alrip is bright. oh! mwah! happy friday, "options actions" fans. i'm melissa lee. we've got a big show coming your way so let's get straight to it. the biggest story in the market this week, the blockbusters performance from amc it was a hollywood comeback like we've never seen before. shares of the movie theater chain gaining more than 80% this week, but the real showstopper was in the options pit the real ramp-up began last week, but consider this on wednesday, amc alone made up 15% of all options activity in the united states. a lot of people made a lot of money trading in and out of amc options. but for others, this week had

anything but a fairy tale ending let's break it all down. mike, we talked about this on "fast. what happened here >> so this is really an extraordinary situation that we've seen, both in the stock. obviously, the volumes we saw there were extraordinary the price action we saw was extraordinary. so, too, was it in the options market if you take a look at the last five days of trading volume, 18 million contracts or so traded at amc let's compare that to five days of traded volume in the entire u.s. options market. that's around about 200 million contracts. so amc alone represented close to 9% of all options traded on stocks, etfs, and indices. this is really remarkable. now, it'soften been said that in the short-term, the markets are a voting machine and in the long-term, they're a weighing machine. and really, what that means is that in the short-term it's a popularity contest and i think the volume and the price action really speak to how popular amc was.

essentially, as a trading vehicle. of course, when that happens, we also want to take a look at what happens to the price of options. and actually, if you created a chart of the volume of amc options, the price of amc stock, and the level of implied volatility one month out in amc options, those charts would mirror each other almost exactly. usually when the prices of equities rise, you'll see implied volatility fall. that's not what happened in amc. the price went up, and it went up a lot so how far did it get? at one point this week, the july 65 straddle was $69, okay? so that's adding the july 65 call and the july 65 put to buy them both around 1:00 or so on wednesday would have cost $69. and here's the thing most of the action we're seeing are people buying options to make short-term bets if you bought that straddle, the only way it would be possible is

if amc finished above 134 at july expiration. at teany price less than that, that trade is a loser. and that is true both for options that expired in july, in june, and even some of the ones that expired today a lot of people are using these things just for intraday trading. and i think that's okay. i'm not going to finger wag at people who are going to trade securities but one of the things you really have to watch out for is when premiums get this high, it's very, very hard to make money when the implied volatility starts to come in. >> the risk is certainly ratcheted up in terms of short-term, long-term, mike highlighted this trade that had july strikes and talked about a lot of weekly options earlier this week. it's interesting, because the notion of the reddit trader is they've got diamond hands, right? yet the options activity doesn't show that they necessarily have diamond hands. they're not long-term traders. if july was the most active contract, that's a month at this point. >> yeah, that's exactly right.

and most of the action we're seeing is not going out that far. most of it is going out just a couple of days what amc has really done, they've turned options into day trading vehicles and placing these very leveraged bets intraday and typically stocks that move this much, you know, are typical microcap stocks. they don't have options listed on them. certainly, they don't have weekly options listed on them. it's not a vehicle that you can trade them but amc and gamestop have really changed that and when you look at the charts -- especially in options trading, we typically look at daily, sometimes weekly charts if you look at that on amc, it's difficult to ascertain as to which way the momentum is moving but if you actually zoom in here into five-minute charts, you have to zoom into pretty small frequencies to see that the markets are fairly orderly intraday and what we're seeing is traders are using these relatively short-dated, out of the money calls, out of the money puts to

trade short-term directional bets intraday. something we've never seen before, utilizing options. if you zoom into that five-minute chart, you see clear support around 42. you see clear resistance around 68 and a fairly orderly trade around there with a point of control around $50 and just traders trading a range between the lows and the highs using options as the vehicle that they're doing this. the one thing i want to say, is for investors trading these short-dated options, delta and gamma are typically the two greeks you're mostly interested in terms of affecting the value of the options that you're trading. but in this particular case, as mike was saying, vega, implied volatility is going to be a huge factor into whether you're going to be profitable or lose money on this particular trade so keep an eye out on vega and the changes we've seen in implied volatility, even if you're trading intraday. >> carter, for investors who invest in a more traditional way, they get hung up on fundamentals as a chartist, you're looking at

lines, so what does a chart tell you? >> there are no fundamentals it has to be very clear. look, today, an analyst said that bed, bath, and beyond is no longer trading with its fundamentals and so, it suspended its rating. stocks do not trade with their fundamentals long-term, there's a relationship between the cash flow generated, the subsequent earnings, and the share price. at this hour, this month, next week, two, three months, costco dropped 20% and recovered 20%, all in a couple of weeks there's nothing to do with fundamentals at all. just before we look at some charts, remember this, eastman kodak in july a year ago went from 2 to 60 in two days how about tilray back in august/september 2018, tilray was 17 and it went to 300. hertz -- look at hertz right now, 40 cents to 7 bucks this has been going on since time immemorial. now, this is a particularly large cap stock at this point,

but this phenomenon is part of markets. you can look at otc markets. let's look at three charts here since amc is the subject the first chart is a chart over the past year. you can almost not see the prior prices, because of the current move now, go to the log chart, next chart. this is where there is a process. in fact, we know that this whole thing got going, right, was $1.95, and resurged to essentially 20 we pull back, consolidate, it's a wedge. and then we pop again from 10 to 70 now, look at the final chart the signatory here is remarkable, meaning the january surge is about an eight to nine-fold move, we consolidate and this current surge is basically from 10 to 70. you go from 2 to 20, consolidate, pull back, and it's not to say that it's easy or that i can figure it out better than anyone else, but there is

no pretending. there are no fundamentals at all. it is simply charts and there are a lot of people that look at them >> mike, what would you say to people out there who want to do what tony is talking about, and that is using options as a day-trading vehicle. do you have tips for them? and don't tell me "don't do it," because i understand that there is a risk element to this, but if they're going to go ahead and do it anyway, what would you advise them? >> well, i mean, there's really two things i would advise. and one of them is that, obviously, if you're using an amount of capital that you're comfortable losing, because, of course, if you buy options, the maximum risk you're going to face is the amount of premium you're going to spend. if you're comfortable with that, people are comfortable buying lottery tickets. people are comfortable going to the horse track and betting on the ponies there's a lot of things that people can wager and speculate on, and that's fine.

and that's fine here, too. just make sure you size your trades appropriately and some of the reasons that people are using options is precisely because day don't want to wager on $100 shares of stock which at 65 is $65 and a lot of people are doing this i'm not wagging my finger at anybody, because one of the things we did notice in all of the activity we've been seeing over the course of the last seven trading days or so in amc is that a lot of this activity, people are buying and selling these options within the same day. they're not even carrying these things overnight take a look at the most active options that were going on today. many of those expired today. obviously, they were not looking past the weekend when they were placing those trades even the longer-dated ones expire only a week from today. but the thing is when the premiums are very high, you can get this very rapid ball crush when the stock rolls over these high-flying stocks so you really have to be very, very nimble if you're going to

try to do something like that. and if you're playing for something a little bit longer term, maybe selling options against some of the things you buy makes a lot of sense >> lall right. for everything options action, head over to optionsactions.cnbc.com and while you're there, sign up for our newsletter here's what's coming up next >> forget diamond hands, it's high ho silver, away the shine master sees a shiny opportunity in this chart. carter worth opens up his silver lines play book. plus, tony zhang says this auto stock is about to hit the gas. he'll break down the trade calling all "options action" fan, 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. >> announcer: "options action" is sponsored by think or swim by td ameritrade.

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♪ ♪ ♪ welcome back to "options action." silver shining today, but the precious metal still underperforming the broader market this year but the chart master is seeing a silver lining in the charts. so, carter, what are you looking at >> recently, gold has come to life in a big way. today's payroll numbers made gold move aggressively, silver, too. but silver in many ways is poised and a lot of beta if one wants to play precious metals. so a couple of charts. the first is the slv etf we've

been using no judgments, no drawings, no lines. it's a chart now, take a look at the next one. this is what my eye sees we've worked into the apex, if you will, of a standoff, and what i would point out is that circle that's the day that silver went above $30 an ounce for the first time in nine years and it had to do with reddit and online traders taking a run at it in any event, the question is, do we also break out of this range? so the third chart is a weekly chart going back a bit further and what we continue to do is bump up against this 27-plus month level in slv, which equates to essentially 30 in silver itself. and i think we are going to break out. and just to put the current circumstance, the current set-up in a perspective, take a look at the final chart here

this is how high, of course, silver has been. silver hit a peak back in 2011 when gold did, and what we know, it was one of the most epic double tops ever formed. it is the exact same level when the hunt brotherses corner silver in the first quarter of 2011 and we got right there and stopped and put in the double top. a lot of head room, if you will, upside we like it a lot >> all right very bullish mike, what's the trade here? >> yeah, so if you take a look at slv, which is the etf that tracks silver, which i think is probably the vehicle that a lot of people who typically trade equities and not commodities would use to make a bet on the metal, one of the things we're going to observe is that if we go out in the 60 to 90-day time frame, we see implied volatility above 30 that's not blow-off top kinds of levels, but above the realized kind of volatility that slv has

been exhibiting, which has been closer to about 20 if we look at the relationship between the price of two to three-month options and how much this thing has been moving around, the options look relatively expensive in cases like this, we often try to find ways to use spreads, essentially to reduce the cost so that's one of the things i'm interested in doing. the other thing i've noticed is that over the last couple of months, it seems right around that 23 level, that's sort of where we bottomed out. it actually dipped a little bit below that but essentially, that's one of those prices where perhaps if we'd wished we'd purchased this earlier, we would have gotten it down around those levels i was looking out to august, the 23 1/2 call spread risk reversal what are we doing here we're buying the august 26 calls, selling the august 28 calls, and also selling the august 23 1/2 puts when i was looking at this earlier today, it was very, very close to even money. i think it was about 3 cents to put that trade on. $1.46 to buy those 26 strike calls, and you could collect about $1.43 net between selling

the 28 calls and the 231 1/2 put with the slv trading very close to 26, which is approximately where it closed, essentially you'll get immediate upside participation, up to about that 28 level, looking perhaps for something in the neighborhood of an 8ish percent increase over the next couple of months. of course, if it does drop, you could have it put to you, meaning you could be come pelled to purchase slv, but you'll be buying at that 23.5 level, which is closer to the bottom of that range we've been seeing. and one other point, if it continues to track sideways, between now and expiration, it's probably going to see that upside call and downside put decay a little bit more rapidly than at the money call does. we might have an opportunity if we don't get the breakout we're looking for to make some adjustments without actually costing a lot of decay >> tony, what do you make of the trade? >> i like the trade quite a bit. if you look at the long-term chart here for silver, i think it's very encouraging to the

upside, especially if you look at what -- as carter showed you that last chart, that multi-year, multi-decade, what looks like a cup and handle formation that we're starting to see, recently, silver broke out above that $21 level it's held that level, it's testing the $28 high that's the handle part of the cup and handle formation and if you look at long-term, if it breaks out above that $28 level, breaks higher on that handle, you're looking at least 35 here to the upside. the trickiest part, i think, about looking at these long-term charts and the potential breakout here is the timing of it, because you could potentially get the directional view right, but maybe the timing not so much. so that's really why i like mike's trade, because trading this risk reversal call spread, he doesn't have to necessarily time the markets on the breakout the time decay is not a big factor here to the short run and if you do get a breakout here to the upside, he participates if it breaks out above 28, he can roll this even further and capture further upside by buying

a call and trading a spread after taking profits on this particular trade >> all right let's move on to our next trade here start your engines, because tony says there's one auto trade that is gearing up for a big comeback so tony, which stock you looking at >> i'm looking at advanced auto parts. it's been on my radar for quite some time, but the recent pullback here from about 10% or so recently i think is an opportunity, especially as u.s. vehicle's average age starts to increase, starts to reach a record of about 12 years or so, i think auto repair and maintenance stocks are going to be a beneficiary of that so if we take a look at the long-term chart here of advanced auto parts, what you see is that this is a stock that has really made no outperformance here over the past year, past five years or so. and it's actually underperformed the market significantly over that amount of time. recently, two months ago, it started to break out not only on an absolute, but also relative basis. this is telling me that there's a potential upside here for a

name like this and if you zoom into the short-term charts here, you have the recent breakout from that 187.5 level. it's come back to retest this level of support earlier this book, and so far, it's holding after earnings that were announced just earlier this week and the earnings were particularly strong. i think you're going to see about 30% epps growth this particular year. we're seeing operating margins continuing to improve and i think that trading at 17 times next year's earnings, the stock is trading at a fairly reasonable valuation for that. so i think it's reasonable for this stock to retarget that 210 all-time high and potentially even higher over the next few months the trickiest part about this trade is the fact that options are only listed in july, and the next option series is only out to september so the trade structure i'm choosing to use here is a more conservative approach on a potential balance off of this pullback here. and i'm using a put credit spread i'm going out to july and selling the 190, 180 put spread

here, collecting about $6.70 for the 190 puts, paying about $3 for the $180 puts. net/net, i'm collecting $3.70 on a $10 wide credit spread collecting about 37% of the width. a little higher than i'm typically able to collect on a vertical spread like this. and playing for a bounce here higher towards that $210 level >> carter, what'd you think of aap's chart? >> well, what's interesting about this company in the after-stock market space for parts, there are three that really drive everything. it's autozone, o'reilly, and aap. and aap is the chronic sort of left behind stock. in fact, if you look at any sort of long-term chart, ten years, if you want, or longer, even longer, aap is performing at half the rate of auto zone, even less than o'reilly and basically, over the last year, that relationship has

changed. and aap has been leading and i think the set-up is excellent. >> all right up next, a trade update on a real estate play that is next stay tuned it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪

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welcome back to options action time to take a look back at one of our open trades just last week, mike and carter snapped up some real estate on the cheap. >> you see the covid plunge and then it's marched steadily higher and it approached its former high a month or so ago, backed away, and now it's reproaching it that's a very good set-up. >> this is an interesting case for something called a risk reversal and we can look out to july and sell the 96 puts you can collect about $1 for those as of today's closing prices and buy the 102 strike calls. also for a dollar. net/net, you're laying out no premium. >> so, mike, the trade is in the green right now. what do you do next? >> yeah, you can take your profits and run on this one or sell the existing trade and roll up to the 103s and play with house money. >> carter, quick comment >> well, big week for reits.

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welcome back to "options action." we've got time for a tweet one viewer asks, what are your thoughts on clf? i own a july 20-25 call spread thanks mike, do you want to take this one? >> cleveland cliffs is a very volatile stock and that's one of the reasons you might want to use options. but a quick point i would make, they'll be reporting earnings at the end of july, your options expire prior to that if you want to be able to capture that event, selling that upside july call makes sense, but buying a longer-dated one into a diagonal might be the way to capture earnings as well. >> all right it is time now for the final call the last word from the options pits carter braxton worth, kick it off. >> slv, the silver trust to get

long >> tony zhang? >> play for a bounce in advanced auto parts, sell a put credit spread >> mike khouw? >> try to take advantage of evaluated options premiums in slv and use a call spread risk vertical >> that does it for us on "options action. "on the edge" is up next - [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. deborah is here today to share her passion for the nuwave oxypure. - we've been living through strange and unsettling times. never in history has everyone on the planet been confronted by the same thing. and we're still trying to get back to a sense of normalcy. we've discovered how devastating a virus can be and the importance of proper cleaning.