welcome to friday and "options action. i'm melissa lee. coming up tonight, it's been the best-performing financial stock in 40 years and you never heard of it. and big blues. the stock could soon be singing a different tune. and it's important even though we covered it in "fast money," we're going to cover it again. how to trade the rates let's get right to it. carter werth, what is the mystery 15-year streak, and can

it be coming to an end >> as you stated, single best performing stock in the past 15 years. not a traditional lender, if you will but it is also in trouble. let's look at a few charts first the table just to show the facts. there it is. top five performing stocks in the s&p. and you won't see a traditional one in there except silicon valley bank, largely tied to tech msci, indices, spgi. but market iss leading the way take a look at a handful of charts two-year chart look at the topping-out formation. you see the stock hovering ominously and just now breaking that well-defined level that has

been so key for the past year. call that a descending wedge second chart, exact same time frame, call this head and shoulders top. drawing the lines and you can see the arrow. keep that head and shoulders shot in line looking at a very long-term chart. you can see the sequencing, head and shoulders annotated here as well that time frame, about ten years, hold that and look at the next chart this is the log chart. log rhythmic instead of aromatic you can see we've broken the well-defined trend line in effect so long and the final chart, consider it a channel. same bottom line we're reaching but putting in the upper vein how clear the ascent has been and how bad the break is i think it gets worse. >> mike, how do you trade this very rare event?

>> yes, this is obviously not one of the financial service names that probably a lot of people have heard about and that's because it's largely a player in the institutional space, being as they are basically the platform for electronic trading in the bond markets, which is largely an institutional business it is a business that badly needs the services they provide. it's safe to say the credit markets lag behind equity markets in terms of coming into the modern era of electronic trading and things like that so all of that, of course, is one of the reasons the stock has performed as well as it has over the past 15 years as he was talking about. over the last ten years what we have really been seeing is tremendous margin skpngs this is a company that was probably trading somewhere in the neighborhood of 21 times earning in 2011. fast forward ten years why are we now 61 times earnings, and that would be fine if you had really

massive growth but recently we've seen some of the growth slow year on year. we're looking at revenue growth of about 7% year on year, full year for 2021, probably eps decline. in fairness, an investor data company did say a client with very narrow credit spread, like we saw previously in 2017, sometimes they see alittle falloff. but still the valuation we are seeing seems a little excessive and to me not a reason to long the stock. the technical reason, i think what we're really talking about is a breakdown so you can do credit spread trades or debit spread trades like this one where the implied volatility is significantly higher than the actual realized volatility of the stock, in this case because we're expecting to happen rather than bet against something not happening, which be would an increase bear in mind because it is

popping in traffic with other companies we see, we don't see a lot of expirations to choose from i was looking out to november and specifically the 403.70 put spread that put straight ahead would cost about $60.60, just under 160% of the stock price when i was looking earlier today. the strike almost 17% lower. is that where expect the to go the next few months? not necessarily. but if it goes down to that 370, you're looking at a payoff the better than 4/1. >> what do you make of this trade? >> i think this is a great example of technicals merging with fundamentals. you look at the two-month moving average about a monthing a, it is really ominous of what we've seen here. we're broken down below the 430 level. and not only broken support on

an absolute basis but relative basis too, not only down in the market but also the industry if you look at the fundamentals as mike was referring to, it is quite expensive. because we've seen revenue growth slowdown substantially here, not only have we seen revenue growth slowdown substantially, we've seen eps growth slow down even more year over year the past four quarters, that slowed down to single digits. so any time you see that type of slowdown, i think you're due for a correction here. if you look at the spread mike spread up, he's used a put spread relatively far out over the money but it makes relative sense. here he's only risking 1.6% of the stock's values by using this relatively far out of the money put spread that has a lower probability of success but a very strong payoff if it does start to drop off into the 370

zone with the technicals and fundamentals aligning so well, i do think this far out of the money put spread does make sense. >> let's switch gears here as sherlock holmes would say, it's elementary, dear watson but tony zhang is the one looking to solve the mystery of watson computer maker ibm. tony, what are you looking at? >> exactly, i'm seeing weakness here in ibm and especially issues with and tech i think this is really an opportunity here but if we first take a look at the chart of the dow jones computer services index, we've seen a fairly strong run since march. recently it broke below the 50-day average and recently peaked below the mrkt and i see some particular downside from this particular industry and we look at ibm, one of the particular names in this specific sub industry, ibm looked like it was having a turnaround year. the highs around 152 or so was

the highest the stock had been in almost ten years or so. but one thing we do have to keep in mind is this stock peaked against the market back in 2011, about ten years ago. so when ibm broke below the 138 support level, which we saw here a few weeks ago and you see relative poor performance relative to the industry, the market, this really confirms what i see as a weak stock in a weak industry right now. so given that, ibm does report earnings here about a month later on october 20th. so the trade i want to use takes advantage of the high volatility we see with earnings coming in less than a month, and i'm going out to the november 5th, and selling a call spread, collecting about $4.48 for the 1.38 call and paying about $1.58

and kwlekting athlete about $2.87, just a little higher than 40%. it would be possible if ibm stays at the $1.38 dollar resistance level or gets rejected and continues to move lower, which is what i'm expecting. >> mike, your take on this trade? >> contract this with this other company we were just talking about. here you have a relatively low multiple stock that isn't going anywhere and there's a good reason why it isn't. 2010 is probably -- it saw eps roughly where we will see 2022 eps. i think this is a good trade structure for these situations where you have low multiple stock vis-a-vis can create some level of support but we have not seen a good fundamental story in ibm for some time and it just doesn't look all that healthy from a technical point of view selling upside call spreads is a good way to try to take advantage of the dynamic >> quickly, carter, because i'm

dyeing to hear what zinger you will put on ibm's chart. what do you think of this chart? >> you know, i'm going to default, meaning it's just bah that's why an optional direction is the thing to do rather than a real direction with the stock. it's so important, we're covering it twice tonight between "fast money" and "options action. we will show you how to wing it, so to speak. 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.

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." if you were watching "fast

money" before this -- and, of course, you were, right -- the ten-year hit carter with a magical level. but, carter, for those catching up, what is the relationship with this flexing point? >> right, the thinking here is we had this very important directional move in rates. we peaked at $1.77 in march. we hit $1.12 in july 65 base sis point decline in rates, and move back to the mid-point at 1.45. this punch higher in yields sell up because it's been overdone so the idea is to buy some ty1 in chicago or in this case, etf, the tlt. so put them in context for the past year and move back to the halfway mark, which is exactly what yield is dealing with the price tlt has done that level, if you look at the

second chart, is sort of a level of congestion. the thinking here is we either stay in that range or indeed that rates do back off and that tlt moves back towards the top of the range that's the trade buying tlt or making a bet that tlt is follow but not playing for higher yields. >> follow. typical partner word mike, you're saying earlier this is a good teaching moment and you're going to propose something a little more complicated in terms of the trade. it's not a trade we talk about too often on the show. >> yeah, we're going to be taking a look at selling an iron condor people who are really familiar with options are probably comfortable with a tragedy like this but we often talk about the two key pieces of an iron condor, a credit call spread and credit put spread we would be telling an upside call spread and downside put

spread when do you want to do something like this? this is a situation where we think the underlying asset will have relatively low volatility i think we can characterize treasuries as assets with typically low volatility and where we typically happen to have a range-bound view. and that's exactly what carter was just talking about and finally this is a type of a trade because it is a credit spread, or two credit spreads actually, we're trying to compare option premiums. so this depends on a couple things not happening we're improving our probability of profit but looking for modest yield. specifically, i was looking out to november, looking at the 138, 143, 151, 156 iron condor. that means we would be selling the 143, 548 put spread and 1r5 1, 156 call spread in both cases that's a $5

widespread when i was looking earlier today, that we would collect nearly $1.90 or 40% of the distance between the strikes on the two spreads. that means essentially our break even on this trade is going to be about 141ish on the downside for tlt and just below 153 on the upside if it lands between that, of course, we collect all of the premium but our breaks will be beyond that. another quick, important point, when we sell options premium, generally we like to look at expirations a little nearer dated. because options decay tends to accelerate as expiration approaches but when you're dealing with spreads as we are here, sometimes having a slightly longer time to expiration, as we are dealing with here, is okay because the reason is if you do break through your short strikes, spreads are not going to go to their maximum value right away which means you'll have an opportunity to close the trades

not taking the maximum loss even if the thesis itself turns out to be krakt one. >> tony, wu use a similar strategy or take a different approach >> no, i think this is the great strategy for the current environment that we are in it is really a great example of merging a bet on voiletility and directional view using technicals an iron condor issic thatting advantage of the elevated and implied volatility we currently see on tlt right now the implied volatility is in its 34 percentile. being able to take advantage of that i think as mike said, the right way to take advantage of this on a more complex strategy is break it into its component parts. he's selling the put credit spread because he believes tlt will not move significantly lower. and when you sell a wide food spread for $1, if he just sold the put spread, he would be risking $4 or so but yet by having the call

strike against it, he's collecting another $1 and net $2 but he doesn't have to post addition ale marrigin because t width of the call spread is the same as the put spread another approach i would take is simply based on my directional views, which agrees with carter's, tlt is trading 146/152 range roughly. so i would be more tactical and move the put strike a little higher because i think tlt is already trading near the bottom of its range i would look selling 146/142 put spread and collecting about $1.50 on a $4 wide put spread. because of the $4 wide put spread, sell the 152/156 by doing so, i do reduce my probability of profit but i'm being more tactical and i do reduce my risks because here i'm collecting about 50% of the risk here but my range, break evens is still 144 to 154, well outside

of the range that i think tlt will trade in. but i just want to -- just want to point out that my adjustment is simply align it with my personal view of the directional view of tlt and not necessarily any disagreement to mike's trade. >> mike, what do you make of tony's streak? >> yeah, it is interesting because the strikes i chose were in alignment with my own views and my own views, of course, and they have been wrong for while, admittedly, is that sooner or later we were going to see the fed essentially take some of that longer-dated asset purchases off the table more aggressively and although in the very short term, that doesn'tly mean those rates are going to move significantly higher, i did see that as a possibility before year's end that hasn't necessarily happened maybe this is all the move we're going to get, but essentially the reason i had those slightly lower credit put spreads is

because i do have a feeling that maybe i see rates a little bit higher than the level that tony is seeing between now and november expiration. next, it's been a big trading week and big week for questions about trading. we're swing emanerth next. ♪ i'm a reporter for the new york times. if you just hold it like this. yeah. ♪ i love finding out things

that other people don't want me to know. mm-hmm. [beep] i just wanted to say... ♪ find yourself in these situations and see who you are. and that's just part of the bargain. ♪

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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 your sweets first viewer asked -- supposedly there's a serious shortage of lunchables, who knew with many stores not expected to get them until next year kraft heinz appears to be bottoming on the charts. can traders recommend a way to make a bullish bet on this stock, please? tony, why don't you field this one? >> a lot to unpack in that one tweet. one thing i will say is when a company cannot meet demand and fill the shelves, i don't necessarily see that as a

positive, as we saw from nike yesterday as to what happens when they can't fill customer demand i will say i don't think lunchables is a large amount of their revenue so i'm not sure that is necessarily a reason to not like the stock, but i do agree with you on the charts, kraft heinz has pulled back to a major support level around 36 and as far as what option strategy to take, if you look at the implied volatility of kraft heinz, it's relatively low, so i would go out to january and look at buying an at the money call option and sell short data calls against it the november 5th expiration has earnings coming up and you can collect premium to offset the cost of the january calls. >> our next viewer said apple seems to be running up heading into earnings. they call it the apple slingshot. should i make the run up to november >> it's pretty close the november 150s went out at 4

1/4 so you need a 5% move to break even this is the kind of thing it makes it there but the option expire is worthless. i might sell the 155 and put on the credit spread and try to do it that way. >> our nextviewer asks, did west texas crude oil hit an intermediate cycle low in august, and if so, how high could this potential breakout hit? this relates to carter's continental resources and zimmerx play a while back. >> i think that little sell-off we saw in august was probably short-term low crude looks strong to me and that will play directly into the two names you just mentioned, which are enp companies. i certainly have to be long the services side in terms of halliburton, a stock i owned for quite a while, buying calls when it was much cheaper and converted the stock and i and this to hold it. that's the way i like to play it but it would not surprise me to see wti hit $80.

>> the next viewer asks if s&p fails to hold above the 50-day average, how do you feel buying the vix 27 call? trading at 80 cents and the optional point for the vix trading date tony, this has your name on it. >> whenever you talk about a pullback in the s&p, i'm not a big fan of buying vix calls because if i think the s&p will pull back 10% and i know where the s&p and can buy puts for it but i don't know exactly where vix will be in a 10% pullback. while the options are relatively cheap and maybe you have that optimal leverage, it's hard to gage how far vix will jump on that for those reasons i enjoy buying ts rather than vix calls. still to come -- "the final call." rading, 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.

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tony >> ibm, weak stock in a weak industry, selling call spread. >> carter? >> market x, great champion on the ropes, sellers ment. >> mike? >> yeah, you can sell market x, using 403 put spread to lift it spreads. >> "mad money" with jim cramer starts right now >> my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it "mad money" starts now >> hey, i'm cramer welcome to "mad money. welcome to cramerica just trying to make you some money. my job is not just to entertain you but to educate you maybe we should all just mov