coming up tonight on so many levels, a classic pattern forming in a classic sector. health care. then banking on interest rate hikes and finally, jets. jets jet with us as always carter, mike, and tony zang. right to it. a change of course could be in store for the health care sector carter, shows us why what are you looking at? >> we know a very good week for defenses as well so forth health care has been a real

laggard and the performance starting to change look at a couple of charts adding the xl on top sector up into the right. since the pandemic but look at the bottom relative performance is down and yet, we are just now starting to move above that trend line in effect, past two years. i think that's very important. second is an all data charge we have gig sector data back to 1989 what this shows is, again, health care on top and on the bottom, the relative performance to the s&p and health care has been lagging for several years to the point where it's down to that trend line it's been in effect since 1989 and each and every time, the bounce and bouncing again. literally as we speak. so two more charts, an absolute chart of xlv setting up a good trend and setting up now and just moving

above prior tops, the beginning of a breakout and then finally, that same chart up close and personal there it is. the definition of a breakout, to a new high, moving above a former high from an instrument in uptrend and spend a bit of time consolidating before reasserting itself stay long, be long, get long >> how do you do that? what's the trade >> just taking a look at xlv, which is the etf that tracks this space one of the interesting things, one of the reasons we might actually have been seeing that underperformance for some time that carter was pointing to is simply the fact that the market has seen a great deal of multiple expansion in terms of valuation, xlv has not this sector index actually seen its trend essentially sideways for several years. a little bit less. it's only the largest constituent, really, which is

unitedhealthcare, which is a great company, i should say, having exhibited tremendous revenue and earnings growth very consistently, pretty much, unfailingly for about a decade now, but that's really the only one that we could point to that we have seen some multiple expansion and it's one of the reasons why i would actually favor using xlv rather than leaning towards a stock like unitedhealth the other thing to point out is where we've seen elevated volatilities in a lot of areas and some of the volatility we've seen this week would be a good reason for that. xlv doesn't have very high implied volatility so i was looking at february, the 140, 148 call spread when i was looking at thattier to earlier today. cost for that call spread. it is a little bit more than we might sometimes look to spread on a call spread, in this environment, it makes more sense and this is a situation where you can risk a relatively small

amount of the current level of xlv, the etf to make a bullish bet to go out to february play or the kind of move that carter is talking about here. >> what's your take on the trade? >> yeah. i like this trade a lot. when you first look at the sector, it is a little concerning that underperformance that we've seen since april of 2020 it's concerning to look for this on the breakout, but if you look at the weekly outperformance of this sector to the overall market, this is the strongest we've seen since the march 2020. you have to go back to june 2017 to see outperformance this particularly strong. the sector rotation we've seen into health care over the past two weeks, along with this breakout to new all-time highs and i do think from a timing perspective makes sense to play for the upside and i like mike's trade because he's using a call vertical here. that's going to limit his overall risk in this particular case, the 1.6% of the etf's value chasing these all-time highs but what's important here, this etf trading in a range between 125 and 137

before this breakout that's going to project the target up to 149 or so that's the upper strike of vertical spread. he's getting a 3-1 risk to reward ratio on this if this breakout continues while only risking 1.6% i think that's most important here about this trade. >> carter, talked about this t range, does it make your c conviction in the breakout even stronger >> you get ahead of yourself and the consolidation, the tension as it sort of, does it go higher or peter out is it exhausting and then by asserting yourself, again, moving above and up and out of the range, that's typically the beginning of what is to come and projects higher and to the levels that tony spoke of. >> there's been a whole lot of fed talk lately, so you might be wondering how to position yourself if the rate hikes actually start to come and a way to play.

he said could rocket higher when rates rise what are you watching? >> that's exactly right. looking at bank of america, which i think is out of the bank's major interest rate environment. if we take a step back here, first take a look at financials as a whole, the sector relative to the market really has made no progress here since january. however, we are trading near the bottom end of that range and i start to see a little bit of rotation here in the financials over the past couple of weeks and i think it might be time to start taking a look at this. if we look at bank of america's chart here, we saw the breakout here a couple of months ago above the 43.5 level we come back to retest this level support and this is an opportunity to seek some long exposure in this particular bank, especially if you take a look at the ratio of net interest income to net revenues, this is really one of the h highest we've seen out of the major banks. bank of america best exposed here to the rising interest rate

environment we are expecting over the next year or so but when we take a look at the options itself, right now, options are extremely expensive. if you look at the implied volatility rank of bank of america, it's currently in the 66 percentile. very expensive one of the strategies i want to jute utilize is one we don't talk on the show one of the most underutilized income option strategies, which is a short put i'm going out to january and to sell the $43 put options now i'm able to collect $1.21 for that put option. that's about 2.8% on the other line stocks value. when you sell a put option, you have the obligation to buy the stock if the stock is below that strike price $43 by the january exploration and just to put that income level into context, if you own the stock, you're earning about 78 cents per year in dividends here, i'm collecting $1.21 in just 35 days that's about 16 times the dividend yield i'm collecting in

this short put versus the dividend yield i want to take this potential exposure to the stock over the next 35 days or so >> now, i know there are a lot of options actions fans out there who also watch "fast money" before this program and probably scratching their heads. you went through this whole r rigamaroll and relative highs to the s&p 500 seven months ago what do you see here for bank of america? >> so the banks have not been worth the risk, it's a risk reward beta adjusted, relative performance many ways at the highest levels the thing about bank of america, singled out one behaving better. in general, i am not wanting to be overweight or specifically embracing individual financials and banks in particular.

>> mike, you sure have a tie breaker here what do you make of bank of america and the trade? >> so, you know, take a look at bank of america. its valuation isn't incredibly high if we just take a look at probably 13, 14 times earnings 1.5 times tangible book. i'm a little bit uneasy about selling puts going into the new year but i will say, i'm a little anxious about the put sale as the way to play it >> rare dissent in options action, tony how would you address mike's concerns about selling foots into the new year and carter's assessment, you don't want any long financials in particular. >> the great thing about the short put, you don't necessarily have to have a rise in banks in order to be profitable even if it stays here at the $44

level, i'll still be profitable over the next 35 days but to carter's point, to mike's point about selling puts in this current market environment i understand that but that's why i do it with the high volatility i'm getting paid for the risk i'm taking coming up, a flight path for jets that you might not expect tisaiocnng options action on oponctn.bc.com while there, you can sign up for our newsletter stay tuned thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪

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away, good time to lay a trade into mike's call to action take it away. >> we take a look at jets. the etf i should say by and large, attracts the airlines more than 50% of it is the airlines warren buffett was attributed with a quote once, be fearful when others agree. i don't think we could suggest people are greedy in the jets etf. obviously, we have a lot of news recently i think that has hurt many of the constituent stocks in the etf quite badly, and do additionally, we've had the companies themselves announcing some aggressive price cuts on ticketing going into the next year basically, reflecting from an economic point of view the kinds of concerns that are being expressed about omicron, for example, but a lot of these companies look quite cheap if we actually take a look at many of these, they're at lows that haven't been seen since the inception of the etf except for

the drop we saw at the outbreak of the pandemic beginning in march of 2020. the other thing i would quickly point out is that the options on this etf are unsurprisingly quite expensive. so looking at a trade structure that is actually quite similar to the one that we were talking about for xlv and the purchase of a february '21-'22 call spread more than 25% of the $2 distance between these strikes as a way to play for a potential bounce here i, again, would have been like to be able to sell some downside earlier in the show, i'm not really comfortable selling puts despite the fact they're exceptionally expensive here. >> how did the charts look to you? >> i think it makes sense. look at three. the first, and this is the one to focus on. the first chart shows the etf basically doing nothing for all of 18 and 19, and then you see

it plunge from 30 to 10. notice it recover right back and now it's given back half of that so let's look at that up close the next chart is the give-back. basically in the next 22% since the new covid strain has hit, but we have something of a double bottom here the final chart, i think it can get dollar to two out of this. a nice trade for something trading in, 20 or thereabouts. >> what's your take on this all? >> i couldn't agree more the pullback here is down to the $20 level, i think, a great opportunity rather than risk assigned the risk further ahead. not only is this etf not only 50% airlines but more importantly, 60% of the airlines of the etf are u.s. or north american airlines and if you

look at travel here in north america, it's pretty much back to pre-pandemic levels with, unlike europe, down 20% and asia which is down about 40%. so the exposures to this north american market with this etf, i think is the important part of this and that's why i think the 20% decline we've seen over the last month or so is the opportunity and the call vertical spread mike is using, where he's limiting his losses to just 3% of the total etf's value, i think, is really smart. you are catching a falling knife here it's a speculative play and protection is more important than anything else and the fact that he's able to get a 2 to is 1 slightly ly more than that, i think is the cherry on top >> this one in particular feels like you really got to do it, considering we get more and more information on a daily basis about the spread of omicron. >> that's exactly right. and that is why we use a structure like this one.

there are still quite a lot of unknowns if we get a bounce and it would actually take a decent bounce to get there. trading just over $20, i think, as of close. the lower strike at 21 may not feel being a dollar away or slightly less than that from the current stock price. of course, we are still talking about a material percentage of the current stock price just to get to that break even so if we do get a good sized bounce, this is one where you probably want to take some profits and this is definitely a trading type of a strategy, not an investment strategy >> up next, we are going to take a look back on one of mike's biotech trades don't go anywhere. much more options action right after this

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oh oh so true. and now, the moon christmas special. gotta go! take the savings challenge at xfinitymobile.com/mysavings or visit an xfinity store to learn how our switch squad makes switching fast and easy this holiday season. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, 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 ♪ back in october, told us amgen looking so bad, it was good >> one of the things that you do get when you try to buy a stock

at the lower end of this historic valuation range, is that you do give yourself a little bit of a downside buffer. perhaps you're going to get to a level where the stock really can't have a whole lot more damage done. i was looking after december, the 205-225 call spread. when i was looking at that earlier today, you could spend $6.95 for the 205s, higher strike options for under $1.20 n net net, 575 to put this trade on. >> gaming since then, the trade expired at the close tonight but continues to evolve. mike, what do you mean by that >> remember, we had a 205, 225 call spread on it. what that means is that the 205 call spread, had you not taken

profits and it was basically triple the value of this position, if you did take profits by the close, if you did not take profits, then the long call option that you held expired and would exercise automatically. meaning that when you open up your account on monday, you're going to find that you're now long amgen because the short call has expired out of the money. this is basically from a profit loss perspective the best thing that could happen but if you didn't close it, you have a very different looking position obviously, i'm still bullish in the space. xlb trade we saw at the beginning of the show and amgen a constituent of xlb so that would be another way to basically stay along in the space but being along the stock here has a different risk profile and i'd prefer being long call spreads than along the stock right now. >> what's your forecast for amgen at this point? >> in october, down 27%. hey, we could take advantage of the weakness and make a bet.

the bet's been made and i think the bet should continue. this is a small move in the context of what can be more upside >> okay. up next, we got urwes yo tetand the final call stay tuned 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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♪♪ welcomes back to options action, dropping 10% on the back of earnings that leads tonight's viewer questions here's our first tweet how to best play buy call spread for january 2022 leaps? tony, what are your thoughts here >> yeah, this is a really volatile one trading back with ipo opening price. from my perspective, given the volatility, the best way to use a call spread here you can go out to january, look at the 100, 125 call spread. $7.5 for that and risking 7% of the stock's value when it's near the support level to play for a

bounce but if it does play below, less than 7% of the stocks value is the way i would go >> i know that the trading histories are short, carter, but what can you tell from this chart, if anything >> just to stay away from it >> that's clear. with that said, mike, how would you trade it what are your thoughts here? >> you know, my play in the space, frankly, some exposure there but i think it's a more muted exposure but that's the way i would play the space, i think. >> that's a nice way to say stay away from it let's get to the next question here big double bottom in kraft heinz with overhead around 37. options action caught the big move up and in the name back in february, a time to go long kraft heinz again even with the serious cream cheese shortage. carter, how do you like this one? >> sure, well, first, thanks for

the back in february, but more importantly, you are a chart watcher extraordinaire you characterized it perfectly a double bottom. the overhead supply. filled the gap since november 7th and the question is, did it push into the supply yes, the 38 here and that's not bad closing at 35-50. >> yeah, mike, do you like this one? >> i do and of course, it's somewhat correlated, i would say, with one of the best we put on just recently sort of related, so i do like it that way. it's consistent with what we've said the last couple of weeks. >> tony, your thoughts on a kraft heinz and cream cheese shortage, whatever it might be >> yeah, not sure about the cream cheese shortage but i agree with carter, this is a double bottom that is valid. but i do think staples right now pretty defensive and a good place to play for up top. >> a week from christmas, there could be a cheesecake shortage

this is serious stuff. this is news you can use here. plan ahead our next new year ask, someone bought 5,000 amd calls at the strike that expires in february with the merger planning to close by the end of year and several cal lists in january what do you think in 2022, what do you tell mike >> let's look at the calls those are very high priemium. more than $7 of the stock price with additional upside here. it would have to go up more than 12% for those to break even by february expirations so i think a better way to play this would actually be to take a look at a spread the february 165 calls, for example, about $4.75 very nearly half the premium you'd lay out, to be cutting that premium in half and offsetting a lot of the decay you'd otherwise experience. >> time now for the final call what do you say?

>> place to be, xlv. do it. >> tony zhang. >> a rise in interest rates with bank of america, selling put options. >> mike co. >> i don't want to be short put. >> we'll be off next friday and back my mission is simple to to make you money. i'm here to level the field for all investors.