group of investors who were defrauded of our savings, to help other americans not permit this to happen. that's what it's about now. it's not about him. that's what it's about now. it's not about him. he's finished. it's friday time for options action 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 zhang let's get right to it. a change of course could be in store for the health care sector carter worth of worth charting shows us 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 the sector etf, it's up and to the right since the pandemic low. but look at the bottom panel, its relative performance is down and to the right and yet, we are just now starting to move above that trend line that's in effect if 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 it has gotten down there, it has bounced. and it is 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. it's the definition of a breakout, to a new high, moving above a former high with from an instrument in up trend and spend a bit of time consolidating before reasserting itself late 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 has actually seen its trend essentially sideways for several years it's trading 20 times earnings, maybe 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 which would normally be the course of action i would choose. the other thing to point out is where we've seen elevated implied 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 that earlier today it would cost about $2.50 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 for the kind of move that carter is talking about here. >> tony, 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. so the sector rowation we've seen into health care over the past two weeks, along with this breakout to new all-time highs, 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 around 149 or so. that's the upper strike of his 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 part here about this trade >> carter, tony talked about this range trading in that range, does that make your 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 much more to come and it projects higher and even 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 tony has a way to play one

bank he says 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 major banks, the more 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've now come back to retest this level at some 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 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 utilize is one we don't talk on the show it's what i consider 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 about $1.21 for that put option. that's about 2.8% on the other underlying 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 expiration. 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

so that's a strategy i want to take to gain potential exposure to this 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 they're probably scratching their heads, because carter you went through this whole rigamaroll about how banks, financials at this point are lousy and went through 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, it has to be said, tony ha singled out one behaving better. in general, i am not wanting to be overweight or specifically embracing individual financials and banks in particular. banks and brokers.

>> mike, you're sort of 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. those aren't terrible. i will say that i'm a little bit uneasy about selling puts going into the new year, i have to say, at this point in general. this is a good strategy and a good investment strategy consistently applied 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 puts 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 to mike's point about selling puts in this current market environment, i understand. that's why i'm doing it in the high volatility environment, i'm getting paid for the risk i'm taking coming up, a flight path for jets that you might not expect for everything "options action," check out our websit optionsaction.cnbc.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 ♪♪♪ there's no going back.

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welcome back to options action christmas just over a week 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 tracks the airlines. because more than 50% of it is the airlines you know, warren buffett was attributed with a quote once that said be fearful when others are greedy 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 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 that we saw after the outbreak of the pandemic beginning in many march of 2020. the other thing i would quickly point out is that the options on this etf unsurprisingly are quite expensive. so i was looking at a trade structure that is actually quite similar to the one that we were talking about for xlv, and that was 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 liked to have been able to sell some down side earlier in the show, i'm not really comfortable selling puts despite the fact they're exceptionally expensive here. >> carter, how do the charts

look to you? >> i think balance for balance is what makes sense. let's 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 with the market surging, and then you see it plunge there from 30 to 10 notice it recovered right back and now it's giving 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 you can get a dollar to two out of this. that's a nice trade for something that's trading at 20 or thereabouts play for the bounce. that's all >> tony, 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

a sign that there are risks further ahead. not only is this etf not only 50% airlines but more importantly, about 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, unlike europe down about 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. because you are kind of catching a falling knife here this is a fairly speculative play and protection i think is more important than anything else and the fact that he's able to get a 2 to 1, slightly more than that, i think is just the cherry on top

>> you have to manage all trades and watch them actively, but 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 -- you know, it would actually take a decent bounce to get there it was trading just over 20 bucks 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. like it's all that far but, 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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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 ♪ welcome back to "options action," time for a health check on a trade we laid out in october. back in october, mike and carter told us amgen was 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 out to december, the 205-225 call spread. when i was looking at that earlier today, you could spend about $6.95 for the 205s, sell the higher strike options for just under $1.20 net-net you spend about $17.05 or so to put this trade on >> amgen gaining since then, the trade expired at the close tonight but continues to evolve. mike, what do you mean by that >> this was a position that did expire today remember we had a 205, 225 call spread on it what that means is that the 205 call spread we were long had you not take 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 now have a very different looking position obviously, i'm still bullish in the space. our xlb trade that we talked about in the beginning of the show is the same and amgen is a constituent of the xlv so tha 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? >> well, in october, down 27%, the thought was, hey, we can 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 your tweets and 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. ♪♪ ♪♪ the only thing a disaster can't destroy is hope. ♪♪ donate now at redcross.org

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♪♪ welcome back to "options action." check out the move in rivian today. dropping 10% on the back of ear earnings that leads to tonight's viewer questions. here's our first tweet how to best play rivian? 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 break below, it's probably

dropping significantly below that so risking less than 7% of the stock's value is the way that 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 is forward, frankly, and, of course, there's some exposure there. so 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 around $33, with lots of overhead supply around 37. "options action" caught the big move up in this name back in february is it 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've characterized it perfectly. it is a double bottom. it has moved up to a level of overhead supply. it has filled that gap from november 7th the question is, can it push into the overhead supply the thinking is yes. i would play for about 38 year and that's not bad closing at 35.50 today. >> 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 staples 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 is pretty defensive and i think it's a good place to play for some upside. >> because it's a week from christmas, apparently there could be a cheese cake shortage.

this is serious stuff. this is news you can use here. plan ahead our next new year ask, someone our next viewer asks, someon 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 catalysts in january how do you look at this name going into 2022? mike, what do you tell mike? >> let's look at the calls those are very high premium. those are about $10. more than 7% of the current stock surprise if you're trying to play for 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 would lay out for the 145s, so you would be cutting that premium in laughhalf, lowering e break even, and otherwise

cut offsetting a lot of the decay you'dous 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? >> call spreads. i don't want to be short puts. >> we'll be off next friday and back in the new year have a good one. mad money is up next - [narrator] the following is a paid presentation for the premium mattress topper by dormeo, one of the fastest-growing sleep companies in the world. what's captured these people's attention? - wow! - oh my god. - wow. - that's it? - wow, i'm impressed. - oh, i never would have thought, never expected that. - it feels like it's a brand new mattress. - yeah. - [narrator] it's not a new mattress that's creating this reaction, they're lying on the same old mattress they've had for years. it's time for you to discover the premium mattress topper by dormeo. we believe it's the world's most comfortable mattress topper.