welcome to "options action." i'm deirdre bosa in for melissa lee. here's what's an tap tonight >> you can have a coke, but can you have a smile carter worth thinks so the consumer staples giant on deck to report next week and we'll show you why and how to play it then -- tonight, we're taking more of your twitter questions. but first, tony zhang is going to show you how to trade twitter itself finally -- moderna being

called the tesla of drug makers. that's a lot to unpack, but mike khouw is going to take a shot at it it's time to risk less and make more "options action" starts right now. >> coke out with quarterly results next week. like the consumer sibling pepsi it could be poised to pop. carter worth, explain. we were talking about in the opening trade. just a little more on the go drinks >> that's right. well, thank you, deirdre i think the set-up is quite good in the sense that we're looking for a macro catalyst or back drop that's positive and we have that there's a very defensive tilt to the market right now interest rates are down and defensive areas of the market like utilities and staples acting well. two, we have an event, earnings and three, just as you said, pepsi popped on the earnings let's look at coke the first is a two-panel chart look at coke

three-year chart, weekly bars and the bottom panel is what i want to focus on the relative performance to clorox, colgate and pepsi, that is starting to curl up that's impressive, developmental and we think it's important now, the next chart just coke itself the set-up here, a nice ascent very orderly since the pandemic low and the potential for a breakout here above the tops in play now, you'll note that the stock is one of the few that have yet to return to their pre covid level. so let's drill down a little tighter. next chart this is the two-year chart you can see the same annotations, same drawings, but puts in play the fact that coke, not pepsi, is still below where it was when the pandemic hit then the final chart, just to call attention to that level so in february, the stock was around 60 and change here we are at 56, we think that in the event of a pop, earnings related, the stock is headed to

finally its prior high >> all right carter, thanks for that. mike, what's your take, what's the trade? >> yeah. so, you know, it's interesting, carter pointed out a couple of things obviously the fact it has not been basically achieved the pre-pandemic highs i think that's an important point. let's look at the fundamental back drop here i mean, this is a stock that's providing about a 3% dividend yield i think that lends some level of support in the more defensive environment. also, i mean, just take a look at how the company was doing right before the pandemic, the prior year full year revenues in round numbers were about $37 billion that's very close to what we're anticipating for full year this year as we're going to see out of home beverage sales increase for coke and next year the expectation is for full year revenues in the $39 billion range that would be a year over year increase of about 6%.

so i think that combined with a little over 24 times earnings which is in line with pepsi but below the mean for the entire peer group suggests that coke is actually a reasonable value when you put it relative to everything else you can look at. one quick point about earnings this is not a stock that moves a great deal on earnings averaging less than 3% on the data they report and of course there's a little bit of information from the pepsi earnings imbedded here i was taking a look at long dated calls and i was looking at that earlier today those were about $2.14 and then i was looking at selling the august 57 1/2 calls against that to help finance that those i can collect about 70 cents for. of course, 70 cents on a stock that's closing on $60 may not seem like a lot of premium to collect in one month think about it in the context though of the $2.14 you're spending that's about a third of the premium so there's about almost 190 days till the long dated

calls expire only about 35 to the shorter dated august options expire. we can continue to own the longer dated calls and sell premium against them continuously to essentially help finance that this is not a stock that tends to rocket higher it's just moving higher. >> right we'll watch out for that tony, what is your take going into the coke earnings next week >> yeah. so first of all, i think the chart here is very compelling. you have that potential breakout above the $56 level and i think that target is a reasonable upside target. if you look at the fundamentals, both the revenues and margins are recovering back to pre covid levels and when the stock is trading -- is paying about a 3.1% yield and we have a pretty good chance of this stock beating on top line revenue just like pepsi that's where i think the current valuations are fully justified as mike said 24 times next year's earnings

so typically, trading a calendar like this on a stock that we're fairly bullish on is concerning to me, but as mike said there's a lot of information that was leaked from the pepsi earnings announcement and the stock is already up 3% this year. i think that the upside here for next week is relatively limited so i think that his call calendar that is targeting about a 2% upside here over the next month or so is justified especially because of the skew that he's noticed from the short dated option he's able to take advantage of that's going to allow you to own the longer dated calls for a substantiallycheaper price and if you're able to sell some more calls as the stock continues to rise, then you're able to own the calls for significantly cheaper price so i like the trade quite a bit. >> all right great points all around. we like taking your twitter questions which we'll do later on in the show, but tony, like twitter, as a trade, tony, what's the story there >> yeah. exactly.

so i think last quarter's revenue miss and the stock selling off so heavily was a little overdone. i think the fact that the stock is back on track towards profitability and revenue growth, i think this is a stock to take a look at going into earnings next week if you look at the chart itself, it's found a base above the $64 level and so far, over the past couple of weeks it's started to form another base above this level and i think this is the opportunity for it to now continue back towards that $80 all-time high for twitter. if you look at the business itself, we're looking at about 30% top line growth here over the next few years and it's a stock that's inherently profitable. unlike some of the other peers, yet, it trades at a fairly substantial discount to the peers. this is a stock that i think is justified in terms of trading at a higher valuation and especially with twitter blue recently launching, we'll get a glimpse into how that will

perform. i think that's something that can add another 5% to 7% to top line revenue next year so the trade structure that i want to use reflects the options -- what the options are implying for this specific earnings, which is about 11.2% move versus the average that we have seen here over the last eight quarters around 13.2% so options are implying a slightly muted earnings event. so the trade structure is selling a put credits spread i'm going out to the august 27th weekly expiration and i'm selling the 66 vertical. collecting $4.70 and then spending $2.25 for the $60 put net-net, i'm collecting 40% of the vertical width and when i'm able to collect this premium that's a type of trade that i want to take especially if i think the upside here is going to be somewhat limited because

of what the options are currently implying. >> and mike, close us out here what are your thoughts on twitter? >> yeah, i mean, i think the important point -- it's kind of funny. tony was just talking about an 11.5% implied move and what you see out of a name like a staple stock like coke or pepsi, but i think the important thing here is the trade structure he's choosing when you look at a put credit spread or a credit spread, you can collect more than 30% in a relatively short period of time. that's a positive. three things can happen to the stock. it can stay where it is, it can stay higher or go lower and this is a trade structure i recommend in general even in the stock did fall, you know, the total risk you're taking is considerably less than you would take if you purchase the stock outright i like the trade structure and the timing of it as well. >> all right

well, for everything "options action," check out our website, options action.cnbc.com. here's what coming up next. the rapid rise of moderna. covid vaccine maker, new s&p 500 member now, one of the biggest bioteches in the world but is it a good options trade candidate? plus, reach into your pocket, grab your phone and tweet us your question @tiopons action if it's nice, we'll answer it on air when "options action" returns. "options action" is sponsored by thinkorswim by td ameritrade

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welcome back to "options action." moderna is being called the tesla of drug makers but is it the right prescription for a trade? paging dr. khouw. >> yeah. this is an interesting situation. if you're following the stock you're aware of how much this is up over the last few years and of course, you know, we have the pandemic to thank for that right now the options on moderna are expensive and we'll get to how expensive they are in a moment and of course the stock is considerably more expensive than it was as a result of this big rally that we have seen. so when i take a look at this thing, we have several catalysts coming up and you look at the price target for this thing and it's substantially lower than where the stock is currently priced so if you're taking a look at owl of the things in conjunction

you might feel there's a considerable risk. what you will find is that the near dated options implied volatility is close to 80% that means they're three times more expensive like for like than like on coca-cola after the big move that's maybe not that surprising. the other thing we have seen a huge growth in is revenues this is a company that had revenues of only $60 million those are up substantially we're looking at close to 18, $19 billion full year this year. the real question is with all of the news that's been priced into this stock, obviously, it's high, high dependence on covid vaccine it's a source of revenues and there's a lot of questions about how that's going to look going forward. i think that's kind of embedded in this and there's real dilemma right now that we're facing about whether this is actually something that's going to persist for the long term. whether you'll have dosing prices consistent. who is getting these and when. so when i take a look at this, to me it's looking extended and

obviously we can get carter's view on the charts, but when options are this expensive we need to look for ways to mitigate the costs of purchasing them and we also need when we see a stock moving straight up and trying to time a potential downturn it's difficult to do that i wanted to buy a longer dated downside to this i was looking at the puts those were about $15, a little bit less maybe 14 bucks when i looked at these earlier today and i wanted to sell near dated puts. and the idea here is that of course when you use calendars oftentimes the best possible price is for it to land right on the strike that you have selected then of course, you know, you're trying to thread the needle a little bit here, but the thing is, because the options premium are so expensive, we sort of have to weigh this tradeoff a little bit i want to own the longer data downsided puts and i'm trying to mitigate the risk.

this is not a stock i would even remotely consider shorting given the price action. >> right been an incredible run carter, what are the charts looking like >> right before we get to them, we have three. it's important what mike just said he said that the investment community -- there are 17 analysts that are responsible for this stock, typically with health care background and trying to come to a judgment what it's worth. those 17 analysts their price target, 12 months in the future is $187. but the stocks at 286. what do we do? all we can do is charts because no one has a clue. it doesn't make any money it's worth $140 billion you see the internal trend line, in effect the past 12 months look at the second chart the sequencing is very orderly you have two distinct pullbacks. 137% over 80 sessions and the other 35% over 75 sessions two four-month pull backs. then the final chart put all of

it together basically the current 140% advance is about two-thirds of the preceding advance, which is two-thirds of the preceding 375. i think this is a moment where you certainly harvest gains, shorting is a different matter but sell moderna. >> fair enough tony, what do you make of moderna and mike's trade >> yeah, clearly this is a stock that's effectively priced to perfection that's completely decoupled from the fundamentals as carter was saying but i think there's a few reasons that the stock is trading where it is right now. there's, first of all, the hype of being added to the s&p 500. we saw the same with tesla after it was added to the s&p 500. but also the company is right now adding the amount of capacity three times what they delivered in 2021. so the question right now is to whether or not the amount of demand will be there for these vaccines that's one big if. but there's another compelling reason for this stock or the

trading at fairly rich valuations and that's really the ability of using the mrna vaccine process for flu vaccines and there's some compelling reasons as to why this process is far better than what we're currently using to develop flu vaccines but that process is probably at least three to four years away from generating any substantial revenue. for those reasons i believe that putting on a short like this makes a lot of sense mike's trade structure is great for using this because he's risking less than 3% of the stock's value to play for a short. but timing these things are very tricky so the call -- to put that diagonal, even if it trades sideways not to lose any money on the particular trade and he's gone out to october, so it buys him quite a bit of time to wait for a potential correction, even if over the next month or so the stock trades sideways. as he continues to collect premium on the put diagonal, he

can buy himself even more time to the downside. >> right we will see moderna enter the s&p next week. mike, the final word on this. >> yeah, i think that's one of the most important points too i think what happened to tesla after that happened, there's a plot of good news that propelled the stock but a lot is already known. what is the next catalyst to propel the stock higher, i think we're running it out of those. that's why i'm guessing it will take a rest or a downturn here. >> coming up next from silver to gold, we're answering your twitter questions. that's next. stay with us it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. "options action" is sponsored by thinkorswim by td ameritrade 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.

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now below all major moving averages puts for 5 cents it seems like a nice way to make a bearer bet, do the traders agree? thanks thought to be the next mean trade. >> that's right. i think this is actually going to talk about the moving averages for a second. you'll note they're at the same level and a moving average is an automated trend line we only use them when something is trending. silver right now is the exact same price it was 6 or 12 months ago. i don't think there is a any discernible trade here. >> our next viewer asks what are your thoughts on a goldman sachs november 400 to $420 call spread spending about $3.80 to potentially make $20. >> so on this particular trade, you only have about less than 16% chance of actually making that full $20 on this particular trade. so i like the trade structure

but i think you should use a lower strike price around a 380, 400 to give you a higher probability of success slightly lower risk to reward ratio. >> mike, andy in florida asks long dated tesla are erratic in price. i have noticed this option on other stocks what causes this >> yeah, so it's a good obser observation. the first and foremost big swings is the price that the fact of tesla has moved quite a lot this year. it closed on close to $900 and then down to 570 at another. the other thing, that stocks are highly volatile, the implied volatile of the longer dated options will be higher which means their sensitivity if the price moves is greater and then finally, the implied volatility we saw it close to

80% and it's dropped quite a lot since then by probably down to 55, 60%. those three things are what are contributing considerably to the volatility you're seeing in the high-flying stocks like tesla. >> okay. mike, i'm going to direct the last one to you as well. how can i properly hedge my mega cap longs? >> oh, a layup, i love it. this is an easy one and one of the reasons is because we actually talked about this just recently you know, the best way to try to hedge a portfolio that's tech heavy is to buy put spreads in the qs for a couple of reasons, one that mitigates the cost and the skew is steep. it's closer to at the money. >> and carter, a layup for you as well. what's your take >> well, i mean, sometimes these are actually, sometimes they're not. the risk here is that the upside is cap and the downside is

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time now for the "the final call." carter, you first. >> sure. so staples, they beat the market today. beat the market over the past week and the past month and coke is beating it second. i like coke in the earnings. >> all right value plays. tony >> i think you see a strong quarter out of twitter next week as they get back on track for profitability and revenue growth i'm selling the put spread into earnings next week >> you mentioned that product pipeline mike, finally to you. >> picking tops and bottoms of stocks in markets is a difficult

thing to do and one way to make bets on that and to help finance it is to use calendar spreads and diagonal spreads like the spreads we're taking a look at in moderna which is quite extensive here. >> we have a busy earnings week next week. have a great weekend that's it for "options action. we'll be back next friday at 5:30 eastern hey, there, have a fast money special edition coming your way over the next hour. we're baking down the big risks and the big opportunities as tensions flare with china. you'll hear from one top money manager with $5 billion on the line how he's playing a big pullback in chinese tech stocks plus, dethroning the dollar. the rising risks as china develops its own digital kerr aents. could it change the game for the entire global economy? >> later, the big bet. why some investors are rolling the dice on