, hey there, "options action"s fans i'm mellissa lee we have a big show on tap. here's what's coming up. trading the china crackdown. beijing putting big tech in its crosshairs, as ali baba gears up for earnings, mikeco lays out a way if baba fails to deliver plus, is there a doctor in the house? chart master carter woods says, this healthcare stock is looking a little sick heading into earnings how you can protect yourself from catching a cold

and later, tommy zhang says it's not hip to be square where he is betting on a breakdown for the payment stock when they report results next week it's time to risk less and make more "options action" starts right now. let's get right to it. monday kicks off the second-biggest week of earnings with names like marriott and eli lilly set to report. they are eyeing one name in the space. medicine, carter, kick it off. >> reporter: well, that's right. i mean a big week and a big weak for healthcare, moderna, and amgen, amgen the old time technical doesn't ac well. let's look at a few tables and charts the first table, one week performance. we know healthcare you see here beats the market on the week and amgen, a big healthcare name well below both the market and the sector

look at the next table again, leading the way is the healthcare sector, above the s&p. there is andrew bringing up the rear next table, same picture you've got the healthcare sector up over the past three months, 8% the market is up only gen down. over the past 12 months, the sect roar is up some 2004/25%. one or two charts, that is it. the first is a two panel on top, amgen, on the bottom, relative performance to the xlv to the sector. we are now breaking down to new three and four-year relative lows and then finally, the amgen chart, itself. we are hovering, ominously, if you will, and now having just undercut the uptrend line that's in effect since the march low. the presumption here is that this weakness foreshadows something not right with the earnings announcement. we want to be under weight or short going into the report. >> wow

mike, what itself the tat's t *- what's the trade here. >> carter was pointing out the healthcare sector was outperforming significantly. we look at the past six quarters, it's interesting if you had shimly started amgen and gone long xbi, which is the biotech etf of which it is a constituent by the way for that one day, so six trades only for one day each, you actually would have garnered about a 12.4% return that's how much it has underperformed the biotechs just on they closed before they reported until they closed following. so not very good performance you know, we take a look at the fundamentals here, they might have a relatively high earnings. they announced they were hipderred by the pandemic in the first quarter. right now the consensus revenue estimate by analysts 6.5 billion is toward the company's own

guidance, similarly if we look at open ex, the consensus is -- company is in the mid-teens. they will have to deliver some pretty good numbers for them to bakal outperform who the consensus view of it is. take a look at the options right now. we are looking another an implied move of about $9 or so that's the straddle next week is implying, 3.7% of the stock price. i was thinking considering the stock is trading at a forward pe of about 14 right now, it's a little ricky to try to consider short ac stock at that valuation, such a discount to the market as it is i was looking at october the 240/220 put spread that $20 put-spread could cost $6.35. less than the amount the options market is implying texas stock co -- implying the stock could move from the high of last week to the close today. this is a way to risk a

relatively small stock price give us some time to make a bearish bet without taking unlimited rick to the upside shorting a stock trading 14 times forward earnings would, obviously, indicate are you doing. i think that's the way you want to play it going into earnings if you agree with carter and that a bear here >> tommy, what itself your trade? >> if you look at the technical chart here, amgen is trading into an apex on multiple time frames so you are looking for this stock to break out one way or another. but the important chart that carter showed you was that relative translated chart to its sector you see that underperformance. that is likely to point to some more downside going into earnings i think the important thing is really the fundamentals. you've seen three-quarters of eps and revenue decline. i think you are likely to see a new quarter going into earnings. mike said 14 times next year's earnings that's the one thing going for

this stock picturations are relatively low here for this stock. that's your possibly for this surprise to the upside that's why i like mike's trade because the deficit put-spread is one of the capitalish ways you can bet into earnings. ehe is risking 2.5% of the socks value at risk on this trade. i like the 220 short stripe. that reflects the support level here for amgen that's likely going to be a target to the downside if they do miss on earnings. let's stick with healthcare here we have an update on a pod concerna straight earlier this month. check it out on our twitter feed on "options action". meantime, we are taking a look at the payment, square on deck on thursday tony is expecting a tough take tony, take it away >> yeah. so i want to take a look at square here. which is currently trading at

123 times next year's earnings i simply think the expectations are a little too high going in so threats take a look another some charts. if you look at the charts over the last six months or so, pretty such since september. it recently jumped off the top range and is heading toward the bottom of the range twrordz that $200 level especially when you consider the fact that relative to its sector, the technology tech sector this suggests further downside going into earnings. if you look at the business, itself, right now at 123 times earnings, i in this stock needs to continue to sustain 30-to-40% revenue growth here over the next three-to-four years while at the same time aggressively showing some margin expansion, which it has not done so far that's why for those reasons i think this stock ishooded back towards that $200 level. if you look at the earnings,

itself, it is currently implying a 7% move while the average the last eight quarters has been about an 8% move i think the options market may perhaps be underpricing potential downside here. so the trade structure i want to use is similar to my trade structure. i'm going out to september and buying the 240 june 10th put spread here spending about $12.for the for that september 240 put and checking about $3.80 for that september 210 puchlt here i'm checking almost:30% of the premium the long leg by selling the 210 put against it, which reduces my overall trade, rink on this trade to just $8.60 for the debit spread which is about 3.5% on the stock's value, trying to limit my losses if the stock does happen to break out out higher, because it is a very strong stock at the moment. >> yeah. we had a little bit of a taste of what square could report, mike, when we got paypal last night, which was not a good

report what your take on the cnooc? what is your take on the trade here >> obviously we want to take a look at comps to get some sense of the numbers we will anticipate seeing. one of the reasons we look at earnings, it's a question we sometimes get. why do we even care? we don't necessarily happen what will happen a year out wereings tend to move stocks i think we should take a look at this earnings season and consider how they move stocks. when we've gotten good numbers, we haven't seen them take off. when we got disappointing numbers, maybe amazon will be an example there, we see punishment that gives us the sentiment. are they looking up or down. we have some sense at the counts they may not be great and some sense at looking at other stocks around earnings that you really have a high bar to get over to see a big upside move. even a marine disappointment could lead to a shellacking. so i rather like the trade structure. i understand why he is set up going into earnings. >> carter, your thoughts

>> well what we do know, of course, in terms of run-ups. this is one of the most epic moves off the pandemic low it was $32 bucks it's a nine-backer so this sideways grinding action foreshadows more of that, it's sideways or some sort of further giveback what we want to do is eliminate the third center i think you k. up seems to be out. >> for everything "options action," you can check out "options action."cnbc.com. while there, sign up for our use letter >> up next, cohina crack shown, how you can play ali baba in next week's earnings? plus, calling all "options action" fans, reach in your portion tweet us your question at "options action." if it'sifies, we'll answer it on air when "options action"

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♪ ♪ ♪ welcome back to option action we are following the latest action out of china as beijing begins its crackdown chinese tech stocks tumble again after posting the best day ever. just yesterday charter you ca carter you called this space what do you make of this action that we saw? >> sure. i just have one heart is it's a two panel and talk about why that call was made staples you can make a one-day call the top panel is the internet

etf. the bottom panel it's looking how far above and below the internet is trading than the average. so at the peak, we were exactly 39% above the 50-day and on the low, we were hitting around $45. we were exactly 39% below. the follow is we get a bounce. you have a 11/12% bounce we give some back today my hunch is there is follow-through if some has problems, you can take some and let the rest ride. >> thanks. if you have choiven exposure you are looking to mapping, how do you do that? the upcoming catalyst to make some cash. mike, show us. >> yeah. so we're taking a look at ali baba obviously, what has been pressuring this company is probably familiar. but we should go over it one

more time to be sure we are talking china security and regulatory scrutiny on a lot of these companies, basically for bidding them from taking on the new users. the painful anti-trust penalties and something basically brought into the horizon we have a lot of potential further restrictions we could see in addition to the financial penalties. they have been investing in trying to grow their user base one of the potential downside is that if you could actually see ebitda or ebs decline a bit year on year. those are obviously some of the risks we face. the thing is when we look at ali baba, this company has 40% margins. it's obviously tremendous. we have highen tis pated revenue and ebs growth of 29%-ish. more on the bottom line. of course on a relative valuation basis, certainly for a company that's growing as quickly as this one is, it's remarkably cheap the thing is trading around 22 times forward

earnings this is with double digit eps and actually top line growth so all of those things would obviously suggest this is a company you do want to own right now the options market is implying it will move a little over 5% between now and the end of next week that is slightly more than the company has averaged over similar periods of time over the last eight quarters. slightly less than 4%. but understanding that those risks could, of course, emedrge at any time and grow worse it was at the money somewhat dated call, the october 195 and selling some of the elevated premium we have going into earnings, the august 205s, net-net that would cost me $10, it's a $10 spread. bear in mind, the option we are selling will expire well before the one we are owning. the idea is to on own some longer-sedated upside exposure an aiment willed basis because i'm not sure the call bottom

earnings could provide a needed catalyst for this company and arguably for the space >> tony, what do you think of this trade >> yeah, so, ali baba is one of those stocks that we have stayed away from. but i do think now is the time where things are so bad that it might look quite good. i do think there are three things going for this stock. one is the statistical side that carter brought out, how far away it is from that 150-day moving average. if you look at the technic also, there is quite a bit of compelling capitulation at the current weekly candle here we have a pretty good-looking weekly candle in tomorrows of that doji that now looks like it could be forming that bottom more importantly, as it continues to make lower lows in price, we no longer confirm those lows we are starting to see positive versions so technicals look extremely strong if you look at the fundamentals, it's trading where it was in 2018 we seen eps and revenues double since 2018 including the revenue

growth we are expecting here from this stock franchise a valuation per speccive, you have a constructive opportunity here. so i really like -- i think the trickiest part of this trade is the timing whether or not this is the actual bottom. it starts to rally from here that's why i like mike's trade, he is using this diagonal spread, where even if ali baba simply stays where it is and he is able to check premiums to offset the costs of those long calls and he is able to do so after the august calls expire, that's really the compelling part, where he continues to lower his costs of buying upside premium over the next couple of months or so as aly baba rallies over the next few months. >> carter, does it look different or is it a big component that it's effective will i the same chart? >> exactly what you just said, so you will get the same balance. you have the same candle or sort of reversal day, key reversal day in the etf as in baba. so as baba goes, so will the etf

and vice-versa up next, pain management last week one of our traders laid out a way to fight interrest. that trade went south. pinterest down more than 18% of quarterly resus.lt a big update on what to do next when "options action"s returns 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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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 our open trades, toby said interest was set to pop on its earnings >> the stock rallied from $10e pandemic lows to about $90 in february that is roughly also 800% return what i'm expecting here is going into earnings next week, pin presidenterrest will see a similar follow-through we saw in snap chat. i will sell the credit spread collecting about $6.50 for that put and paying $4.60 net, net,

i'm glekt on this $10 credit spread. >> you probably know what happened next. pinterest tanked on the back of the results. the stock falling more than 18%. tell me, what do you do now? >> yeah. so trading off the wereings is volatile that's specifically why we use options to play these earnings plays. because we want to protect ourselves and control the amount of risk that we take if the trade does not go the direction that we expect it to as you said, it's down 18% we only last 18% of the stock's value using this put spread. when you have a trade, you need to remove the potential risk of early assignment and take the loss and move onto the next rate. >> carter, was any damage done to this pinterest chart? >> well, yeah. and it's just as much damage is done short moderna, meaning when something caps up in the direction, the opposite of how

you are mocksed, just with what tony said. is takes you to loss number one. >> coca-cola, two weeks ago, mike played out a strategy how to play coke for a pop. >> what i was doing is taking look at long-dated calls, january 57.5 calls when i was looking at those earlier today, those were about $2.14. i was looking at selling the august 57.5 calls against that to help finance that those i could collect 70 cents, of course, 70 cents on a stock closing at $60 may not be one premium in a month think of it in the context of the $2.14 you are spending it's about a third of the premium. there is almost 190 days until that long-dated calls expire and 35 until the august expair we need to continue to own those longer-dated calls and sell premium against them continuously >> well, the stocks they are talking act is 1 pbs since that trade. make, how are you managing that

one? >> yeah, so coke is not a really fast-moving trade, stock that's one of the reasons we like a trade structure like this one. it's migrating right to that 57.5 strike. we see i.t. has outperformed the past month think we stay with it. if we see the short-dated calls decline in value, i'd say cover those and look to roll out. >> all right we have some time to take a few of your tweets willest get to it. our first viewer asks, the amazon broken wing butterfly is not going well i would allow everything to expire worthless, mike, what is your thought on this >> there are to twipgs, we were looking for a rally. the stock got close to our price octoberive some people may have actually covered the trade and taken some profits there, okay, if you were looking through earnings and

decided to hold it through that time, that has not, indeed, gone well at all. my suggest would be cover the trade and move on. however, moving your strikes around a little bit so you can convert trades into a credit spread is a structure or a trading strategy that some more sophisticated participants will use sometimes to essentially get to break-even on trades that aren't working out i suggest that's the deep end of the people, so i'm comfortable with that trade if you are >> laura next year asks, with snap performing a power earnings gap up how does a august spread look? tony, why don't you take this one? >> i like snap it's building a base above 75. it has strong relative strength. i think august 80/85 is too high in terms of strike prices, i would go out to september or october and look another 75/80s as the strike price i would use for that bullish move.

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♪♪ hey there "mad money" fans, cramer is off tonight. but you are in luck, a bonus hour of "fast money" coming your way. the five biggest stories that impacted your money this week. we kick it off with the most anticipated if not controversial ipo of the year, robinhood going public at the nasdaq this week the stock rebounding a bit today, but still down more than