with some principles. the dea agent and the secret service guys who were ripping off the silk road were just in it for the money. ♪♪ in times square, that can only mean one thing, its's "options actions" time. first reserving a way to stay in marriott and how to pay your bills with mastercard. and another that's so bad it's good we have carter worth and mike khouw and a special appearance by nay dean. we are looking at two consumer facing names tonight carter worth is checking in on marriott how do the charts look we are obviously having some

difficulty with carter's audio, so, mike, what do you see for marriott >> the first thing i would say is we know obviously the direction that carter was going to take with this. one of the thing that is we definitely have seen is some good relative strength in marriott lately. anybody who's been following the stock -- we can probably pull up a chart right now, even though carter is not here to show us his. we'll see the stock has done quite well in recent weeks one of the reasons for this is that people are looking to the long end of the recovery from the pandemic we have seen the rev par, revenue per room, improving in some markets, notably asia, although that's not true everywhere one of the things people looking at the stock is the multiple right now, about 33 times

forward earnings, you might think that's retiffly high, but here's an important point. the shares the company is expected to make in full year 2022 would be the highest eps in the company's history. if you looked further out to 2023, which obviously is trying to read the tea leaves, a little bit but for those trying to forecast out out that far, they're forecasting $6.75 per share. that would reflect nearly 30% year on year eps growth which gets us to that 30 times forward multiple where the stock is presently trading. as we take a look at earnings coming up right now the options market is implying a move of just under 5%. i think it's important to note that that's significantly higher than what the stock has averaged historically what that suggests is that although the stocks are elevated, options premiums are similarly elevated when you see that kind of dynamic, i think we want to try to take advantage of a situation

like that by looking for ways to sell premium taking advantage of the fact we see strength in the stock and the fact that the options premiums are relatively elevated, one of the things we can try to do is give ourselves some near upside exposure but also recognize that those elevated options premiums could suggest that there is some uncertainty and there is some risks. specifically i was looking out to the december 3rd weekly options. i was looking at the 1.45, 1.65, 1.75 call spread risk reversal we would be buying the call spread and selling the 1.45 puts to help finance it net-net at the end of the day, that would be about a $1 debit now, if you held that trade all the way to expiration, then obviously you would need it to be above that $16.65 strike prie by the dollar you made

with earnings upcoming you may see what we refer to as ball suck coming out of that. so we might actually see some of the premiums coming in, which means the break even is probably much closer to spot right after the earnings so this is a way to get upside exposure and then looking up to the december 3rd weekly expiration in the event the news is not that great, you will not have the stock put to you until it gets to around the $1.45 level that's nearly a 10% discount to where the stock is currently trading. of course, that gives us a little bit of a buffer, a little bit of protection in the event it goes back to that level also, if carter was here to talk about his charts, he might point out that this recent strength that we have seen came up from $1.42, $1.43 that's how i identified the short put strike >> carter is back. we fixed his audio issue what do you say about these charts >> this is an unloved stock of the 20 analysts that cover it on the street they believe in 12 months it will be trading lower than it is now.

their 12 month price target below the current price. but i think the setup is good technically and let's look at simple charts. you see marriott, no drawings, no lines, no judgments by me second chart, now we put in the lines. what do we know? it's a setup that we have seen -- history has seen over and over do they always breakout? of course not. we have to play the hand that's dealt and that is we are setting up the prospects of finally moving above basically it's pre-covid high look at the next chart this is longer term. i've drawn the lines the same way. the setup is important you're talking about a stock that basically is up 3% from its pre-covid level with the s&p up 35%. hilton has already started to break out. the final chart, one other way to draw the line a lot of tension here. it's often fundamentals that resolve technical patterns i think the setup is bullish and i think you want to be long into earnings >> nadine, would you agree and

what do you think of the trade >> i do. and i like the fact where michael put the low end. our propro tear trading range is the low end of 154, so that gives you cushion below that for risk managements where it's training the momentum, short term trading above those lines for us i like the premium is positive it means they're paying a little bit up for protection as michael had said when you think about some of the fundamentals, what are some of the events that could make you money. basically travel restrictions are lifted in early november, also, you've got the vaccine for younger kids what we need to hear from management, which i think is critical so you're not heading towards the lower number is not just the rev par trends as michael was talking about, but they have noted the reasonable ability to increase average rates, to offset costs such as labor and other input

costs. we need to see that happen, need to see if the cancellation rates are positive in terms of momentum so people are not canceling as much as they did during delta and we also have to see what they're going to be doing with share purchases. so capital allocation, super important. with the stock down here, we need to see them repurchasing shares so let's see if they did. let's go to the second read on consumer spending with the very thing they used to spend on nadine, why are you charging into mastercard, especially post earnings >> over the past month, you probably know. mastercard has taken a hit at 5% on the heel of visa's cautious comments about not returning to 2019 levels to mid 2023 we saw both visa and mastercard decline. it's our firm's view that management was being overly cautious there at visa we have additional information through mastercard's print for our view mastercard's key statistics they provided shows that the delta

variant temporarily pressured results. we can see mastercard tracking ahmed in october for switch -- ahead in october for switch volumes, cross volumes we can also see versus 2019 levels, they are over 30% ahead on switch volumes, switch transactions and improving on those cross border volumes here in october so in terms of fundamentals, we look at the stock price over a two-year basis in 2019 the stock is up to 22% so obviously that's solid. but versus cross border transactions, they were higher than that, so in the 30s which get hit when travel is halted or depressed. the company is tracking ahead. plus we look the fact that companies like mastercard can provide a bit of an inflation hedge. if gas costs more at the pump, we use our cards that will be reflected in their numbers. it's our firm's view inflation, if it continues to accelerate, but if it remains sticky or even goes down a

little bit, you're going to still see these prices benefitting mastercard near term events, just like marriott, we look to kinnear term events, the u.s. is opening its borders to travelers from 33 countries in early november and will receive further updates from management on the statistics i mentioned before, as well as buy now pay later trends, competitive threats, and the fda obviously today is doing its approval for pfizer's vaccine for younger kids so obviously people will take their kids on vacation if they feel a little bit safer. we look to augment a position in mastercard with a position strategy our framework estimates there is about 4% downside but over 10% upside that's 2.5 to 1 odds in our favor. looking at implied and realized volatility, options have gotten expensive than a month ago so we want to take advantage sell both the put and the call the put being about 1.6% down

from today's closing level so that would be at the 330 level for november 19th. that would give us about 578 up about .3% from the closing level. so we would receive about $12.13 and able to capture more until the stock would be called away so that strategy enables us to weather some of the down side risk that we might see, protecting over a third of the down side, our trading range estimate and potentially capture some of of the upside. we like that to protect our position and also get some upside >> mike, what do you think >> this is interesting we haven't talked about this kind of strategy too often on the show, but i think it makes a lot of sense one of the important things to think about is a stock can be lower, in the same place or higher at some point in the future when you own a stock, as nay dean does here, and she's

looking to enhance the returns and you want to enhance them more than selling a covered call alone would do, and you would be comfortable purchasing more of those shares at a discounted stock price, that's when this diagonal strangle against your shares can make sense. and so -- this issing something that's being a little more creative it has to line up with your fundamental view and your willingness to purchase additional stock i also think the range for mastercard is limited. it has not held up relative to the market recently. but i do like the trade structure, andi can see why she's looking at thi >> still to come, another edition of so bad it's good. we are focusing on amgen be sure to check out our website and sign up for our newsletter it's a fun read on halloween weekend. 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.

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♪ ♪ ♪ welcome back to "options action". our earnings parade continues next week and so does our so bad it's good series carter you have a bunch of interesting charts here. >> a couple tables and charts. amgen is a prominent name and a dog. it's such a dog that it's so bad it's good. let's try to figure out together first the table. what do we know. look at the two-year performance.

this is a comparative chart. you are talking about a spread that's health care at 40%, amgen flat now the next chart, a five-year chart. this is getting to be epic sort of spread between two very like mi minded stocks. one of the biggest stocks intersect over a five-year spread almost double. you can see where the paths diverge of late. third and final comparison chart. of late amgen is down some 27% from peak. i think that's the opportunity so one of two amgen charts here is the chart itself next chart you can see they are down 27% from its peak just four or five months ago but that selloff is exactly down to trend final chart. you are literally down to the penny to the well-defined

up trend that's been in effect for the past ten years it has bounced there before, we think it bounces there again >> all right mike, what's your take >> yeah, so, i mean, obviously one of the side effects of the stock's weakness has been that the valuation -- certainly taking a look at price to earnings -- is getting down to low levels in fact it's trading a little over 14 times right now, getting close to 10 year lows. just because the pe of a stock is low doesn't necessarily mean it's a great time to buy it. sometimes that can be indicative, obviously in a cyclical that you're possibly near a top or an anticipated top in the cycle but just taking a look at a 10-year history of amgen and the range of valuations that it has traded at over time. just consider the following facts. over any 60 or 90-day holding

period for the last ten years, your returns would have been a little over 2% and 3% respectively and you would have been up about 60 to 63% of the time however, if you only purchased the stock when the valuation was between 14 and 15 times earning, that calculus change is pretty dramatic those 60 and 90 day return figures actually look closer to 6% and change and 7.5% and are profitable nearly 80% of the time when you look at that, one of the things you do get when you try to buy a stock at the lower end of its historic valuation range is you give yourself a little bit of a down side buffer perhaps you are getting to a level where the stock can't have a whole lot more damage done however, bearing in mind that there could, of course, be a signal based on this low valuation, particularly given it's trading about half the market multiple right now, you can still use options to mitigate your down side risk

i was looking out to december, the 205, 225 call spread when i was looking at that earlier today, you could spend $2.05. net-net you will spend about 5.75 or so to put this trade on. the stock was trading just under 2.07 as of close so that's $2 in the money already. so the extrinsic premium is only about 1.5% of the current stock price. essentially that's the premium that you're paying to have insurance below the long call strike and, of course, that also is going to reduce how much the stock needs to rise before you see profits. now, of course, the company is going to be reporting on tuesday. so if we see some disappointments or some good news, that's likely when we're going to see it. but i think this is a way we can take advantage of the fact that is options premiums are surprisingly low here, all

things given especially with the way the stock moved the last three quarters those weren't too good but the stock has traded poorly going into this earning. i think we can say it isn't as if the street is overly optimistic >> nadine, what is your take on the trade? >> i think mike and carter are right here so you've got -- our trading range is about 204 to 210, it's kind of in the middle. it's a fair fight, 1.5 up and down it's muddling there. but it has an implied volatility premium of 45% this means people are more worried than not but in terms of fundamentals, you also have people just hating the fact that, as carter was saying, gosh this thing has been really difficult they have missed their numbers the last two quarters so management needs to deliver. that gets to the asymmetry as well any positive news you might see this thing rocket up and they need to give pipeline updates, the notes on physician

feedback, updates on imnolg franchise, the threats from bristol-myers, updates on the pipeline the allocation, maybe they can repurchase some shares, show people what they're doing. there are lots of ways to move this up, but in terms of our trade it's muddling in the middle we just need fundamentals to work for it. up next soul searching on the google trade from last two we'll be back in two live in the market square in times square.

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so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪ welcome back to "options action." last week carter and mike tackled big tech earnings beginning with google. >> google is hovering right on the lower band it bounced 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 150-day moving average. now the 150-day moving average is 7% bee low where we are now >> i was looking at the close at the 2850, 2870 call spread that expired in november. you could collect a little over $6 for that $20 wide call spread

that's a little over the distance of the call spread. kind of that sweet spot. >> carter, why don't you take us through what the stock has done since. >> sure. so this is an instance where playing for a catalyst, earnings event, and breakdown ended up being the exact opposite, which is something unfortunate if obviously you're short so the premises was that what was coming foreshadowed by the poor relative strength and the sort of topping formation would reveal that, in fact, the news was going to be bad, instead the exact opposite so this went right back to its august 30th high and today actually inched above it good week for google it is the best loss situation. just get out >> mike, what would you do >> those results were really spectacular consider this. this company is trading at less than 12 times full year 2022 eps estimates. the company is flat cheap now that we know how things are going for them here is another interesting thing.

on the first morning after they reported earnings, you could have bought that call spread back for about $11.50. and the thing is, if after you heard that earnings, would you have gone out and actually purchased a put spread on it, probably not if you wouldn't buy that put spread you don't want to be short that call spread so you should cover it if you haven't done so. >> nadine, your quick take on google >> we have been long a lot of large tech we were on closing bell last week microsoft, google. in terms of somebody who can have lots of ways to make money through not just ad spend but other places, we don't like to short those names. the names trading poorly, facebook, twitter, amazon after the earnings call. but we dislike those more in a neutral or bearish formation those staying with the bullish formation, a lot harder for us so short

>> up next your questions and final call 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 for tweets. our first viewer asks, the bottom formation in kweb flacked on the show a few weeks ago seems to be morphing in the to believe top i'm long, do i take the loss or do the traders still like it to test the 150 day? carter, what do you think? >> this is something that is very much in the process of bottoming. we know in two weeks it went up 22% and now is down 12%. giving half of the move back but the bottom is well formed forming. stick with the trade time for the final call. last word, carter to you >> earnings next week, amgen and marriott long. >> nadine? >> i want to sell a put and i want to sell a call and keep my

mastercard and get a little more off side. michael khouw? >> amgen i think we like call spreads here to take advantage of the stock that the stock has gotten cheap >> we'll see you next friday for more oa. mad money starts now (tranquil ambient music) - things that you didn't really pay attention to, you notice a lot now just as far as how much things that you touch throughout the day. - you never know what you're touching, you don't know who's been around you, you don't know where they have been. - you know, sometimes when you're working out, you don't realize how much you touch, how many services you interact with. - i touch a lot of things, i touch phones, i touch tubing, i touch bed rails, i touch patients, i touch pretty much anything you can think of. - kids, you know, maybe it's the top of the door,