welcome to options action. i'm brian sullivan in for melissa lee. here is what's coming up >> outside of the covid vaccine winners, a good clhunk of the rest of the health care sector is on life support we'll deliver a second opinion as to why this patient will pull through. then, sticking with the contraian theme. rising covid cases won't round all airlines why your flight crew is still preparingfor takeoff finally, the singular,

compelling stat on the financial sector and the best way for you to fry and cash in "options action" starts right now. all right. welcome back, everybody. you can see we have a big half hour ahead followed by a very special 6:00 p.m. hour jim is off tonight you'll want to stay tuned for the next hour. trust us let's jump right in and talk a little health care mo moderna hitting new highs this week not so the rest of lhealth care stocks they have been suboptimal. carter thinks the prognosis is so bad, it might be good please explain >> the focus here is will be on bio tech if one looks at some of the efts, one in particular is an

instance of so bad it's good let's look at a few charts first a table. what we know is that the total number of stocks in the spiders etf that captures bio tech, 195 and you see $1.3 trillion. i have two comparative charts and three absolutes. one is the spider versus the i shares this is weighted the spread now year to date is about 2500 basis points. you can see that there look at the next chart here are the two etfs. the high flier was actually the equal weighted etf

down some 30%. look at the next chart that 30% sell off is 50% retracement from the pandemic low. the final chart, just drawing the line of support meaning a 30% sell off a 450% retracement. as this from the ibb, which is fine, we think the xbi is a circumstance of so bad it's good and it has balance potential having sold off to support >> okay. balance potential there. mike, do you agree what, if anything, might be the trade here >> one of things i like is when we compare the cap weighted etfs and indices to the equal weight

ones, one of the things if you're get long equal weight or not long the cap weighted one is if you feel that socme of the best performing stocks in a given space have out performed then maybe that might be coming to an end. you still want exposure to the space. equal weight is likely the way to go. i was taking a look out to october specifically the 145 call spread in ibi that would cost $3.95. when we're trying to buy these vertical spreads are looking to spend somewhere in the neighborhood of 25% of the distance between the strikes maybe getting 25 to 30% or so of the long premium on the option that we're selling that short option is going to help mitigate the effects of decay. when you have more volatile sectors, that's when you'll see more pricey options. i'm not going to call them expensive because those higher prices are justified but you

will see more decay and this is way to mitigate that another thing about using a call spread is if that support fails and it does fall back towards those pandemic lows. i'm not suggesting that will happen but a lot of the concern we have seen over the course of the last week soror so is exacty that this is way that you can risk a relatively small percentage, less than 4% of the xbi share price to get exposure to the upside another quick and important point, xbi was down a little over two bucks today at one point, it was around 129.5. we're close to that 130 strike call on monday, not knowing exactly where it's going to open, an important point, keep your strikes essentially very close to at the money on the long side if you can and adjust them accordingly as the share price moves. you're still looking to keep the proportions about the same

>> okay. tony, you like the trade you want to hammer mike's trade here what's your take on this >> yeah, i think this is an interesting opportunity because despite the poor relative performance of the equal weight in index, the 120 level here is important that has held since july of last year. especially when you look at xbi. it's difficult to look at this etf. it's 196 holdings. it's hard to get a grasp across 196 companies. you have to look at the technicals i think the debit spread structure is the right structure for this to limit your losses. mike said he's risking only 3.1% of the etf value to take this bullish bend i think the upside is more

limited. >> all right let's switch gears a bit >> they really turned things around this year i think there's further upside going from here. if you look at the chart here of wells fargo first, what you see is that today we broke out here after spending about the last two months in the range between 42 and 47. more arnds importantly, not only do we break out from this range on an absolute basis, we also broke out on a relative basis to

financials wells fargo has turned around. strong relative performance to its sector shows it's out performed throughout the whole year we have seen this recent outperformance here today. they just raised their dividends. i think they are well positioned to return more capital back to investors through shared buy backs. this is really something that i think is fairly constructive on both technical and fundamental side i'm going to use a trade structure similar to mike's trade structure on xbi but i'm going to use an in the money debit spread i'm going out to october and buying the 47.5, 52.5 call spread i'm going there because the stock is trading at all near relative highs we want to make sure that we want to protect ourselves against some potential pull back here i'm going to use an in the money debit spread spending about $2.15 for the $5 wide debit spread this will be a bit more co

conservative because the stock only had to move 2% higher in order for this strategy to be profitable and relatively small amount of time decay versus an out of money debit spread in this particular case >> all right, mike we gave tony a chance to comment on your trade. let's flip the script. comment on tony's trade. >> yeah, i like getting long wells fargo here it's trades at a big discount to the group. a lot of that is justified after the basic controversy around the sales practices and bed restrictions on balance sheet size which could be lifted, that has hampered the company. we could see those restrictions lifted that would cause the stock to begin to catch up to the rest of

its peers. i think a call spread is a good way to play it they will get that that the company needs to start catching up with the group. you probably are just going to want to be long on the stock i think this is the right structure. >> interesting raid there on wells fargo. thank you very much. we're long way from being done yet. for everything options action check out our website. we still got to tell you and while you're there, sign up for our newsletter here is what's coming up next. with flu covid cases expected to peak in fall, you might think the airlines could be in for more head winds but

like most turk lbulence there'sa around it. we'll look at not one but two flight paths for your portfolio. calling all options action fans reach into your pocket, grab your phone and tweet us your question at @oioptns action. if it's nice, we'll answer it on air.

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♪ ♪ ♪ ♪ ♪ all right. welcome back to options action hope you're having great friday. a few weeks ago, tony kicked off a love fest. >> this is an airline that's not been performing well here over

the past couple of months. i think that is our opportunity here if we first take a look at the chart of luv relative to the jets ef, the global airlines etf, you see it's been under p performing since april if question zoom out further you see it's just touching its trend line here. this is the opportunity i see for potential bounce on southwest airlines to start outperforming the airline industry going out to the july 30th weekly options, september 52.5, 52 call diageiagonal here where spending about $3 and i'm selling the july 30th 56 calls against that for about 60 cents. >> all right it wasn't that long ago but luv shares, southwest are pretty much flat. a lot of new covid headlines out there. what do you do now

what are you recommending? >> that's exactly right. the overall thesis on the technicals and fundamentals are in favor in my opinion the july 30th calls have expired worthless. the investor would be long by selling the september 50 puts collecting about $2 and selling the september 55 calls for about 80 cents, i'm going to bring if here about 2.80 which would bring the total trade down to a net credit of about 25 cents this strategy does require me to buy more shares of southwest if it goes below $50 by the september expiration which i'm comfortable doing based on the technical levels if the stock stays between 50 and 52.5, i'll see a small gain. i'll make up to $2.5 on this

particular trade that's when i can start rolling my call spread on further upside >> okay. tony, thank you very much. if you were a bit late to that luv trade, carter has a second flight path on the airlines for you to follow. let's talk about the jets etf. what is on your charts >> that's right. it's so bad, it's good let's look at the charts directly first we know the etf is 51 stock. st the big airlines you know plus the ones you don't know it's a wide ranging channel. it's behaved within the parameters of the channel. you can see where the

annotations are, the lines up, upper bands. this sell off is literally leaving the etf at a level where it has bounced before. we think it will bounce again. next chart is the same chart just taken back. is this weakness to take advantage of or stay away from we didn't make a new low in the etf versus where we were three weeks ago. that's an encouraging development. the final chart is the same chart on a five year basis just to show where the back off, the sell off occurred. we have one of the most epic runs off the pandemic low of any area of the market naturally because it's the most beaten up airlines then it hits its head when it gets back to over head supply. you can see the parallel lines there. this 30% sell off is at the point where i think you can

trade it on the long side. jets, jets >> that might be the only time to chwe hear that if you're on board on this trade, mike, how do we trade the jets the fradtrade, not the football team >> one of the things about getting long, the airlines long the jets etf or luv, for example, if you're looking at a single name. one of the things we have seen is when we get more bad news, we are getting some fairly steep draw downs and the whole idea here is that the news that we're going to get all clear is probably going to cause basically the prices to elevate relatively slowly if we get bad news on the covid front and we start to see some slow downs in travel, we could see some further weakness that could be quite sharp. we don't want to go out and take naked risk to the down side.

we do want to own call options to get our exposure for a rally back it's been so turbulent that options premium are relatively especial elevated earlier when i was looking at that, that spread would cost about $1.55. the idea is the shorter dated options are likely to expire and worth less than the 23s in the event it rallies by risk 1.55, you're risking less than buying the etf this spread is high percentage of the share price

>> has a narrow trade there. your take on the balance of profit and loss. what do you think? >> i like this call diagonal if you see jets rally faster between now and the short dated expiration date than we were expecting, you don't see a loss to the upside. that's some of the challenges that you have when trading diagonals. >>carter, you have a thought o that trade >> i don't i'm going to leave it to the experts. >> i love that love it. carter worth you tweet, i would say we

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because platforms this innovative, aren't just made for traders - they're made by them. thinkorswim trading. from td ameritrade. all right. welcome back to "options action" everybody. it's time to take some of your tweets with disney earnings next week, i believe the stock will not move on the news and call news and want to sell by the 182.50 august 20 for a third of a share complicated trade, a little bit here, tony what do you think? >> we do trade diagonals quite often. one thing i will say is these type of call calendars like there have a very strong risk reward you're risking about $50 to try to make a little over $200 that sounds like a strong risk reward

you're really threading the fle needle here. if you think the stock will end up at 182.5, interesting strategy to take >> okay. our next viewer asks when should you use a straddle mike, you want to take that. >> you're choosing a call and a put of the same strike and expiration the interesting and exciting thing about having a trade like that is it could be profitable if the stock rises or if the stock falls. the down side is, it has to rise or fall by at least as much as you spent on the sstraddle if you pay 6% of the share price, the stock has to move more than 6% in either direction. one of the reasons we don't recommends the trade is we could

favor, choosing a direction your bets and that reduces the cost of the trade the other thing you can do if you find the situation where you think a stock is likely going to move more than the options market is implying it will is if it does get a move for expiration, consider hedging you can do with the stock or by adjusting your options positions but generally you trade long straddles when you think the stock will be very, very volatile >> all right our next viewer asks this about amd. advanced micro devices what do you think since the pull back. >> do you think amd can continue to trend up? >> this is a perfect technical set up the day before earnings trading at 91 bucks and after earnings, prints 132 that's a 36% move. very few stocks did so well

after their earnings this pull back, is it a bad thing or a reaction to the move from 91 to 22? you pull back to 110 here, you think you buy the pull back. >> carter, thank you that does it for us on "options action." be back next friday. do not go anywhere a special bonus edition of "fast money" is next you won't want to miss it. we'll see you then 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

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♪♪ matching your job description. ♪♪ ♪♪ . welcome you "mad money" fans, i'm brian sullivan, jim cramer has night off but we have a big hour ahead we're calling it the fast five tackling the week's five hottest stories and how they're impacting america and the world and your money here is the rundow