what's up, betsy? i'm back, boo! hey, bets! (playful music) ♪ i guess god always like to remind you where you came from! hey, everybody, it's friday afternoon here at the nasdaq market site at times square. that can only mean one thing, it's "options action" time coming up. >> the top tech heavy weights reporting results. first up, there's a children's book in which letters of the alphabet climb way up into a coconut tree and then fall down and get bruised. we'll show you why the same thing might happen to the alphabet known as google >> and why facebook may have been pelted with enough coconuts

and other things that it's time to get bullish again plus, two signs. they make a market and television segment we're debating the fate of apple. time to risk less to make more "options action" starts now. let's great right to it. a huge week with the fiv tech giants quarterly results do but carter is already seeing shakiness in one of them carter, what are you seeing? >> that's right. we got the top five that make up roughly 25% of the s&p reporting next week. and the outstanding winner year-to-date, 12 months, however you want to measure it, has been google but google's recent action has been a bit heavy or as the old time expression goes, the stock doesn't act well let's look at a few charts here is the first one, well-defined google is hovering on the lower band it bounced well, but this reapproach this quickly is a bit of a defect.

second chart, the 150-day moving average is 7% below where we are now. does the stock have to get down there? no next chart this is just the same chart again with only the 150-day. i will point out that since google's i.p.o. back in '04, this is the longest stretch on record without having a checkback to the 150-day moving average. that's the bet, that that's under way now. to make that point, next chart this chart goes to 2007-2008 you can see how far it has gone without a proper checkback next chart this is the same chart and look, we're at the top of the channel that's been in effect since the '09 low and we're up against the upper band to the penny and starting to churn and stall and now the final chart. this speaks to relative performance. this is a two-panel. it's very short-term

you can see that google fails to make a new high and now a bad day today, bad week, but that line i've drawn is still above where it was in september. look at the bottom panel it's making new relative lows to the s&p. and the q. this is the beginning of a rollover by my work and i think we are going down to the 150-day moving average >> mike, what is the trade >> yeah, i mean, this is an interesting one, alphabet. it's hard not to hit google especially since they have managed to preserve the tickers. but, you know, this is an interesting situation, right because fundamentally the stock -- the company still has a lot of very good things to acquit itself, right we have phenomenal growth, we've got businesses within the organization, such as youtube, which some are actually forecasting could see revenues of $100 billion a year by the year 2025. to put things in perspective, the forecast for all of disney's revenues for that same year is

about 108 billion. so that should give us some perspective on just how fast some of their key businesses are growing and obviously they've got great exsew sure to the cloud. but its valuation is well above what its average has been over the course of the last ten years. and, of course, throughout those ten years, the street has had a good opportunity to digest similar rates of growth over those periods of time. so if you're inclined to essentially bet against the stock as carter's charting suggests one might, it becomes very difficult, right. because at a $2,750 share price, shorting it is probably not a feasible action in many cases. buying an outright option could be expensive here. so i think it is look to sell on upside the options market is implying a move of about 4% that's in line with the eight quarter average. when you are selling a call spread you are trying to balance the risk and reward.

so obviously, selling further out of the money call spread gives you a higher probability of success but the amount of premium you collect is less. the stock did move down close to $90 by the end of the day. i was looking at the close at 2850, 2870 call spread that expires in november. you could collect a little over $6 for that. $20 wide call spread that's a little over 30% of the distance of the strikes. that's kind of that sweet spot we're looking to sell, that's 30-ish delta calls against it. you would be risking considerably less than if you sold the stock short you obviously have more probability of success than if you bought puts or put spreads i think this is the way to fade it, given the fact that options prices will be elevated going into a catalyst such as earnings >> tony, what's your take on th trade?

>> when you look at the charts, i am not overly concerned when i first look at the chart, but the most important chart with the performance to alphabet, going into an earnings announcement, that is not a good sign, but it is not underperforming the sector so that is one thing to also consider if you look at the business itself, i completely agree with mike 10% quarter over quarter revenue growth we've seen over the past eight quarters, 13% eps growth i think 30% profit margins sustains this type of valuation that it is currently trading at about 29 times earnings but as mike pointed out, this is a tough one to trade because of the high price so when he's using a call spread like this, normally in the three possible scenarios of the stock jumping higher, moving sideways and moving to the down side, two out of those three scenarios you'll be profitable by selling an out of the money call spread here, not oj does he have a higher probability of profit but he has a buffer, i

think a 5% buffer. so even if the stock pops 3 or 4%, he can still be profitable on this particular trade he's trading off a little bit of that risk/reward ratio, only collecting about 30% of the width which means he's risking about 70% of the width on this trade. i think it is an interesting way to play earnings given we saw snapchat with disappointing earnings yesterday google may follow suit >> let's stick with big tech here tony thinks facebook's face may be the opposite of google. why? >> the headwinds right now i think for facebook are fairly song we've seen quite a bit of bearish sentiment in the stock the last couple of months and add on the 5% de-cline in snapchat yet i think this is fairly overdone. i think facebook will still report a fairly strong quarter for earnings if we look at the chart for

facebook first, this is a stock continuing to trend to the upside and recently pulled back to the 200-day moving average. and the previous few times this has happened we have seen a bounce off of that level and i think that's exactly what we're going to see again going into this earning's announcement if you look at the business itself, facebook and snapchat could not be more different. facebook is averaging 16% quarter over quarter growth and commands a 15% profit over the negative margin that snapchat has. that it's trading at 24 times earnings i think this is relatively cheap versus snapchat which was trading at 36 or 37% times sales. prior to the earnings announcement here yesterday. so when you look at the options market right now, it is implying a 6.1% move going into earning versus the historical average of 5.2% over the last eight quarters so the options market -- or the

implied volatility from the options market right now are quite elevated i want to take advantage going to the november expi expiration, i'm taking the same structure that mike is using on the google trade here, but i'm getting a little more aggressive selling at the at the money put and buying a $300 put against it to limit my risk net-net earlier was able to collect about $8.60 which is about 38% of the width as we talked about before, we want to collect as much as a larger percentage of the width as possible to reduce the risk on the overall trade >> carter, did the charts look that drastically different to you? >> there are two circumstances in conflict and no way around it we know that facebook is dow to trend whether you use the 200 day or 150-day in principle, it looks like that something that's in an untrend and sells off of this case at

17%. but the relatively performance is decidedly poor. whether you measure to the s&p or the qqq this is the third heavy line of drop in gap. news related or not, snap related or not, in the past 12 weeks. it's heavy i'm not sure i'd really make a bullish bet here >> mike, your thoughts >> i mean it's interesting, of course because tony is right about one thing. if you were only looking at the numbers and saw the revenue growth, margins, eps growth and compared the valuation of facebook to the rest of the market, you would have to say it's decidedly cheap at 24 times earnings if we're just looking at the numbers, it is of course, there's a reason why it is, and the reason is that there's just -- it's tainted at this point there is a lot of overhang people are concerned, number one, about whether there could potentially be some government intervention or something else that interferes with their business model and that, of course, is the reason why i

think the stock is trading at the valuation where it is currently. as far as earnings, i wouldn't expect them to be all that disappointing. because what's weighing on the stock isn't earnings it is that future potential headwind they face if their business model somehow becomes impaired i think on a risk reward basis, it is not likely to have a bad outcome coming out of earnings because many of the things i just mentioned are already known. >> don't forget our website and our newsletter here's what's coming up next still to come, great line from a movie you might remember. how do you like them apples? tonight carter and tony are reading from two different scripts about the drama that is apple. plus calling all options actions fans reach into your pocket, grab your phone and tweet us your question at "options action" if it is nice, we will answer on air.

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join for free on the xfinity app. our thanks your rewards. ♪ ♪ ♪ ♪ ♪ welcome back to "options action." here at the nasdaq market site in times square. we have tackled google and facebook but it is time to bite into another big tech name reporting next week. apple is gearing up to deliver results next tuesday two of our traders have opposing views on the tech giant but

that's what makes the market, of course carter, let's start off with you. what's your view >> sure i have a couple of charts but let's discuss what we know, it was a big week for apple. amazon was down, google was down but apple was up two charts the first is a two panel looking at apple on the top and on the bottom is relative performance of qqq apple has been a massive underperformer for the better part of a year, when it spiked in september, 13, 14 months ago, its relative performance also spiked you can see on the bottom panel we've been grinding sideways to the down but the uptrend line is the arrows and it has bounced to the penny every time it has hit that line over the past three years. we think that's what is going to happen again second is a simple chart of

apple. there is the trend line and there's the stock. is this exceedingly bullish? no but there's nothing day-to-day and again, a very strong week, that would suggest something really untoward is coming next week >> tony is at the other corner of this boxing ring. tony, why is that? >> yeah, so, it is hard to bet against apple going into an earnings announcement. but when i look at this chart -- i'm looking at a smaller time frame here, but if you look at the price action the last couple of days, but the fact that it was rejected at the $150 level is concerning. but more importantly we have been able to get back to those july highs around 150 or so. but relative to the market since the performance of apple stock since that july high, it's underperformed the market, the sector, and its industry over the short run. i think that is telling for what we are going to see going into the earnings announcement.

then you couple that with the fact that since july we have seen lower and declining volumes on this particular stock that leads me to believe we are more likely to revisit the 140 trading range low rather than breaking out above this 150 level on earnings. but i also have a more fundamental view here as well. if you look at the supply constraints i think the risks are skewed to the downside we have already seen about 10 million units of production cuts in 2021. my expectation is that the company will likely guide and extend that going into 2022. if you look at the revenue from the services business, we're starting to see some margin compression and competition from alphabet, as well as the declining from the app store and gaming revenue so i think the valuation that apple is trading at, while not too rich, i think there's still some down side going into earnings

>> mike, where do you stand on this debate? >> i am going to lean on 5g a little bit we are going to have a massive basically a migration, i think for a long time when we have talked about apple, the only thing we talked about was iphone and iphone sales now they have managed to bolster their revenues in other areas since then other weighs in meaningful ways. i would argue there is bigger impact because as people become more tied to the apple ecosystem, when they go to replace one of thesethings, they get the next one. everybody who has one who does not have 5g is going to be replacing it that is a massive and prolonged cycle we will be seeing for apple. i do agree on the store issue. there have been issues with those who sell on the app store. but when you look at the

valuation of apple here, it's hard for me to see a whole lot of down side the 140 level isn't a huge decline from where we are currently trading. still to come, a look back at two of our prior earning season trades that you've been asking about, tesla and netflix. stay tuned we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car.

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visit tdameritrade.com/learn ♪ welcome back to "options action." life from the nasdaq market site last week mike laid out a way to play tesla ahead of earnings >> i was looking out to january and you was looking at the 650, 850, 900 call spread risk reversal what was i looking to do in sell the puts in round numbers, around $21 or so when i was looking at those, buy the 850 calls which were essentially at the money and then sell the 900 calls against them as well it gives you participation to the upside between 850 and 900 so the maximum profit would be $50 per share, just under 6% of the current stock price. >> you know how this one went. since then, tesla sped higher

climbing more than 11% mike, what do you do >> first of all, the puts that we sold for about $21, can you bought back for about half that price and i think that probably makes some sense and when you have an out of the money call spread and the strike goes through both, that by the ways -- behaves like a short put spread i would look to the january 900, 950. that way we're taking some money off the table, taking some risk off the table, but we have continued upside participation if the stock continues to run. >> carter? >> the breakout is under way, stay long, be long >> couldn't be clearer than that also a way to stream into netflix ahead of its report. >> the stock is outperforming its sector by a huge margin on this particular breakout that type of relative performance is what i like to look for going into an earnings announcement next week. i was looking to go to november

and using a call butterfly looking at the 650, 710 call butter fly. that stock has also seen gains, up nearly 5% tony, what are you doing now >> yeah, so for viewers who traded only a single contract, i think it's time to potentially take profits on it you'll make about a 70% return on the capital that you risked but for traders that traded more than one contract, i'm still comfortable with the strikes that i've chosen on this butterfly, i think there's a chance chance it'll get a drift to the 680 or higher if you have more than one i would keep at least one contract carter, how does this chart look >> this is another strong stock in this case it has also broken out. a bit r more stretched i would say than say tesla, so maybe a bit of a reduction in exposure

with a small long. time for our tweets -- one viewer is asking, pen national seems to have support around the $70 level with online sports betting growing exponentially is it time to go long penn? mike, what do you tell henry >> i like the gaming space i like penn, i like lvs for the reasons you cited. the short version is yeah. i think maybe buying longer dated calls closer to at the money might be the way to make the bullish bet there. >> carter, how does that chart look >> i would say maybe let's pass on this one. a great winner, of course, during the pandemic and so forth, but also an equal and opposite loser for a great period of time a pair much twos >> a pair of twos. tony, would you agree? >> i agree with carter i do you do have a constructive bottom in penn, but until it breaks out above the $85 level, this is not a stock i am interested in

>> pretty clear on that one, henry. you have your answer time for the final call. for this friday "options action," carter, what do you say? >> if you're in the pairing business, i would be selling google and buying apple. >> i think the bearish sentiment here in facebook is way overdone i think facebook earnings will likely turn that around. sell a put vertical spread here for facebook i think apple will see a bit of decline on earnings. >> if you are looking at names like google and think they may be running into upside resistance, one of the trades you can consider is selling some upside call spreads particularly into earnings, which can elevate earnings sell call spreads in google. >> that does it for us here on "options action. see you next friday at 5:30 eastern time do not go anywhere a special bonus edition of "fast money" starts after this stay tuned

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