and it showed me i could do it. and so, thank you, thank you, and have me on again! we'll find some more cars and do this again. this is a blast. works for me. thanks again. (mark) thank you, jay. unbelievable. it's friday and time for "options action. you first don't let the rhetoric fool you why china's internet action is something to watch and 'tis the season, earnings season last one before the holidays how to not scrooge yourself. joining us as always is tony and mike carter will join us in moments let's get right to it. it's been a big week for the chinese internet etf you think it's worth a trade here, why? >> i think there's a couple of

reasons. first of all, for many months we've been talking about when the opportunity to possibly dip your toe into chinese stocks might arrive obviously there's been a tremendous amount of pressure on the stocks most of it is political. we've had a lot of pressure from the chinese government on these names. what has happened as a result is that many of the constituent stocks of k web, some of the biggest chinese companies we can think of talking about ten cent and talking 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 approximately where it was in its highs in 2015 we're talking about six years ago, and it's effectively been dead money so i think what we are now recognizing is that there might, in fact, be quite an opportunity

here the opportunity is coming in two fronts for one, obviously we've seen a technical bounce and i know carter is going to 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 at just shy of 47% implied volatility that's a five or six standard deviation move away from mean volatility for what is essentially an index it's a basket of stocks. what that does is present a very asymmetric risk-reward relationship if we want to try to play it for a bounce with options. let's assume, for the sake of argument, 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 may 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 trading on or about $50 a share, i could sell the 10% out of the money, december 45 put, buy the call for about $4 and sell the 55 call for about $2 look what that does, effectively it means i have a buffer down 10% down to the $45 level where i am not going to lose any money at expiration if it gets to that. of course below that i'll have it put to me but worst case, i'm going to essentially own it at a 10% discount to where it's currently trade. on the upside i have full participation between $50 a share and $55 a share, meaning that between now and december i have a possibility of making 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 volatilities and, of course, if the technical set up is that we are having a bounce, that's the reason we would want to do that right now and take advantage of what we're seeing in the options market >> does the technical setup point to that? carter, you're plugged in, what do you see >> it sure does point to that. let's get right to the chart i have five that are identical, same time frame and then a longer term one. take a look at the first, what do we know something of an epic decline exactly six months that peak was february 17th, the low was august 17th. it goes from 105 to 44 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 you can draw the lines that way, call it a minor head and shoulder bottom. second chart, same time frame. what have we done? we have just started to poke above the down trend line. in effect since the peak

very straight line very optically clear what is going on 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 that's been forming for the past three or four months next chart we put them all together what this is, it starts to really show 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, remarkably, where it's found its footing right 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. in each sequence, you can see it clearly, every time it's been so far above, below trend, moving average, it's mean reverted to it the bet is this recent action continues and that 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 and i think, as mike said, a lot of investors are looking at this particular chart and trying to call the bottom. i think carter's chart, whether you look at it as an inverted head and shoulders, you are targeting minimum 55 upside, but i think you have extended targets to about 60 or 20% i think this is a smart way to play for an etf you think is near the bottom. he effectively has a 10% upside for free in exchange for the obligation to buy the stock at

about -- the etf at about $45, which is the recent lows here. i think for a lot of investors trying to pick a bottom, that would be a comfortable spot to purchase this etf. >> mike, quickly this is a short-term trade do you think the fundamentals for this stock have changed at all? >> well, there's really two sets of fundamentals we have to confront when we're dealing with chinese equities one i think is whether or not you take a look at a company like 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? i don't know it's their country and they can do what they want. but the fact is that 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 it has impacted the share prices considerably. and means that many of these stocks are trading at a discount, not only to u.s. peers, but just otherwise to their really impressive growth potential. i think the answer is yes, but i think it's fair to safe there is a little bit of risk here too. tony says a stock that could be ready for more down side. tony, give us a trade, give us a

stock. >> i want to take a look at pay pal. it has been the e-commerce king but i think it is starting to lose its shine recently it broke below a critical level about 265. just this week it came back to retest that level as resistance and so far it's being rejected so i do think that there's further down side. but i think the more important chart to look at is the chart relative to the technology sector you see that pay pal 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, pay pal 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 seeing eps growth starting to decelerate here, i think that next year's earnings is a bit lofty from a valuation perspective. that aligns with my bearish thesis when we look at the implied volatility of pay pal, 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. that's going to pay a smaller amount of elevated implied volatility on the december 270 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 each other a little bit. i am paying about $17.10 for that december 270 put and i'm collecting about $5.80 for that december 240 put net-net here paying about $11.30 for this debit spread and that's only risking about 4% of the stock's value to take a bearish bet going into the holidays. >> carter, what's the set up on pay pal? >> sure.

the break and then the snap back the snap backstopped at the penny at the 100-day average and that average is flat, no longer rising. the definition of change in trend is change in direction of a moving average this has all the elements of a bullish to bearish reversal, a winner that's rolling over >> coming up, it's that holly

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." the holiday time earning season

is right around the corner beginning with the financials. we are visiting you with the three ghosts, the past, present and future mike >> so xlf, this is the etf that tracks the financials. a lot of the financials that are going to be reporting earnings in the next couple of weeks are represented in here. in fact, about 53% of the entire weighting of xlf is going to be reporting in in the next two weeks. about 43 or 44% of it or so just next week alone.

that will include money center banks, j.p. morgan, bank of america, wells fargo, citi and the like so here's the thing. xlf right now is up just under 35% on the year. outperforming the s&p. many would argue, i would join them quite justifiably the thing is right now is the time to reach out and try to buy the financials after they had such a run or if you happen to own any is now a time you might want to consider pairing back some of your exposure. there is a way that you can continue to maintain some upside exposure, in fact, asim metric upside exposure using options. specifically i was looking at a risk reversal. one of the things you have when using risk reversal, meaning

selling a down side put and buying an upside call is something called skew. that is the down side puts trade

at higher premium buying a downside put and selling at call, that's what earlier today it was trading at $29 a share. what i saw was, 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 calls and still collect some premium that's a function of the fact that the down side puts are so much more expensive. of course, relative to owning xlf, you won't have any exposure really between now and the december expiration between the down 5% or the up 5% if you end up owning it, you would own it at up if you sold your financials right now up 35%, that's not a bad do of course, if it rallies, because you own two calls, your participation to the upside could, conceivably, if we got some kind of breakout from here, not saying that's likely, but if we did, your participation is actually greater than if you own the equity this is one of those things we can look at in xlf and other areas, setting up the same way in api and other etfs, where you could get asymmetric risk-option

reward if it stays here, no harm, no foul >> carter, does your analysis back up mike's trade >> you know, it does the issues with financials is are they really on the cusp of a period of great alpha generation or something else. two charts to look at. the first is just the xlf. what we have here is, of course, the etf. look how precisely it tracks the 150-day moving average it bounces three times, literally to the penny it bounced two weeks ago came down, touched it and took off. the real issue is all about alpha, generating performance the beats the alternative. look at the second chart it's a two-panel and this is kind of the problem. so we know that, on the top, financials are making new highs, all time highs and yet on the bottom, you can see it quite clearly, the relative performance to the choices one could have made, the market is what that is, is poor. so the downward trend line has been in effect for many years. i am not sure it is worth the hassle yes, you can find a good one here or good one there 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 conserve and the rising interest rate environment, i think it is a tailwind here for financials and i do think that we could break out from the relative highs we are seeing now. and the question here is really just timing. but with the interest rate environment we are in, i would favor here to the upside i like mike's trade because what he has here, if we break this down, is a risk reversal, and because of the elevated skew that he has, the out of the money puts that he's selling is collecting so much premium that not only is he able to pay for a

5% out of the money call option, he's able to pay for 7.5% out of the money call option in addition to that for effectively no exa premium this gives the asymmetrical risk to the upside, if it breaks out. 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 with a 5% discount i think this is really taking advantage of the skew we're currently seeing in xlf and potentially playing for a breakout but the fundamentals i think skew in favor of the financials but i do think the charts are a little challenged. up next, a second helping at the olive garden but do you still order dessert we'll explain after this welcome back to "options action."

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i'm going out to the november 5th weekly expiration and i'm selling a call spread. i'm selling the 138, 145 call spread collecting about $4.45 for that 138 call and i'm paying about $1.58 for that call. >> so far blue is more of a reddish trade. so, tony, what do you do here? the daily momentum on ibm has turned a bit positive. but long term i believe this is an underperformer. because i am collecting premium i am holding on to this trade. i still have quite a bit of time left because it hasn't triggered my stop loss here, i'm going to hold onto the trade and look for weakens in the next several weeks. >> mike was beefing up on the bread sticks >> i expect to see olive garden's margins increase much they have done a good job downsizing the menu. their margins are outperforming their peers. in may we may see them report margins better than their prepandemic levels with that, i obviously like the stock.

i was looking out to november. the 145, 165 call spread when i was looking at that, and that is an in the money call spread i should say because the stock closed just under 150. >> that trade was satisfying. so mike, seconds or the check? >> yeah, i think we're probably going to want the check. here's the thing first of all, earnings turned out great. the stock almost ran up to that chart 165 strike i think we paid 7 bucks and change for this thing and it was close to 13, $14 at one point. it has fallen back a little bit, since. i think it closed just under $11. i think we want to take profits and part of the reason is since that blowout on earnings, it has actually underperformed the market by a good 200 basis

points i will leave the technicals to carter >> carter, quickly, your take? >> a breakout like that with a gap that then doesn't follow through, while it's bullish on the day, the fact that it's languishing since is often a message that might have been all it's got so let's take the check. up next, answering your tweets back in two. welcome back to "options it's a thirteen-hour flight, 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. ah, they're getting so smart. choose the app that fits your investing style.

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♪♪ ♪♪ ♪♪ welcome back to "options action." time to talk your tweets first viewer asks now that the tlt has dropped into the low 140s, what's the best way to manage the iron condor from the show two weeks ago 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 at least for the short term, going to be fairly run, it was going to be range bound. when you see evidence your thesis was wrong, you don't try to invent new reasons to stay in a trade. instead, you take it off that's what you do >> carter, what's your take? >> this is an issue for those of us who think rates are not going higher we held in tight this week it needs to sort of bounce here. next viewer -- thought os -- thought osbuying puts on the monster drinks with all the supply chain challenges? i see a lot of october puts. 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 it looks fairly poor i think you can target it to about 85 to the downside implied volatilities on these options are very expensive i would suggest going out to december and look for a put spread as a way to play for further downside >> good to see you for the week. that does it for us on "options actions" we will be back next friday at 5:30 eastern time. don't go anywhere. "mad money" starts now >> you know, this is one of those sets where i really wish we had sound effects. [ laughs ] i really need like a drumroll or some fireworks or something here for this set. so we've been anticipating the change of the american silver eagle since 2019, when the united states mint announced it. and we've had type 1s come out, and we've had -- because, you know, the covid pandemic in 2020, we've had the release of type 2s delayed, so we had both