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"options action" starts right now. all right. welcome back, everybody and welcome. a big half hour ahead followed, by the way, a special 6:00 hour. jim off tonight. stay tuned for the next hour trust us jump right in. and talk a little health care. moderna hitting new highs this week not so the rest of health care stocks they have been as cramer might say, suboptimal. but carter moore thinks the prognosis is so bad it might be good carter worth, please, explain. >> sure. so as a state from health care the focus here is going to be on biotech. what we know, there's been real bi

by fo bifurcation. we know total number of stocks in the spdrs eat f. you see. charts, three absolute look at the first comparative chart. two thing. one is spdr versus ishare. the interesting diverge between a marketed cap weighted and equal etf for all intents and purposes the spread year to date about 125 basis points see it there the next chart here are the two etfs again. the high flier actually the equal weighted etf which sort of crashed bath to earth. the next three charts. xbi, you see the drawdown i'm annotated down some 30%. now look at the next chart that 30% sell-off is exactly at

50% retracement in the pandemic low. see the fib dadac which i line there. 30% sell-off and 50% move right to a level it keeps holding. so as the ibb, which is fine, we think the xbi is a circumstance of so that's it's good and have bounce potential, haval sold off support. >> bounce tpotential in the xbi mike, do you agree what might be the trade here >> one of the things i do like about this is when we compare sort of the cap weighted etfs and indices to the equal weight ones one of the things you get long equal weight in short, the cap

weight the wund essentially you feel some of the best performing stocks in a given space essentially outperformed might be coming to an end apartment equal weight likely the way to go. i looked out to october. specifically the 130, 145 call spread in xpi. looking at that, about $3.95 trying to buy the vertical spreads looking to spend neighborhood of 25% distance between strikes maybe getting 30% to 35% or so long premium on the option we're accepting that sort option mitigates effects. you have more volatile sector you'll see more pricey oftentimes higher prices are justified but you will see more decay and this is a way to mitigate that. another way about using a call spread if that support fails and it does fall back towards those

pandemic lows, i'm not suggesting that's going to happen, a lot of the concern seen over the course of the last week or so has been exactly that are we going to see essentially economic hardships as a result of the delta variants and so on. this is a way to risk a relatively small percentage, less than 4% of the xpi share price to get exposure to the upside another point. xpi a little over down $2. at one point 125.5 or close to the call we're buying. so on monday not knowing exactly when it will open, important point. keep your strikes essentially close to the money on the long side if you can. still looking to keep 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 versus cap rate index, the 120 level on xpi is the important resistant level which held since july of lat year so far twice here over the past couple months. looks like about to bounce higher i think the upside target is limited to about that 140 bevel. especially looking at xpi. difficult to look at this spf. hard to get a grasp of the companies. you have to look at technicals the debit structure is the right structure to limit losses. mike said risking only about 3.1% of the ets value to take that this bullish bet. upside more plilimited. adjust to 140 level and risk less on this particular trade, but that's a minor adjustment based on my target

>> okay. minor tweak there on mike's trade. interesting stuff. all right. switch gears a bit stay with tony he thinks all's well that ends well at wells fargo. explain that, tony wells fargo, for years kind of a disaster. >> yeah. that's exactly right, but they turned things around this year we saw a lot of strength from financials earlier today on the jobs report. i simply think there's further upside going from here look at the chart of wells fargo first, you see today we broke out here after spending about the last two months in a range between 42 and 47, and more importantly, not only did we break out from the range on an absolute basis, also we broke out on a relative basis to financials a strong setup for the current breakout i think it's constructive for a continuation higher if you look at business itself, wells fargo has turned around. stroll relative performance to its sector shows its

outperformed xlf throughout the year seen recent out performance here today and recently raised dividends. i think they're well positioned to return more capital back to investors through shared buy backs. technical and fundamental side similar to mike's trade structure on xpi but use an in the money debit spread going out to october and buying the 47.5, 52.5 call spread sand doing this because the stock is trading at near relative highs we want to make sure we protect ourselves against some potential pullback here. going to use an into money debit spread spending about $2.15 for thet spread. more conservative. the stock only has to move about 2% higher for this strategy to be profitable and relatively small amount of time to cave

>> mike, gave tone achance to comment on your trade. flip the script. comment on tony's trade. >> yeah. so i lie getting long wells fargo. trades at a very big discount to the group. probably 1.2 times tangible book value relative to about 1.6% for the group overall and, of course, a lot of that is testified, because after the, after the basically the controversy around sales practices and restrictions on balance sheet side, which could be lifted, obviously that's hampered the company somewhat. of course, they were untouched by some of the motre recent controversy and could see restrictions lifted. that would be the propellant to catch the stock to catch up to its peers intern suggested it might have as much as 25% or 30% upside in my view.

this particular case not likely to happen before october expiration when tony's trade expires. a call spread is a good way to play it. thereafter, though, knowing that eventually they're going to probably get that propellant that the company needs to start catching up with the group, you probably are going to want to be outright long the stock, perhaps or outright long calls for now this is the right structure. >> okay. interesting trade there on wells fargo. guys, thank you very much. we are a long way from being done yet for everything "options action" check out our website. "options action" @cnbc.com see what we've got to tell you meantime, this is what's coming up next. >> announcer: with new covid cases expected to peak in the fall, you might think airlines could be in for more headwinds like most turbulence, the team's got a way around it. look at not one but two flight paths for your portfolio. plus --

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particularly well here over the past couple of months. that's actually our opportunity here if we first look at the chart on luv relative to the global airlines etf you see it's underperforming since april. zoom out further it's just touching its major bullish trend line here. so this is the opportunity that i see for a potential bounce on southwest airlines to start outperforming the airline industry going out to the july 30th weekly options, september 52.5, 56 call diagonal here, spending about $3 to purchase the sells and july 30th 56 calms against that for about 60 cents. >> all right wasn't that long ago, but since that time, tony, luv shares southwest flat covid headlines out there, by the way. what do you do now

what are you recommending? >> yeah. exactly right. but the overjall thesis on fundamentals and technical in favor, my opinion. the july 30th 56 calls expired, worthless. now the investor would long the september 52.5 calls looking to buy a little more time is to sell september 50, 55 strangle here by selling the september 50 puts collecting about $2, selling september 55 calms for about 80 cents i'm going to bring in here about $2.80. bringing the total trade net credit about 25 cents. requires 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 but same time, if the stock stays between 50 and 52.5 i'll see a small gain rallies from 52.5 to 55 i'll

make up to $2.50 on the trade. and roll my call spread higher, but buys me more time between now and september for the stock to potentially rally >> okay. tony, thank you very much. so if you were a little late to that luv trade, carter worth has a, let's call it, second flight path on the airlines for you to follow. talk about the jet ski what is on your charts, carter >> right so it isn't so bad that it's good the chart directly etf, 51 stocks all the big airlines you know, plus ones you don't know 850 billion in market cap pup see it there on that table but three charts the first, well, it's a very wide-ranging channel, jets behaved perfectly within the parameters of the channel.

you can see where the annotations are, lines, upper, lower bands and arrows this sell-off is literally leaving the etf at a level where it has bounced before and we think it will bounce again next chart is the same chart, just taken back. same an tnotations but five yeas is this weakness to take advantage of or to stay away from that's the question. important, we didn't make a new incremental low in the etf versus where we were three weeks ago. that's ancouraginging technical development. we have one of the most epic runs off the pandemic low of any area of the market, naturally. because the most beaten up airlines nobody travels then hits it head fwaback to overhead supply. you see the parallel there

30% sell-off is at the point where i think you can trade on the long side j-e-t-s. >> might be the only time this year, carter, we hear that no offense on the jets fans out there. sorry. onboard, so to speak, on this trade, mike, how do we trade the jets, the trade -- not the football team. >> yeah. i mean, so one of the things obviously about getting long the airlines, the long jets etf or luv, for example, looking at a single name. one of the things we've certainly seen, get more bad news getting steep drawdowns and, of course, the whole idea is that the news that we're going to get all clear is probably going to cost basically the price is elevate relatively slowly bad news on the covid front, for example, start to see slowdowns in travel, could see some further weakness that could be quite sharp. don't want to necessarily go out

and take naked risk to the down side so we do want to own call options, i think, to get our exposure for a rally back at carter suggested the problem, of course, is, because it has been so turbulent, options premiums again are relatively elevated. i looked at a call diagonal similar to the structure tony originally proposed coming up with that luv trade originally december 23 calls then selling september 25 calls against it. earlier today looking at this, that diagonal spread would cost about $1.55. the idea shorter dated options are likely to expire worthless and certainly worth less than the 23s in the event it rallies. by risking $1.55 risking less than buying the jets etf outright notice that the $1.55, diagonal spread, still is a relatively high percentage of the current share price, and that just reflects the volatility we've seen in the space.

>> yeah. certainly has there. kind of a narrow trade tony, your take on that as far as the balance of potential profit versus potential loss risk/reward. what do you think? >> yeah. i like this call diagonal because spending less than the distance between the two widths, between the two strike prices. if you see jets rally substantially faster between now and the short dated expiration date, then we were expecting, you don't see a loss to the up side some of the challenges you have trading diagonals. if it exceeds your upper strike, sorry, your short strike in this particular case the september options. >> carter? do you have a thought on that trade? >> well, i don't, actually i'm going to leave it to the experts. >> i love that most powerful "i don't know. love it.

mr. honest. up next, you tweet, i would say we answer. i'm not going to say i answer. they answer. that's next. >> announcer: "options action" sponsored by -- 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," everybody time to take your tweets our first viewers asking with disney earnings next week i believe the stock will not move on the news and want to sell $182.50 call by the august 20 for a third of a share complicated trade, tony. what do you think? >> we trade diagonals -- calendars quite often. these types of call calendars like this have a strong risk/reward. risking $50 to try to make a little over $200 sounds like a strong risk/reward but you're threading the needle. the stock has to close at a certain price by next friday for that to happen relatively low probability, high payoff strategy. if you think the stock ends up exactly 182.5, interesting strategy to take.

>> okay. next viewer asks, when should you use a straddle mike, you want to take that? a general options question >> sure. so just for anybody who doesn't know, when you're trading a straddle, you are choosing a call and a put of the same strike and expiration. now, the interesting and exciting thing about having a trade like that it can 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 straddle. if you paid 6% of the share price, for a straddle, the stock has to move more than 6% in either direction one of the reasons we don't recommend the trade that often, we would favor, if you can, choosing a direction on your bets and that reduces cost of the trade. the other thing can you do, though, if you find a situation where you think a stock is likely going to move more than the "options action" is impliesing it will gets a move before explanation

consider hedgingdop it either with a stock or adjusting or options positions. gently you trade long straddle, when you think the stock will be very, very volatile. >> all right our next viewer asks about amd, advanced micro devices what do you think since the pullback do you think amd, carter, can continue to trend up >> so this is literally a perfect technical setup. this says we know amd was range bound between 70 and 100. >> wow. >> for basically a year. and the day before earnings trading at $91 after earnings prints 122. a 36% move few stocks did so well after their earnings this pullback, a bad thing or simply a reaction to the move from 91 to 22? pull back to 110 here. ip think you buy the pullback. >> carter, thank appreciate that.

that does it for us here on "options action. we will, of course, be back next friday at 5:30 p.m. eastern time but do not go anywhere a special bonus edition of "fast money" is next. >> announcer: "options action" is sponsored by -- 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 ♪ (announcer) carvana's had a lot of firsts. 100% online car buying. visit tdameritrade.com/learn car vending machines. and now, putting you in control of your financing. at carvana, get personalized terms, browse for cars that fit your budget, then customize your down payment and monthly payment. and these aren't made-up numbers. it's what you'll really pay, right down to the penny.

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