and the hardship that we have gone through. and we're going to be doing basically that -- the celebration of gavin's life. [ cheering ] gavin! way to go, baby! woman: awwww. ♪♪ it's friday and that means it's time for "options action. i'm melissa lee in times square. we've got a big show ahead here's what's coming up. up and down, plus and minus. newton's third law of motion for many things in life there are polar opposite pairings. tonight we look at not one but two of those such pairings and the eye popping market action we're currently witnessing amazon and google, gold and oil. find out which of each carter and mike think is the better to side with and how.

plus after the biggest one day drop in value in the history of the u.s. stock market who could blame tony zhang for making a play for matchup we'll show you how he's doing it it's time to risk less, to make more "options actions" starts right now. >> it's been a busy week of big tech earnings. while investors weren't hitting the like button on meta, alphabet and amazon seem to get all the love, both companies surging after reporting, but did they both really deserve it? carter, start to unpack this idea for us. >> yeah, i mean so much going on for starters two weeks ago we were playing google the down side looking for a netflix-type drop, a facebook-type drop and indeed it did the opposite we're looking for a pairs trade of google relative to amazon these are ratio charts you're going to see now the first chart it's just

looking at one stock versus the other, divide it if you will, and the direction of the line is all you need to know so this is google's relative performance to amazon. and google's been outperforming as amazon's gone sideways, that's obvious and then it broke out of this formation. and then with today's strengthening fallen back into the formation. now, look at the next chart. the same ratio just a bit longer term and then look indeed at the next chart, just another way to draw the lines. we have broken above this downturn meaning google has been under amazon for the better part of 7, 8 years and it's really coming to life now. and then two more. same chart you would call it a head and shoulders bottom or call it a rounding bottom, but either way as a bet in terms of 3, 6, 9 months out google looking at the relative performance chart is likely to be the winner. that's the thinking.

>> all right mike, you've got pretty strong take on this what is it >> yeah, i mean, first of all this has been a pretty extraordinary quarter. if we think about the traditional faang names, what we used to call, facebook, apple, amazon, netflix and google, a couple of these have changed their names, but the tickers remain the same. apple moved close to 7% off their earnings we saw both alphabet and amazon going substantially higher today. facebook now known as meta obviously fell considerably. but when i take a look at amazon and alphabet, i find it really extraordinary what's going on here i find, you know, the enthusiasm from the street on amazon's results in particular to be quite puzzling to me why is that? so what did alphabet give us they give us about $22.5 billion in net income. what did amazon give us? well, at first blush

$14.3 billion, not bad except $11.8 billion of that is from rivian. if you take a look at their net operating income, excluding the rivian impact, it is $2.5 billion. so that $2.5 billion is more than a 65% decline year on year versus their net operating income a year ago. google, on the other hand, 65% increase so to me when you take a look at one of these making nine times what the other one is they obviously are in a lot of the same businesses. some of them are very good and strong businesses. some of them are clearly not as good, and amazon is the one carrying the weight of some of the businesses that are not profitable so i would be inclined to fade amazon and go long google. you can choose a number of ways. if you fade it you could sell it and do a structure similar to the one i'm recommending on google except making a more bearish

bet. and what i'm recommending on google is that after the earnings came out we saw options premiums decline you can buy longer data call options and sell some near data ones against it. normally you'd see a lot of implied volatility coming out of those near dated ones. but because we've been seeing stocks move so much it's not actually down as much as you might think. actually the term structure of one month options and three month options is practically the same i was looking at the may 3,000 calls and selling the march 3150s against it now, net, net you have to bear in mind these are expensive stocks so the options are similarly going to be expensive, be about $110. now, that's about a $10,000, $11,000 trade for the home gamers to think about, because, of course, each contract represents 100 shares. that might be a little bit chunkier than some might be inclined to do it. my inclination here is to

believe the move in google but maybe not so much in amazon. >> tony, what is your take on this trade >> yeah, so i certainly agree with this both on the fundamental and technical story perspective, because if you look a alphabet trading 21 times next year's earnings given the picture mike was just talking about that eps growth we've seen from alphabet i think it's trading at a substantial discount to where it should be trading probably 25, 26 times next year's earnings i'm not as bothered by amazon's valuations as mike is but i am bothered by amazon's chart if you look at the stock, it's been in the slightly upward trend. and during that time it's been underperforming its sector, losing ground. and the earnings announcement we saw yesterday that didn't rally the stock does not change that story at all if anything i think the $3,200 amazon is currently trading for is a temporary top here for the stock.

if you look at the fact alphabet over that same period has been outperforming the sector technically speaking i think you have a strong case both on the fundamental and technical side as far as mike's trade on the diagonal spread, alphabet is an expensive stock. $10,000 is expensive but it's only 3.6% of the stock's value. you are getting leverage to be able to have exposure, similar to being long the stock for a small fraction of the stock's value. using a call diagonal like this i think is a great way to play for a bounce higher or break out for alphabet >> carter, quickly on amazon tony mentioned how the stock has been fallow, and for some that is the argument to be in amazon, but it has been in fact a fallow stock and due for some sort of catch up what's your take >> if you think of the

precondition before the fallow period, huge rule, double went from 1,500 to 3,500 and then the fallow resting period, that's often the setup for a break up except it broke down instead so even though it recovered a lot, all it did on this week's recovery was return it to where it was simply three weeks prior. the chart is broken. >> all right, let's stick with big tech now meta platforms missing the mark on earnings and plummeting more than 20% tony says this drop may be the perfect time to give this stock a poke tony, what are you seeing? >> i held a fairly bearish view on meta a few months ago, but i think it is to turn that around and reverse my opinion on this and focus less on the user story that knocked the stock down on earnings and focus more so on the revenues and profits here for facebook -- for meta because if we first take a look at the long-term chart, and this is a chart carter actually setup, this is a chart of the

stock from 2012 lows to where it is today and what you see is a pull back to the trend line. and that is an opportunity i see for meta to potentially rally from here. if we zoom into that chart what you see it's pulled back to roughly around the 225 level, which is where the stock was trading back in july 2018. now, in 2018 facebook or meta made about $22 billion in profits. right now it's made about double that, 39 billion so the stock is trading at roughly half the valuation it was trading at back in july 2018 so i think the fact the stock is currently trading at 14 times next year's earnings is extremely cheap and the revenue growth supports the stock being substantially higher from here i think it's worth taking a bit of risk and use a stock replacement strategy or a strategy similar to a stock

replacement strategy call diagonal, similar to what mark is using i'm going out to the march, july, 230, 265 call diagonal spending about $26 for the july 230 call options these are call options that are slightly in the money to reduce the amount of time decay i'm paying for these and i'm selling the march 265s for about $3.60 net net here i'm paying about $22.60 here which is just under 10% of the stock's value so i'm getting a risk profile similar to being long 100 shares for just about 10% of the capital required to do so. >> mike, what's your take on the trade? >> yeah, i mean obviously i like the structure because it's one i was just talking about, and, you know, i actually do like playing facebook for a bounce here look, in the short-term we know the markets are a voting machine, and in the long run they're a weighing machine and if you weigh basically the money generating capabilities of meta, if you have to kind of like this one on the long side i mean, $10.2 billion i think for the quarter is what they did. by the way, i want to keep

digging on amazon, i guess is four times what amazon did, slight decline year on year. this is obviously a company immensely profitable and trading quite cheap in my view >> all right, let's get a check on shares of peloton the shares are surging in the after hour session wall street journal reporting amazon has approached the company about a potential take over amazon is telling cnbc it has no comment on this report we haven't heard back yet from peloton but the stock is higher by 31% right now mike, what do you think? >> oh, sure, by all means buy peloton. that would have knocked your net income down another 10%. so instead of making 2.5 your net operating for the quarter would have been about 2.25 that's par for the course there. we did see a lot of options in peloton. it was above average today, nearly 100,000 calls traded, and obviously this is good news for peloton shareholders but another reason to avoid amazon

>> mike is not in a pro-amazon mood tonight to put it politely. carter, how does the peloton chart look >> i mean, let's stay with the things a little bit funny. i can picture my grandmother on her exercise bike, and listen, there's nothing new here that's it. >> all right well-said. all right, for everything options action check out our website, sign-up for our newsletter here's what's coming up next still to come, bear trades part 2 we'll look at a couple of commodities on contradictory courses. then we'll stop with the alliterations, promise plus calling all options actions 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" returns. thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience.

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♪ ♪ ♪ ♪ welcome back to "options action" and our second pair trade of the night oils had a monster climb up more than 63% over the past year. but the chart master says it may be finally time to throw in the towel and pick up a golden fleece carter, take it away >> so we're looking at oil versus gold. in this instance we're not going to look at some ratio charts, just the absolute charts themselves so first chart here we looked at this at the top of the hour. this is the formation that oil

has been in, and it's a fascinating thing in the sense that it has touched the upper and lower band to the penny repeatedly like a pin ball machine and stopped and gone the other way. so one could say it's fundamentals of course i'll argue it's almost all technicals and what we know is we're up against the upper band all of the stories are bullish but often when everyone is aware of something it's right to take the road less traveled so we're making the bet to fade oil here now, there is an etf for a fund you can use, the next chart. it's symbol uso, and you'll see it's the exact same formation. so you can actually trade this if you don't have a commodity account where you can trade crude. now, as to gold the third and final chart, in a way the most important or fascinating dynamic this week is not so much the movement in big stocks stocks often move when they have good or bad earnings

it's not so much the extension of crude oil crude oil has been going up for weeks and months it's the ability of gold to hang in, to remain literally in the face of real rates rising the way they did not only in the u.s. but around the globe. so our hunch is this formation which continues to form, right, converging lines, obviously has to be resolved at some point you get to the end of the runway and i think consensus is it's going to break down my hunch is it'll do the exact opposite >> mike, how do you trade this >> yeah, so, we'll touch on the last one first so just taking a look at gold, you know, you have a situation where technically it looks like it's going to, you know, basically make a move, either higher or lower carter's bet is that it's higher i'm inclined to agree. but if you get into a situation like this where you have this kind of a binary outcome, this is one of those situations where options can serve you very well.

and what's interesting is that if you take a look at gold or if you look at the etf that tracks it, gld, which you'll notice is three month after money implied volatility is less than 15%. what that means is you can essentially buy an at the money call option trading at 169, i was looking at the june 170s those were a little over $5 or put differently a little over 3% of the value of the etf. and if you think this thing is going to move sharply at some point in the near future because it's about to resolve this moment of tension, then 3% isn't a great deal to risk if you're inclined to bet that to the up side so that's the way i would play gold now, looking to oil this one's a little bit trickier. i was a member of the new york mercantile exchange. i traded a lot of oil and gas options back in the day.

the thing about the energies is in my experience they always tend to move farther than you think they will. both to the up side and to the down side. now, from a fundamentals standpoint i realize there's a lot of people who were quite bullish on it still. nevertheless, it is always going to continue to look bullish until it doesn't so if you're trying to pick a moment where you're either going to, you know, take your profits, which i don't think will be a bad move here or make a bearish bet, i wouldn't be inclined to make a bearish bet by necessarily going short, but here we could use a put diagonal to make that bet and obviously limit the risk this isn't a hugely bearish bet but a moderate bearish bet i was looking out to the july 64 puts notice, by the way, that's about 10% of the strike. so considerably more expensive than options on gld. and then selling the near dated against it to help offset the decay in that relatively large outlay of premium as a percentage of the value. but i do believe that gld has

reached a moment of tension, and i think the precious metals along slb, by the way, are probably going to see their chance to shine some time soon >> tony, what's your take on these trades >> yeah, so if you look at oil i certainly agree with carter's charts i think we're near a temporary top, and i think we're due for a reversal so if you look at mike's put diagonal spread here it is as you said a mildly bearish trade. the short strike here is around 59 that's the break out level we've seen here on us oil recently not targeting significant downside i think that makes sense because my long-term views for oil is quite bullish based on fundamental factors. when you look at gold this has been trading into this major apex that carter brought up for about 18 months or so. so while i agree that we're going to get a break out i'm not necessarily convinced it's going to break out higher per se, but this is very sensitive from a timing perspective because long

is put options on the uso and long to call options on gld. so this is a very time sensitive because he's got time decay on both sides that is something to consider. and one other thing if you are trading this as a pairs trade gld is about 2.5 times uso in terms of price if you want to structure this as a pairs trade, you need to buy five contracts to two contracts of gld. to truly have a hedged pair trade on this particular trade structure. coming up next we're taking your tweets. there's more "options action" in two.

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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 to take your tweets our first viewer is betting a bet on one casino name czrs looks prime a for a bounce. thoughts on calls between $78 and $82. tony, what do you say? >> caesar's has seen a bit of multiple compression here. the line in the sand here is that $82 level i like going out to march looking at maybe the 80, 95 call spread, reducing the cost of a particular trade, reducing the

amount of premium that you're paying for a break out here. but the fundamentals look quite compelling >> our next viewer is eyeing a monster merger i think activision with earnings in the microsoft purchase will rise i was looking to sell the march 87 call and buy the june 80 call for a cost about 3 shares. your thoughts on this one. >> the all cash deal that microsoft offered is $95 a share. that's a 25% discount to the deal price that's quite remarkable, and i think maybe some people are concerned about anti-trust issues i don't think that's really in play on the gaming side they'll be the third largest. that's one of the points the microsoft ceo was expecting on it, not expecting basically a whole lot of push back i basically like the idea buying some at the premium call and our earnings are going to be reported in may, so i like the trade structure and am i a buyer of activision. i think the deal is going to happen

>> carter, what are your thoughts on either of these charts >> i will say this once a stock is in play you're betting on an outcome largely known but not 100% known so it's off the table, if you will microsoft, on the other hand, it's just sort of a pair of twos >> a pair of twos. and just for the poker illiterate like myself that's bad, right >> well, the least hand you can have without having five random cards. >> all right, okay up next, 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. ♪♪

♪♪ ♪♪ ♪♪ final call, carter tony >> meta call diagonal spread >> mike? >> buy now, google not amazon. >> all right, that does it for

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