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two signs make a television show and a market time to risk less and make more. "options action" starts right now. >> let's get right to it a huge week with the five tech giants quarterly results do. carter worth is seeing shakiness in one of them what do you see? >> we have the top five. outstanding winner year to date. everyone measures it has been google google's recent action is a bit heavy. as the old time technical expression goes, the stock doesn't act well let's look at a bunch of charts. here's the first one a well defined channel and google is hovering honestly right on the lower band it balanced well but to reapproach it this quickly is a bit of a defect. second chart, it's the exact

same chart but i've included the 100th day moving average that's 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 ipo back in '04, this is the longest stretch on record without having a check mark. here is the 100 day average. without a proper check mark.

google fails to make a bad day today. this is the beginning of a rule over by my work and i think we're going down to it they've managed to preserve those tickers. this is an interesting situation, flight fundamentally the stockstill -- the company still has a lot of very good things to acquit itself, right we obviously have phenomenal growth we've got businesses within the organization such as youtube which some are actually forecasting can see revenues of $100 billion a year by year 2025 to put things in perspective, the forecast for all of disney's

revenues for that same year are about 108 billion. that should help give us some perspective on just how fast some of their key businesses are growing. of course they've obviously got great exposure to the cloud. at 35 times forward earnings its valuation is well above what its average has been over the course of the last ten years. throughout the ten years the street has obviously had a good opportunity to digest similar ratesof growth over those periods of time. if you're inclined to essentially bet against the stock as carter's charting suggests one might, it becomes difficult. at a 2750 shorting it is not a feasible option in many cases. buying an outright put option and i think the trade going into earnings is to look to sell an up side call spread. right now the options call spread is implying a move of 4%. that's in line and when you're selling a call spread, you're trying to balance the risk and

reward obviously selling a further out of the money call spread gives you higher probability of success but the amount of premium you collect is less. now the stock did move down close to $90 by the end of the day today. i was looking just at the close at the 2850, 2870 call spread that expires in november you could collect a little over $6 for that 20 wide call spread. that's kind of that sweet spot we're looking to sell 30 deltaish calls and buy something 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 this is the way to fade it especially given the fact that it will be going into a catalyst. >> tony, what's your take on this trade >> yeah. so when you look at the charts here, i'm not overly concerned when i first look at the chart

i think the most important chart was the relative performance of alphabet to the market that's not a good sign i will say it's not under performing its sector. that is one thing to consider. if you look at the business itself, i completely agree with mike 10% quarter over quarter revenue growth you've seen over the past eight quarters i think 30% profit margin sustains this valuation it's trading at 29 times earnings 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 that the stock jumping higher, moving sideways and to the down side, two out of three scenarios you'll be profit annual by selling a fairly out of the money call spread, not only does he have a higher profitability he has a higher buffer he has a 5% buffer

even if google reports a strong earning, he can still be profitable on the particular trade. he's trading off a little bit of that risk/reward ratio only collecting 30% of the width which means he's collecting 70% of the width on the trade. that's an interesting way to play earnings given that we have seen snap chat report a fairly disappointing earnings and we might see google follow suit. >> let's stick with big tech tony thinks facebook's fate could well be the opposite of google so, tony, why >> yeah. so exactly the headwinds i think for facebook are fairly strong we've seen quite a bit of bearish sentiment in the stock over the past couple of months you add on top of that the 5% decline on the back of snap chat earnings i think this is a bit overdone if we look at the chart itself for facebook first, you see that

this is a stock that is continuing to trend to the up side and it recently pulled back to the 200 day moving average. in the previous few times this has happened we've seen a bounce o of of that level i think that's what we're going to see again going into this earnings announcement. if you look at the business itself, facebook and snap chat could not be more different from each other facebook is averaging 16% quarter over quarter eps growth and it currently commands a 35% profit margin versus the negative 15 that snap chat has when you look at facebook on a valuation perspective, the fact that it's trading at 24 times earnings i think of this as a stock that's relatively cheap. snap chat is trading at 35, 37 sales. when you look at the options market, it is implying a 6.1% move going into earnings versus the historical average of about 5.2% over the last eight quarters the options market are -- the

implied volatility from the options market are quite elevated i want to take advantage of that by going out to the november expiration i'm taking the same trade structure that michael is using on the alphabet trade. getting more aggressive. i'm selling the at the money put for $13.95 i'm buying a $300 put against it to limit my risk here for about $5.35. net-net here i was able to collect 8.60 which is about 38% of the width we want to collect as much as a larger percentage of the width as possible to reduce the risk on the overall trade >> carter, do the charts look that drastically different to you? >> well, there are two services in conflict. we know facebook is down in a trend whether it moves the 200 day or 150 day garp looks something like that in that trend that sells off 17%

but the relative performance is deci decidedly going whether the measure to the s&p or qqq. news related or not or snap related or not it's heavy i'm not sure i would make a bullish bet here. >> mike, your thoughts >> yeah, i mean, it's interesting, of course, because tony is certainly right about one thing. if you were only looking at the numbers and you saw the revenue growth, you saw the margins, you saw the eps growth and you 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 you were just looking at the numbers, it is there's a reason why it is the reason is it's tainted at this point i mean, there's 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 that the stock is trading at the valuation where it is currently. as far as earnings go though, i wouldn't expect them to be all that disappointing, right? what's weighing on the stock isn't earnings, it is that future potential head wind that they face if their business model somehow becomes impaired i actually think on a risk/reward basis it's 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 strips about the drama that is apple. plus, calling all "options action" fans reach into your pocket grab your phone and tweet us your question at "options action." if it's nice, we'll answer it on air when "options action"

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♪ ♪ ♪ ♪ ♪ we have tackled google and facebook but it's time to bite into another big tech name apple is gearing up and two of our traders have some opposing views on the tech giant.

that's what makes the market, of course carter, let's start off with you. what's your view >> sure. i've got a couple charts let's discuss what we know it was a big week for apple. amazon was down, google was down, facebook was down, apple up almost 2.7% beating the stocks, s&p and russell. that option is a tell going into earnings two charts apple on the top and on the bottom is relative performance of the qqq apple has been a massive underperformer for the better part of the 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 riding sideways the dow. the relative strength line is down to that up trend line which has been drawn there and it is balanced to the penny every time it's hit that line over the past three years. we think that's what's going to

happen again second is just a chart of apple. there's the trend line, there's the stock. is this exceedingly bullish? no nothing day to day very strong that would suggest something untoward is coming next week. >> well, tony's in 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 take a look at this chart, i'm looking at a slightly smaller time frame here if you look at the price action here of the past couple of days, the fact that it was rejected at $150 level here is a little concerning 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 stocks since that july high, it's underperformed the market, it's under performed the sector, it's under performed the industry over the short run 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've seen lower and declining volumes on this particular stock and that really leads me to believe that we're more likely to revisit the 140 trading range low rather than breaking out above this 150 level on earnings. but i also have more of a fundamental view here as well. if you look at the supply strain of constraints, i think the risks are skewed to the down side we've seen 10 million units in 2021 my expectation is 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 competitions from alphabet as well as declining and deceleration in the app store and gaming revenue. for those instances i think the valuations that apple is trading at is not too rich there is further down side going into apple earnings. >> mike, where do you stand on

this debate? >> well, i'm going to lean on 5g here a little bit. i mean, we're going to have a massive basically migration, i think. for a long time when we've talked about apple the only thing we talked about was the iphone and iphone sales. they've managed to bolster revenues in meaningful ways since then i would argue that there's a bigger impact because as people become essentially more tied to the apple ecosystem it almost assures the fact that when they go to replace one of these things, they get the next one. everybody who has one that is not 5g is very likely going to be replacing it. that is a massive and prolonged cycle for the iphone i think that we're going to be seeing here i do agree with tony on the app store sales front issue. there has obviously been some pressure, including from those that sell on the app store, but when you take a look at the valuation of apple here, it's hard for me to see a whole lot

of down side 140, which was the level that tony was just talking about, isn't a huge decline from where we're currently trading. still to come, a look back at two of our prior earnings season trades that you've been asking about, tesla and netflix. stay tuned

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visit tdameritrade.com/learn ♪ last week mike laid out a way to play tesla ahead of earnings. >> i was looking out to january and i was looking at the 650, 850, 900 call spread risk reversal what was i looking to do sell the 650 puts. in round numbers, those were around $21 when i was looking at those. buy the 850 calls which are essentially at the money and those were about 58 bucks and sell the 900 calls against them as well. it essentially gives you participation to the up side between 850 and 900. 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 here? >> yeah. so first of all those puts that we sold for around $21 can be bought back for about half that price. i think that probably makes some sense. the other thing is when you have an out of the money call spread and that runs through the stocks, that behaves like a short put spread what you can do is sell that call spread and roll up. so i would look probably to the january 900, 950 we're taking money off the table and risk off the table but we have continued up side participation. >> how does that chart look, carter >> the breakout is underway. stay long be long. >> wow couldn't be clearer than that. we also laid out a way to stream into netflix ahead of its report >> the stock is outperforming its sector by a huge margin on this particular breakout and that type of relative performance is what i like to look for going into an earnings announcement next week

what i was looking to do is going out to november and i was looking to look using a call butterfly. going out to november looking at the 650, 680, 710 call butterfly. >> that stock has also seen some 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 capitol that you isk. 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 good chance we'll get a drift up to the 680 strike or higher if you have more than one contract, i would shoot for the 2 to 1 or 3 to 1 risk reversal. >> carter, how does this chart look >> this is another strong stock n. this case it is also broken up a bit more stretched, i would say, than let's say tesla. it may be a bit of a reduction

in exposure. >> all right time for some tweets here and one viewer's asking, penn national seems to have support around the $70 level with online sports betting going exponentially. mike, what do you tell henry >> yeah. i mean, i like the gaming space. i like penn. i like lvs and actually for the reasons you cited. so the short version of it is, yeah i think maybe buying longer dated calls close to at the money might be the way to make the bullish bet there. >> how does that chart look to you, carter? >> well, i would say maybe let's pass on this one great during the pandemic but an equal and opposite loser for a great period of time pair of 2s. >> tony, would you agree >> i agree with carter i think you do have a constructive bottom here in penn until it breaks out above the $85 level, this is not a stock

that i'm interested in. >> all right pretty clear on that one, henry. you've got your answer time now 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 that the bullish -- the bearish sentiment here in facebook is way over done. i think facebook earnings will likely turn that around. sell a put vertical spread here for facebook and i think apple is going to see a little bit of decline here on earnings >> you know, if you're looking at names like google and you think they might be running into some up side resistance, one of the trades you can consider is selling up side call spreads into things like earnings which can earn you that does it for us on "options action." thanks so much for watching. we'll see you back here next friday meantime, do not go anywhere a very, very special bonus edition of "fast money" starts right after this break stay tuned

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