it's been a pleasure, man. -i'm a big fan. -come by the shop any time, my friend. i'm gonna take this lambo and take off. -i'll see you later. -all right, man, take care. (engine humming) time for "options action." here's what's on the big show tonight. >> earnings season may be coming to a close but there are several big retailers who have to wrap things up. carter worth helps youdecide which could be the gift that keeps on giving. >> then, the land of the rising machine tools? nadine explains why an under the radar economic indicator could lead to a winning trade around japan. finally, maintaining your

hedges professor khouw explains why you should continue to sculpt and appreciate your topiary. it's time to risk less and make sure "options action" starts right now. >> let's get right to it earnings season is coming to a close. with the latest reading on consumer sentiment, an inflation supply chain persisting, do any of the names stand out carter, one does, what is it >> target. it is the end of earnings season it has been an exceptional period for the s&p, up 40% of the reporting companies this week, half are big companies the first is target. sells off the line, bounces

twice. next chart, same type frame but no moving average. just the plane chart taking that, let's draw some same time frame, no moving average. just the same chart. let's draw some lines. next chart what we have, of course, is a fairly well-defined cup and handle probation, which is to say target sold off some 16% and then has recovered back to the level from which it sold off next chart, the same thing but up close and personal. so we know the peak on august 11th was at 267. the stock drops to 222 down 16.5% and has recovered back to that level the company formation is well-documented. we get to the high before breaking out we back away today we reapproach the high on heavy volume next chart this is another way to draw the lines. call it a wedge, you can

what it is, a moment of tension. whether it's a cup and handle, whether it's a flag, a wedge, they're usually resolved they're resolved dramatically. now you have to pick your direction, not always doable my pick is upward. >> mike, i assume that's your pick what's your trade? >> yeah. i mean, i do like target here. first of all, let's just take a look at the fact the thing is trading around 20 times full year earnings estimate their fiscal year ends at the end of january we're looking at something close to $13 in earnings per share this is a company that's doing a lot of things right, i think first of all, they're expanding in digital they're using their existing store footprint as a mechanism for fulfillment centers. they have smaller footprint stores that they've been growing and expanding into grocery and drug i think all of those things combined with the fact that it's trading at a discount to the

broad market is -- we're obviously also in a strong season for retail. i would say that the consensus expectations of 7.5% growth right now, those are maybe a little bit more modest than they had been over the preceding year there had been a huge tail wind as a result of the pandemic. this moves 7.5% after the full month after they report earnings options premiums at 30% implied volatility, that's considerably higher than the volatility options aren't particularly cheap. i think the way we want to present this is with a call risk reversal january 240, 270, 290 call risk reversal i'm going to use round prices. it is about $5 by for around 8 and sell the 290s around 3. net-net when you are looking at

the trade you trade it close to even consider where that 240 put strike is, down over 7% from the current stock price. if the news turns out not to be so good, the typical move to the down side would have you put the stock at about where it would typically go on the other hands, if you get that up side move you'll get full participation in the middle you won't make or lose anything. the other thing is after the catalysts take place, you will get some of the delay of owning the tradeoff. >> what do you think of the play >> i think mike is making a smart trade. we see some of the opportunities and some of the risks he's seeing they're probably going to top the same stores sales growth of 8% 7.5, 8%. october is great driven by early shopping implied volatilitypremiums are high i like the setup he's giving, but as someone who might be

owning that type of setup, it could be a sell the news event you might not want to hold on to those too long after that we have a more minimal up side. it would probably take it off the table if we get a win there and just because of the higher implied volatility premiums, we would probably take it off. >> a last word on this, mike >> yes i think this is exactly right. this is a situation where it's tough and with the market being where it is to find things that we like to own but obviously looking for companies that have been executing well, that are seeing top line and bottom line growth, i think target hits all of those respective targets. if we see any form of weakness, this is going to get hit like everything else would. >> let's look forward in time. where we are taking you for our next trade, it's already saturday the economy is pacing ahead of the united states. nadine is looking at an under

the radar indicator in japan nadine, what are you watching? >> not very sexy to most folks a key japan etf, it's the ewj has declined by 4% over the past couple of months when we look at the improving fundamentals the economy had slipped into a contraction mode in the fourth quarter. similar to many parts of the world, the country battled covid cases which are improving. as the world reopened, we've seen the key macro economic statistic improve. those that were flagged at the start of the session here. they basically increased by over 3% to 149.2 billion yen in october. that's up from 144.6 billion yen in september then we also look at on top of an increase of 14.8% compared to the august numbers so you have two numbers there that are very strong on month-to-month growth.

they represent increases of over 70% year on year market 12% consecutive year-on-year growth. it tops 140 billion yen. we like those type of fundamentals then you have near term news japan is going to compile a stimulus package more than 40 trillion yen that equates to 350 billion u.s. dollars of fiscal spending the u.s. is building import tariffs. we're going to build those and china is going to hold a virtual summit he's from china, but that matters to japan we like the near term setup. what do our metrics say? our proprietary risk says ewj is trading of 68 to 71. we know it's trading above call it a neutral short term and intermediate term trade lines. any positive momentum you can see this shoot up. if we're looking at 30 day

applied volatility premiums, it's growing to 23%. short interest is around 4%. not huge, it's not above that 10% threshold, they could have a meaningful short covering potential. the idea is looking at selling a put and buying a call for the december 17. the put is at a strike about 4.2% down here at the $67 level which would give us 69 cents therefore we would like to own it there the calls and the strike at 3% at the $72 level which would cost us 47 cents we get to pocket some premium today, potentially own the security a lot lower and it gives us the benefit of a current higher priced volatility of puts versus calls we can pick up that japan position if the nikkei and global markets take a pause and gain a call option. >> what does that ewj chart look like, carter, to you

>> one thing that is important if you look across asia, how the nikkei is performing and on a three-month basis, which is what short term momentum is about, it's outperforming the shanghai composite, the kospi in korea, outperforming the hang seng. the chart is looking at the breakout >> mike, what do you think of the trade? >> yeah, i like the trade. for one thing, the put that she's selling, she's getting better than 1% of the strike that's usually the minimum where i'm interested in selling 69 cents versus $67 strikes the other thing to think about, the index on which this is based is trading around 15.4 times earnings that's probably a solid three turns cheaper than its historical average compare that, instead, with the s&p at 25.4 times earnings, about ten turns richer than this

index, first of all, and also above its average. then look at the constituents of the index. dealing with toyota, nintendo, sony, honda. these are global companies so it is fair, i think, when you're looking at an index like this one to compare the value wakes relatively i think these stocks look relatively cheap and for that reason and also for the fact that she's collecting good premium on the put rather than the call, i like the trade. >> check out options axe.kroouk.com while you're there, sign up for our website. >> professor coukhouw, how does your garden grow how you can reap more of what you sow. tweet us your question at "options action. if it's nice, we'll answer it on air. when "options action" rushes

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." j&j splitting, cats and dogs living together. does it feel a little frothy in here maybe, maybe not that's probably why you should step outside and do a little gardening around the hedges. professor khouw explains

mike. >> this is something we talk about once a quarter i think it's important to understand you can use options as a mechanism for hedging your portfolio. obviously we've had strong support. what are the things we want to think about when we're hedging first of all, when you're hedging, it is a form of insurance. you spend premium to mitigate down side risk here's the thing, if you spend that premium and lose that premium, chances are things are generally good you don't need to collect on insurance. suggest whatever you are insuring is doing well the other thing is, you want to hedge when you can, not when you are forced to do so. so you don't try to buy insurance on your house after a fire has started, you want to buy insurance when everything is good finally, you want to balance your risk tolerance with the expense of hedging i was looking out to january at the 380, 350 put spread.

when i was looking at that earlier, you would spend a little over $5 in premium to buy that spread which is 1.25 of the qqq. nasdaq is up 26% year to date. if you analyze that, 1.25%, if you analyze, that would be about 6% in terms of premium spend so you can imagine that if every quarter you were spending about that much in a market that's moving up as strongly as this is, you would have created a drag of about 6% given the valuations that we're seeing, obviously the fact that when you have movement you're going to pay more for insurance, i don't think that anybody would really shy away from 20% returns year on year with a hedge that in this case is going to give you protection down about 10% between now and january expiration

that would be a sharp drop back. if you want to stay long in the market if you want to continue to have participation in the up side but the kinds of multiples that we're seeing and a lot of the other signs, if those things are giving you some pause, rather than selling your stocks, hedging is another way to go. >> carter, i guess the big question is how do the markets look to you right now? in other words, is there the need should people think about hedging right now? >> well, hedging overall versus the qqq is obviously a different subject. the qqq we know, while it is 100 stocks, the top five, six are almost 50% big names we know, tesla being the recent entrant in the top bucket the issue here for the qqq, i think we have a chart, is where it is in relation to the internal trim line what you'll see is that qqq has come up to that line and has faultered four times

we're right up against it again. so you can see there as annotated on the screen, each time it's gotten there, we've had a draw down. draw downs are not bad, they're good if you are bearish, you think it's going to turn into something massive. either way you're betting for some sort of give back >> nadine, your thoughts >> you know what, i think mike and carter make really good points here. one of the things mike is talking about, if you just held it, nothing happened to it it gets to the timing point that he mentioned, too. if you had bought the protection when it was cheap, whether on the qs, stock market overall, there's been a lot of volatility under the surface. there could have been volatility after you purchased it the options could have gotten up it depends if you're trading them or holding on to see what happens. in our book if you're kind of buying them and they're cheap, unloelding them when they're

more expensive, sometimes you're not going to hit that every time you can make some good protection on that volatility that's underneath the surface. i don't think the whole story of the year being up so much is telling the story of underneath the sectors, exposures, what they've done. >> up next we are swimming back upstream after a recent jungle cruise that's a hint. back in two.

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see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪ welcome back to "options action." the future name that was disney. carter cited the analysis and the company disappointed and has been paying for it since so what does one do here carter, i'll start with you. how does this chart look was there technical damage done? >> oh, yeah, lots of it. this is a perfect instance of when you first start a business and something goes wrong, the fundamentals, it was cheap then, we like it more now. it's the exact opposite in technicals it was a disaster.

instead of going up, it went down the direction is wrong >> mike? >> yeah, i mean, one of the things i would point out quickly is that obviously using call spreads or diagonals does limit your risk somewhat, but the february calls that we are long still have a little bit of premium in them. i think given the fact that the thesis has changed, the sensible thing to do right now is basically collect whatever they're worth and look to sell those in closing position. >> up next, your tweets and the final call 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.

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♪♪ ♪♪ ♪♪ welcome back to "options action." time to take some of your tweet. we finally got the iwm breakout that the whole world was looking for yet the follow through has been nonexistent this should be the bigger the base the higher in space is this the way to play for a

follow through thank you. nadine, what do you tell this viewer >> first and foremost, thank you for making me laugh on a friday afternoon. i'm not sure what i think about goldfish nagari but i do want to eat some sushi the russell technicals, what i'm looking at here has a really big short interest people are using this security to short or cover something that they're doing or just the security on its own. it has a really big implied volatility premium as well, 20%. when i look at that, i look at the proprietary trading range. i actually -- it depends on two things is the answer do you want to own the russell it comes down to the macro economic forecast. ours says yesyou do much i'd rather collect the premiums by just selling a put getting that in and hoping i could stay put and get it and keep the premium or if the

market dislocated for whatever reason, i could get that russell at maybe a cheaper price two, do you actually want to own the russell? >> carter, it's interesting. goldfish's verdict on this breakout is that it's over i'm wondering what you see in the charts >> it's the precondition the breakout is dependent on how long the range persisted and it's not that big a range. so another way to say that the more authority the level has, the more authoritative the resolution the russell was six, seven, eight months you have a minor breakout. >> our next viewer asks d draftkings seems to have you

support. willing to own at 40 bucks mike, what do you say? >> i would say the fact that it's testing that support level and it's done it a couple times is what actually makes me anxious about selling that down side put you're is able to do that. they have a like amount of premium instead. you don't face risk of having the stock put to you there. >> before we get to the final call we'd like to welcome tonight the newest addition to the "options action" family, tony and his wife recently welcomed his son to the world. everyone is happy and healthy and starting out with simply selling puts little max welcome, max i know he's watching. time now for the final call. carter >> target on the long side. >> nadine? >> we're still selling that put and buying the call on the japan

etf. >> mike? >> i like target going into earnings but i also like hedging given that the qqq is up 26% year to date. >> that does it for us see you back here next friday at 5:30 meantime, don't go anywhere. "mad money" with jim cramer starts right now >> announcer: this is a paid advertisement for csn. >> you know, many times, i've been out here with a new coin release, and i have asked for a drum roll. and in all honesty, in the past, it's really just been nothing but hyperbole. but this time, i really would like a drum roll. i don't think i'm gonna get one, but i really think i should have one. this is, i think, the singular most important numismatic event certainly of the last quarter century, perhaps in my entire professional career, in terms of interest, in terms of