we make mistakes, but it's how we rebound, how we recover from those mistakes. and luckily, i've evolved into a better person. - ♪ welcome to friday and "options action. i'm courtney reagan in this evening for melissa lee. here's what's on tap for tonight. >> the giant asset manager that is the market. and how co-dependency rarely ends well. carter worth explains. then two sides to travel, why he thinks disney will remain the happiest place on earth. and even if the cruise industry is adrift, your trade around it can keep sailing along. professor khouw takes the helm it's time to risk less and make more, "options action" starts right now.

>> well, welcome back, trow price, as the market goes up, so does trow more so. is this asset giant heading up a creek without a paddle, so to speak? carter worth breaks it down for us carter, take it away. >> well, that's right. before looking at the charts, i mean really in a way trow if you look at the largest stocks from apple to microsoft to google and look at who are the biggest holders, it's always things like blackrock and vanguard those are passive managers with etfs trow is essentially the largest holder of some of the biggest stocks which of course drive the market if one's thinking that maybe the market has some issues, it's a good time to either hedge your trow or take some measures let's look at a table or two and then a chart or two. first, in terms of beta, when we sold off from the peak of february '20 the march 25th low, trow dropped 41%, you can see that there versus the s&p down 35

so drops more than the market, and as would be expected, look at the next slide. on the way back up, of course, from the pandemic low to where we are right now, trow is up 105, excuse me, s&p's up 105, and it trow is up 168. you get more juice on the way down and more juice on the way up so let's look at a slide or two, a chart or two here's a comparative chart it's a three-year chart. you can see the parallel lines that is simply two colors. trow price versus the s&p 500, but you see trow pulling away from the market increasingly steep. and uncorrected. final chart, this is just trow on its own it's the 45 degree angle, the trend line along which it's been ascending until of late where it's getting steeper and steeper and uncorrected. our thinking is take some measures if you're long, trim, hedge, or bet short. >> really interesting stuff, carter mike, how would you suggest we trade this taking into account the technical analysis from carter

one of the reasons you're going to see trow so closely correlated with something like the s&p is it's really closely correlated with asset prices in general, and the reason of course is because their fees are asset based. if bond prices rise, if equity prices rise and not just in the united states, but i mean globally, so we would really be thinking even about all worl equity prices as they rise, that obviously buys a significant tailwind for trow, especially when those are appreciating at rates greater than some of their expenses might be. so you will see widening margins, basically everything is working in that kind of an environment. and you know, that of course has been the case for trow except for one thing, and that is the one area where they have been facing some consistent headwinds is from some of the aforementioned companies that carter talked about that have passive investments. and one of the reasons for that is that is pressuring the fees for asset managers, trow included so if you basically put those two things together, the

potential for continuing pressure on fees and the potential, obviously, for asset price pullbacks, that could obviously create two headwinds where one of those was a tailwind previously. i think one of the things we could do here without actually just going ahead and shorting a stock that is steep and uncorrected, because of course that comes down to a timing issue, using options looking out to december, i was looking at the december 210, 190 put spread now folks might be wondering why i was choosing those strikes it's a little bit out of the money there. a couple of reasons for this one is that generally speaking when we use debit spreads, call spreads or put spreads we like to limit the amount we spend on these if they're out of the money both strikes to about 25%. when i was looking at that earlier today, that $20 put spread would cost about $5.10, so we're getting that math, at least, to be roughly correct the other thing is that when you go a little bit further out in time, one of the things that has happened generally is that you

need the price obviously to fall, but this is something where it has to fall down to that lower strike. that would obviously be a pretty significant decline from here, and the other thing is that there is some limited strikes availability there, so that was the reason i chose this particular spread. >> okay. tony, what do you make of mike's trade here >> yeah, so this is a bit of a tough one because when you look at the technical chart, it's a very strong uptrend, and that uptrend has not broken just yet. if you look at the business itself, it's also a fairly well-run business. you have fairly strong revenue growth, strong operating margins, and it's hard to find a fault in the particular business at the moment. but the bigger picture is what mike was talking about earlier ten years ago, active management accounted for about 72% of all aum. today that sits at about 50% so that shift from active to passive has been going on for quite some time, and it continues. we saw about $600 million worth of outflows for trow in the second quarter that's a fairly small percentage of the $1.6 trillion that they

manage, but that's the bigger picture that we have to focus on so for me, i'm a little bit more neutral here on trow than outright bearish i do understand mike's trade because he's going all the way out to december. he's buying himself a lot of time trow reports earnings at the end of october, and that could potentially be the catalyst where we see some more outflows. we see the market correct a little, and that could be the trigger for the debit spread to work out he's only risking here a little under 2.5% of the stock's value, and that's what i particularly like about this trade. if the market keeps rolling on sideways or keeps moving higher, you're risking a small percentage of the stock's value to take this, somewhat speculative and opportunistic bet to the downside. >> interesting stuff let's turn now to disney because we just got some big news out of the company on their movie plans. julia boorstin is here with the details. hi, julia. >> hi, courtney, disney announcing exclusive theatrical

windows for the rest of its films in 2021, with 45-day windows for five films that are coming out between october and december those films include marvel's "eternals" as well as "west side story. that's from steven spielberg they're also giving a 30-day exclusive theatrical window for animated film "encanto," which is coming out in november before those films are available on disney plus. now, this change speaks to the success of the exclusive theatrical release of marvel's "shang-chi" which came out exclusively in theaters over the weekend. that film grossing a record $94 million over the holiday weekend. it's now grossed $162 million worldwide. >> today's announcement also shows a shift in strategy after disney simultaneously released "black widow" as well as "cruella" on disney plus and in theatres. it was that "black widow" release that sparked the lawsuit

from scarlet johansson over her compensation for those films disney's chairman of media and entertainment said, quote, as confidence in movie going continues to improve, we look forward to entertaining audiences in theaters. so guys, this is going to be a really interesting one to watch, but those numbers over labor day, wow, that was a record, and disney clearly paying attention to that. >> very impressive, julia. i know there was a big question as to whether or not that was going to be a success or not, and i think as you point out, the numbers clearly point to yes, yes it was thank you very much. if you think this announcement is a big win for disney, too, tony has a way to play it. tony, how are you playing the house of mouse >> yeah, so i'm looking at a bit of a dual reopening and streaming plus media play here on disney. you know, let's first take a look at the chart here on the stock itself now, the stock has really struggled since pretty much march, but has spent the last four months or so trying to build a base, and i actually think now is the time that it's primed for a potential breakout here now that it's been forming this base for the last four months

and more importantly, i thin what we have to look at here is the relative chart to its sector, the consumer discretionary sector this is also a stock that has largely underperformed severely here over the past year or so, but over the past month or so, we've actually seen some strong outperformance here, but also against many of the travel stocks that we associate the disney theme parks with. and that's really kind of the key that i'm looking for for this potential outperformance going forward. and if you look at the -- you know, the business itself, earnings and revenue have largely virtually recovered to the same levels as q3 of 2019 prior to the pandemic. now, the business is very different. we have a disney plus business that is now a streaming business, and that's why i do think that it justifies a somewhat elevated valuation compared to what it was trading at back in q3 of 2019, so the trade structure that i want to use here is to take a longer term bullish view here on disney, and i'm going out to the

october, january 185, 195 call diagonal where i'm buying the january 185 calls for about $11.75, and i'm selling the short-term october 195 calls against that for about $2 or so and bringing the net debit here on this diagonal spread to about $9.75 or roughly 2% of the stock's value. and the goal here is to hopefully see those october calls expire worthless and to sell further calls against it to reduce the cost of those january 185 calls and to take that long-term bullish view here going into next year >> mike, what do you make of tony's trade here on disney? >> yeah, i mean, i think there's a lot of reasons why this might be a better approach than going out and buying the stock obviously this week signaled that markets, while they have been obviously very strong, that isn't always going to be the case necessarily this week was evidence of that,

as tony rightly pointed out, the valuation for disney maybe justifiably and maybe not is higher than it has been historically, but by using a call diagonal, you're limiting the premium that you're spending to obviously a much smaller amount than you would be and therefore limiting your downside risk versus purchasing the stock, and the other thing i would say is of course selling that upside call, the 195 strike is going to mitigate a lot of the decay. so essentially the cost of having that longer dated call is mitigated, at least until that shorter dated option expires and of course the expectation is that not you're going to go right through that short strike, but rather that you're going to get the opportunity to sel additional premium against it. this is kind of a way to essentially do a buy right but mitigate the downside risk. >> got it. well, next up the opposite side of the world travel sphere because cruise lines are adrift. doesn't mean your trading strategy around them can't remain on a set course professor khouw is quite figuratively on deck don't forget, for everything "options action," check out our

website, optionsaction.cnbc.com and while you're there, sign up for our news letter. we'll be right back. >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪♪ ♪♪ as someone with hearing loss i know what a confusing and frustrating experience getting hearing aids can be, that's why i founded lively. high quality hearing aids with all of the features you need and none of the hassle. lively offers bluetooth connected, fda approved hearing aids delivered to your door, sold at a fraction of the price, with direct access

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for just $64.99 a month. plus, ask how to get a prepaid card up to $500. call or go online today to learn more. comcast business. powering possibilities. trading isn't just a hobby. it's your future. so you don't lose sight of the big picture, even when you're focused on what's happening right now. and thinkorswim trading™ is right there with you. to help you become a smarter investor. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform. because we take trading as seriously as you do. thinkorswim trading™ from td ameritrade. welcome back to "options action." there's a phrase in sailing, in irons, it's when a sailboat stalls after steering directly into the wind. could also be an appropriate phrase for cruise line stocks right now. you can still chart a course for them with options. professor khouw, take it away.

>> sure, so many of the viewers here may own carnival cruise lines. obviously one of the largest cruise operators in the world, and this is really an oligopoly, and of course there has been a lot of news, some of it on this network, covering the fact that there has been some return to cruising and that bookings have been keeping up a pretty impressive pace. and of course the company is going to be announcing earnings next week. i would urge people, though, to exercise a little bit of caution here or, you know, basically bridle their enthusiasm a little bit. a few reasons for that the first is that we certainly have not returned anywhere close to the pre-pandemic levels of cruising, and in fact, carnival themselves just recently announced that at least 15 ships, which were slated to go back into service next month, that has been delayed by at least another month. and another five that were expected to be in service by the end of the year, that has now been pushed into next year so that obviously is a potential slowdown at the very least

the second thing is that when you're investing in stocks generally, one of the things that investors care a lot about is the return of capital to shareholders, which typically comes in two forms, either dividends or share repurchases they suspended their dividend, and of course were not going t have any reinitiation of the dividends or share repurchases until they get back to something close to pre-pandemic levels and finally the delta variant obviously presents its own headwind as well, and that is because, of course the cdc themselves have identified that cruise ships can be a higher risk environment and many people will know that the demographics of those who cruise tends to skew a little bit older than the broader population, so that tends to be a more at risk population you put those two things together, and one could see that it's going to take probably a lot more than just lower prices, and we're seeing some of the lowest prices since the post-september 11th period to get travelers back onto the boats. that's obviously not going to be great fundamentally speaking

so in a situation like this, you own the stock, and you're trying to figure out how to squeeze more out of it, you're not getting your dividends, what can you do one of the things we are seeing is elevated options premiums going into earnings. and if you have a neutral sentiment and you're favoring income over the possibility of price appreciation, certainly one of the things you can try to look for is the opportunity to sell covered calls, which is one of the most common strategies that people can use on stocks that they own, and this will offer you, generally speaking, a higher probability of profits while possibly mitigating how much of those profits could potentially be because you're selling a call on the underlying shares i was looking out to october, the 25 strike calls. those were about $0.77 when i was looking at those earlier today. now $0.77 may not sound like a lot. please put that into context of the current share price, which is about $22.75, so that's well more than 3% of the current stock price that one would collect by selling the right to somebody else to purchase their

shares from them at a share price higher than the stock is today, $25 so essentially your profits would be capped at that $25.75 level, give or take up about 8% or so from where the stock currently sits. >> carter, what's in the charts here pun intended, what are they telling you here about the technical levels and mike's trade and what it might suggest to you >> sure, i mean, i think what mike's articulating is that, you know, sometimes you don't have to get all that big a move, and sometimes maybe a stock is fallow, and that's at least my judgment here. let's look at two charts this is a comparative chart. you can see those two lines, they are literally like parallel lines, you've got boeing, versus carnival cruise versus all airlines, they're identical, meaning there's nothing idiosyncratic about the way ccl is trading, versus,

could put norwegian cruise line on there or royal caribbean or boeing the point being that they're all sort of stuck doing nothing, and i think that's what's going to happen look at the second and final chart. that's just ccl itself so we know this was 7 on the pandemic low it rallied as high as 30 depicted here in this chart, and now we're just sort of wallowing. i don't think there's any big movement coming. >> very interesting. okay, some wallowing in the cruise lines or some of these other travel plays as well up next, something to chew on we'll explain, but you're going to have to stick with "options action." we'll be right back. >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪ ♪ ♪

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welcome back to "options action." two weeks ago we brought you a trade on chewy before its quarterly results. >> right now the market is implying about a 9% move, but over the past eight quarters, the stock has only moved on average of about 6%, so when you take into account the fact that the stock is trading at fairly rich valuations, which means that upside may be somewhat limited and the fact the implied volatilities are so elevated, the trade structure i prefer to use going into earnings is to sell a put spread. so going out to the october 1st weekly options, and i'm selling

the $90, $83 put vertical. now, earlier today when i was looking at this, i was able to sell the october 90s for about $6.20, and pay $3.20 for the october 1st, 83 puts net, net here i'm collecting about $3 >> okay, so since then, the stock's kind of gotten chewed over tony, what do we do with this puppy? >> yeah, so this chewiness both earnings and revenue expectations, the stock is down almost 15% here since we put out that trade, but this is a prime example as to why we use limited risk strategies such as a put vertical to play catalyst events like this. the stock is down almost 15% you can buy this put spread back for about $6.50 earlier today. that's a loss of about $3.5, which is only 4% of the underlying stock's value it's time to cut your losses and move on to the next trade. >> carter, what do you make of the charts and chewy and technical analysis of what might

be coming? >> sure, one thing we know is when you get a heavy volume drop in gap, invariably it's news related. this was and by definition it was bad news it's usually right to stay away from drops in gaps, one of the great market adages is don't catch a falling knife. >> okay. mr. khouw, what do you make of this one >> yeah, i mean, this is one of those situations remember also that when you're dealing with vertical spreads that they don't typically go to the complete value, the distance between the strikes right away, that happens at expiration so in situations where let's say you do a credit spread, a credit put spread, for example, to make a bullish bet, if you get the direction wrong, you actually have a little bit of time before the maximum loss is imposed on you to basically take your licks and move on, and i think that actually is what you want to do here, and i think that's why tony's suggesting it. >> take your licks and move on, i like it, mike.

well, up next, your tweets and the final call >> announcer: "options action" is sponsored by think or swim by td ameritrade. like jack. he wanted a streamlined version he could access anywhere, no download necessary. 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. lively hearing aids have been a game changer for me. the process with lively. is insanely easy, you take a hearing test on your computer the doctor programs it, it shows up at your house a few days later. you can stream calls or music through it, it's got multiple settings, audio adjustments, so you can raise and lower the levels. but it's a fraction of the cost of the other devices.

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with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪ welcome back to "options action." it's time to take your tweets. our first viewer asks what is tony's opinion on the lowes october 15,$190 puts, hold or cover? tony, what do you make, $190 puts on lowes. >> i'm not sure whether you're long or short that put, but the fact that lowes is holding above that $200 resistance level which is now holding as support, leads me to believe that there's further upside for lowes if you're long those puts, i think it's time to cut it. if you're short those puts, i think you can hold on to those. >> our next viewer writes looking at ford motor, it made a high in june that it's consolidated for the past three months

is it about to make a run to the upside what's a way to play ford motor? carter, why don't you take this one? >> it did make a high in june. what it's done since june is actually drop 25%. i'm not sure i'd call that consolidated my hunch is that ford's going lower. you could look at an october 12 put spread, pay $0.21, you double your money if the stock drops 5% >> our final viewer asks shopify appears to be bear flagging on the daily and more important rolling over on a relative basis with a brick wall of resistance around 1,560 i feel like i want to sell a call spread with a bid ask so wide and unstable. can you recommend a trade for shopify, please? mike, this one's for you. >> yeah, the key thing here is actually just try to pick a mid market price and then walk your way down until you get an execution on a limit order on that complex spread. i think that's the way to get you done. >> okay, thank you, carter, mike, and tony, that does it here for us on "options action." we'll be back next friday at 5:30 p.m. eastern. but don't go anywhere because

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