it's friday and time for options action china's internet and 'tis the season, earnings season last one before the holidays how to not scrooge yourself. joining us as always is tony and mike it has been a big week for the chinese internet you think it's worth a trade

why? >> a couple of reasons for many months we have been talking about when the opportunity to possibly dip your toe into chinese stocks. there has been a tremendous amount of pressure most of it is political. what has happened as a result is that many of the constituent stocks, some of the biggest chinese companies we can think of, ten cent and baba are trading at tremendous discount to their peers in the united states this is rapidly growing so we would think it would be an attractive place to be earlier this week the stock was around 45 bucks a share. that's where it was in 2016, six years ago and it has been effectively dead money

what we are now recognizing is there might be quite an opportunity here the opportunity is coming in two fronts for one, we have seen a technical bounce and i know carter will be speaking to that shortly. but the other is while it has been under so much pressure, options premiums have essentially exploded right now we are seeing the two-month option premium in kweb has 40% implied volatility it is a move away from mean volatility what that does is present a very asymmetric risk-reward relationship if we want to try to play it with a bounce for options. lets aassume that that $45 level we were seeing earlier is a level off which it not only bounced, but may bounce again in the event we see further weakness i was looking at this earlier today. i noticed you could put up a 10%

call spread risk reversal for even money in december with kweb i could sell 10% out of the money, december 45 put, buy the call for about $4 and sell the 55 call for about $2. effectively it means i have a buffer down to the $45 level where i am not going to lose any money at expiration if it gets to that. but essentially i will own it as a 10% discount where it is currently traded on the upside i have full participation meaning between now and december i have a possibility of a 10% return. so i have immediate participation, up 10% and no

participation down 10% that whole situation is made possible by the fact we see these very, very high implied volatility if the technical setup is that we are having a bounce, that's the reason we would want to do that and take advantage of what we are seeing in the options market >> does the technical setup point to that? carter, what do you see? >> it sure does point to that. let's get right to the chart take a look at the first, what do we know something of an epic decline six months the peak was february 17, low was august 17. drops 58%. but we can see quite clearly that since the low in august -- we are now october -- it has continued to not make new lows second chart, same time frame.

we have just started to poke above the down trend line. very optically clear third way to draw the line we are in this range and the presumption is that we are going to pop to the top of the range forming for the past three or four months. next chart, put them altogether. what this is, really shows where we can win, where the trade can go to. and that's a nice 15% or 20% move from here now add the 150-day moving average. same time frame again. it also comes into play exactly where the upper band of that channel comes into play. final chart, this is the all data chart for this etf. you can see where it's on the trim line it has been in the past eight years in terms of this, how far it is

from the 150-day moving average. you can see it has reverted to it this recent action continues and one is right to be long kweb >> all right given that technical setup, tony, do you like mike's trade >> yeah, i like it quite a bit as mike said, a lot of investors are looking at this chart and trying to call the bottom. however you look at it, i think you are targeting minimum 55 upside, but i think you have extended targets to about 60 or about 20%. i think this is a smart way to play for an etf you think is near the bottom. he has a 10% upside for free in

exchange for the obligation to buy the etf about $45. i think for a lot of investors trying to pick a bottom, that would be a comfortable spot to purchase this. >> this is a short-term trade. do you think the fundamentals for this stock have changed at all? >> there are two sets of fundamentals we have to confront dealing with chinese equities. you take a look at baba and say is that company at 16 or 17 times earnings a good valuation. i think we can universally say the answer would be yes provided you don't have the overhang -- should i describe them as overzealous? it's their country and they can do what they want. the real reason we see the valuations where they are is because of the overhang of chinese government policy and

security measures which could restrict what some of these companies are doing. they have said as much, done as much and impacted the share prices considerably. many of these stocks are trading at a discount not just to u.s. peers, but to their otherwise impressive growth potential. i think it is fair to say yes, but there is risk here, too. tony says a stock that could be ready tony, give us a trade, give us a stock. >> i want to take a look at papal. it has been the e-commerce king but i think it is starting to lose its shine recently it broke below a critical level this week it came back to retest that level and so far it is being rejected so i do think there is further downside. but i think look at the

technology sector. you see papal is trading at year-to-date lows and making fresh lows that points us to further downside especially when a stock like this underperforms the market and sector. but if you look at the business, papal is a fairly strong business, no questions about that but as revenue growth starts to slow down from high 20% down to next year and see acceleration decelerating, i think next year's earnings is a bit lofty when we look at the implied volatility of papal they are relatively elevated. so i want to account by going out to december i am going to by a 270 put which is an in the money put.

i am going to sell the out of the money 240 against that that has a higher implied volatility the two can hopefully offset that i am paying about $17.10 for that 270 put and about $5.80 for the 240 put. that's only about 4% on a bearish bet going into the holidays >> what do we have on papal, carter >> the snap back stopped at the penny at the 100-day average the definition of change in trend is change in definition of an average price this is bullish to bearish

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♪ ♪ ♪ ♪ ♪ >> welcome back to options action we are visiting you with the three ghosts, the past, present and future

mike >> this is the etf that tracks the financials a lot that will be reporting earnings in the next couple weeks are represented in here. in fact, about 53% of the entirety will be reporting in the next two weeks much about 44% of it or so next week alone. that will include money center banks, j.p. morgan, bank of america, wells fargo, citi and the like right now xlf is up 35% on the year outperforming the s&p. but is now the time to reach out and try to buy financials after such a run or if you own any is now a type to peare back some of your exposure.

there is a way to maintain upside exposure using options. specifically i was looking at risk reversal. one of the things you have when using risk reversal, meaning buying a downside put and selling at call, that's what sets up some of the asim tris i was talking about. i could sell the december 37 put, about 5% out of the money and use the proceeds to buy the 41 strike calls and also the 43 strike calls so selling one put and buying two upside and still collect some premium that's a function of the fact that the downside are so much more expensive

owning xlf you will have no exposure at the down 5% or the up 5%. if you end up owning it, you would own it at up if it rallies because you own two calls, your participation could conceivably, if we got a breakout, your participation is greater than if you own the equity this is one of those things we can look at in xlf and other areas, setting up in other ways where you could get asymmetric risk-option reward if it stays here, no harm, no foul >> carter, does your analysis back up mike's thought

>> are they really on the cusp of great generation or something else two charts to look at. we have the etf. look how precisely it tracks the 150-day moving average it bounced two weeks ago came down, touched it and took off. the real issue is all about alpha, generating performance that beats performers. look at the second chart we know on the top financials are making new highs yet on the bottom the relative performance to the choices one could make, the market is what that is, is poor so the den ownward trend line hs been in effect for many years. i am notsure it is worth the hassle pick this bank or broker, but as

a team in aggregate, i am not sure it is worth the exposure on financials >> tony, what's your take? >> i think in the current steepening rate curv efrp, i think it is a tail wind for financials and i think we could break out from the relative highs we are seeing now. the question is timing but with the interest rate environment we are in, i would favor here for it to be upside i like mike's trade because what he has, if we break this down, is a risk reversal and because of the elevated skew he has, the out of put is collecting so much premium, not only is he able to pay for a call option, he is able to have an effective

additional call option if it doesn't break out and you see xlf trade to the downside, you have protection and get to participate if the stock declines by purchasing the stock with a 5% downside the fundamentals, i think skew a little more in favor for the financials, but i think the charts are a little challenged up next, a second lpheing of the olive garden but do you still order dessert

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when traders tell us how to make thinkorswim even better, we listen. 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. welcome back to options action tony >> when we look at ibm, it looked like it was having a bit

of a turn around year. the highs earlier were around 152, the highest the stock has been in about ten years or so. but this stock peaked against the market back in 2011. going to the november 5 weekly exploration and i am selling the call spread, collecting about $445 for that 138 call and paying about $1.58 for the 145 call >> so far blue is more of a reddish trade. what do you do >> the daily momentum has turned positive, but i believe this is an underperformer. because i am collecting premium i am holding on to this trade. because it hasn't triggered my stop plus, i am going to hang on

for the next several weeks >> i expect to see olive garden's margins increase much they have done a good job downsizing the menu. in may we may see them report margins better than their prepandemic levels with that i like the stock november, the call spread -- the stock closed just under 1:50 >> that trade was satisfying seconds or the check >> probably the check. earnings turned out great. the stock ran up to that short 1.65 strike. i think we paid 7 and change and

it was up to 14 at one point it had fallen back a bit i think we want to take profits and part of the reason is since that blowout on earnings, it has underperformed the market. i will leave the technicals to carter >> carter, quickly, your take? >> a breakout like that with a gap that doesn't follow through. while it's bullish on the day, it's languishing since so that may be all it has got. so let's take the check. up next, answering your tweets 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.

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♪♪ ♪♪ ♪♪ welcome back to "options action." your tweets -- mike, that was your trade, what

do you say >> it was. the important thing to understand about that trade was our thesis was that tlt was going to be fairly short run, range bound. when you see evidence your thesis was wrong, you don't invent new reasons to stay in the trade. you take it off. that's what you do carter >> this is an issue for those of us who think rates are not going higher it needs to bounce here. next viewer -- tony, take this one. >> i agree with your bearish view but not because of the supply train issue i think one week is too short for that to play out, but because of the chart i think you can target it to

about 85 to the downside volatility on these are expensive. i would suggest going out to december and look for a put spread >> good to see you for the week. we will be back next frida my mission is simple to make new money. i'm here to level the playing field for all investors. there's always a bulwark in summer and i promise to help you find it. "mad money" starts -- now! hey, i'm kcramer welcome to "mad money. making friends, making some mun. my job not just to educate and teach you, but call me or tweet me@ me@jimcramer not sure what to do? how about doing nothing? unfortun