching the level before the plunge associated with covid. you can see it on the top panel, the red line drawn on the bottom panel is relative performance to the s&p 500 what you see there and very clearly is a bottoming out formation. research starting to outperform the s&p. second of three charts take a look at that same two-panel going back, instead of one year but several years you see the ongoing, unrelenting, under-performance of reits since the march pandemic bounce low and yet just

now it's starting to scale out, carve out a bottom adds on an absolute basis we sit right at the high. so do we or don't we break out final chart. this is the iyr over the last year you see the covid plunge and then it's marched steadily higher and approached its former high months ago, backed away and now it's reapproaching its we like reits long here. >> mike, you said this is larger teaching moment what's your call to action? >> iyr is an interesting case because we're looking at a situation where it's a very low volatility etf, it pays a nice dividend, so that makes it attractive to purchase, and of course when you have low volatility situations you can final options premium are quite low. a quick point about this as a reits, some of the constituent

stocks if you worry about office occupancy rate this is fairly diversified we're talking about residential rentals, public storage, mobile telecommunications towers, this is an interesting situation. it's fairly diversified. now, one of the things you should look at when contemplating buying something at an all-time high, of course we had a recent level right around 95, $96 earlier this month, you might be thinking, gee, i wish i bought it there, this is an interesting case for something called risk reversal we can look to july and sell 96 put and you can collect a dollar as of today's closing prices and buy the 102 strike calls for a dollar net net laying no premium. notice where it closed 100.20 you have upside exposure up 1.8%

96 on the other hand is down over 4%. so essentially you will get that exposure now, in fairness, iyr does pay a dividend around 50 cents a share. but the difference that you're seeing here is related to something called skew. puts tend to trade at premium to call so that seems to be more pronounced in this case. this is a way you can get near upside exposure, get long at a slightly lower level i think that's a fairly attractive risk/reward dynamic again, as i was pointing out the constituent stocks of iyr are not just office, just walls or just residential real estate, they have a broad bit of exposure in the real estate space and this is a compelling spot to be in. >> thanks for that, mike tony, what's your take on reits?

>> i like it i think the most important thing with respect to the chart is the fact you're breaking out not only on an absolute basis but also on that relative basis. that's a strong thesis for this particular break out as mike said this is a fairly diversified etf with fair amount of subsectors with respect to reits. you have industrials, self-storage and data centers that have been incredibly strong during the pandemic. as things start to reopen you have office reits and malls and student housing starting to see significant uptick so when you have all of the things in mind and couple the fact that rates have not risen above that 155, 160-basis point level that carter is referring to that certainly helps this particular segment of the market when you look at the risk reversal, really great example of how to utilize a risk reversal to take a position that's very similar to being long the stock, with some mild downside protection down to the 96 level, he was being pretty

tactical, that 96 recent low and 102 minimum amount to the upside if we start to see this break out. really start way in my opinion to take a capital efficient way to mimic being long the stock as opposed to outright buying the etf in this particular case. up next, a trip rip how tony is cashing in on one big bullish bet in semidconductor space. plus if you have a question tweet us at options action we'll be back right after this 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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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 last week's look at nvidia in earnings >> this is a stock that has been stuck between 500 and 590 for the last nine months but we're starting to see breakouts on both absolute and relative basis above the 590 resistance level that's the key i like to see going into earnings events nvidia is firing on all

cylinders and i'm going out to june selling put spread collecting almost 40% of the width. >> well, that trade is in the green, so tony, what are you doing now? >> yeah, so for investors who sold this credit spread on monday you would have collected $13 instead of $15 but would have been able to buy it back today at $3. you were able to make 76% on the max gain on this particular trade. it's time to take your profits and move on to the next one. >> all right, just last week carter and mike laid out how to play costco into earnings. >> it has been in this perfect, literally perfect 45-degree angle, straight up, a beautiful channel, and it's been a ten-bagger its low was $40 and essentially it's at $400 versus the s&p since the '09 low which has been a five-bagger this is the champion by any measure. >> i was looking at that

earlier today, those july 385 calls were costing $10.30 and june 400s were about $2.57 so approximately 25% of the premium that i was spending on the longer-dated option. that should take care of some of the decay that you'll see coming out of the catalyst that is earnings >> since earnings last night obviously the stock closed at 378 and change down by just about 2% carter, what do you think of the chart here >> right, so, when you're playing for an event and the chart is set up for an event, a bounce off the 100-day average or a breakout, the event comes and goes and the chart, the stock doesn't do what you're expecting it to do then you move on and so in this case, i think we just move on >> mike? >> yeah, so all of the decay is out of those junes the longer-dated options $10 and change were about 660. so you can close this thing for

probably a $3 per share loss that's obviously disappointing but not quite what the stock has suffered so i agree with carter there was that price to earnings issue that we talked about, i think taking the first loss is sometimes the best loss and we should just move on. >> yeah, good review of last week's trades. time now for the final call. carter, kick it off on this memorial day eve of the weekend. >> all for memorial day constellation brands and iyr as well >> tony zhang. >> great time to look at tdoc time to buy. buying call diagonal spread. >> mike khouw. >> i also like constellation brands, you can buy some of their beverage and buy some of their stock perhaps. in iyr, a favorable risk/reward relationship if you want to make a bullish play on a breakout. that does it for "options action." be back next friday.

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