. coming . coming to you live from the nasdaq markets. i'm melissa leon an absolutely blutal day for stocks. there's something funny about apple joining the dow. relax, all we're say saying apple shares may not do what you think. want proof tech is in a bubble? >> we have a shocking chart that proves it once and for all. action starts now.

>> growing jobs, sinking stocks and on the back of this morning's impressive jobs report, treasury yields serve. the question are rising rates killing this rally. dan, you are a bear. >> i'm a little skeptical. >> the fed is walking a tight wire, they have a real opportunity to mess things up badly. to me they are damned if they do or don't. if they kill the rally, the market is in trouble. i just mention this, when you think about what we saw in treasuries over the last couple of weeks and high yielding sectors and utilities, they've been slaved and the xlu was down 10%, that's telling you investors are repositioning for a higher rate environment. >> also, for the investor here

and now, classically, if you feel there's trouble ahead, you rotate into defensive assets, health care and utilities and you can't do it this time because they are bid up and it's a little bit of a check mate. >> mike what do you do where you see selling across asset classes, throw gold in there too? >> the gold sell-off makes perfect sense, if you're assuming rates are going to rise and dollar is going to strengthen, gold is approximately for the basket of all other currencies, you'll see it in dollar terms at least it's going to weaken of the one of the things we haven't talked about that much. if you see interest rate volatility and other assets is bound to follow, that's what we're seeing. one final point, there's no chance that the fed is going to get the first say on this. the market will anticipate what the fed will do and front run that and we're starting to see it right now. >> looking at longer term when

you look at the higher interest rate environment? >> if rates are very, very high it makes equities less attractives. the dividends are worth less and so forth. these are very low rates. artificially low. moving up a legal bit, is it really that bad? the market didn't like it today but normalization of rates is probably a good thing over time. >> dan, you're looking at the home building sector. >> listen, we have a date, march 18th, the fed has their next meeting and whether they will remain patient. if it's in that statement, then that would be a very dovish thing. if they take it out that means rates go higher sooner than later. the tlt makes a lot of sense. there's short term oversold here. one sector despite decent news is home builders of late.

the only reason i'll say this, when you think about it, if rates goes up and mortgage rates goe up quickly, you could see a pause in home building activity and a loot of retail. this was a good trade, it sets up pretty well to me because it's not off a heck of a lot from recent highs. you can by the april 35 puts for 80 cents and sell one of the 32s at 15 cents. max gain is 2.35. we have a chart. look at that thing, it ran 35% from the october lows and coming back here. if you have a breakdown below that breakout point, that's the upper line, you're going to move back to 32. and this looks like a really good risk reward setup if you believe that the fed is going to be a bit hawkish. >> mike, there is an argument to be made, it goes like this, with rising rates, it will finally

get people off their dufs and into the market buying homes. >> if rates rise, i think there will be a problem. the price of home, if you exclude the housing bubble itself, the price of homes in the united states is near the upper edge of the approximate cost to rent. essentially what's going on. if you get any kind of material increase in rates, the affordability of homes will be challenged. i think it is going to get people off of their sofas but maybe not quickly enough they can find a house they can afford. from that perspective, i think -- it includes things like home depot and mattresses and stuff. i also think autos, anything that's rate sensitive where people are borrowing money to buy it is going to be hurt if we see rates tick up and they could move up sharply and quickly. >> you said home builders was your trade -- >> that was highly debated. one of the best performing

sectors and trouble today with the rate move. we still like it. the facts are in the pudding, you have an area that's outperforming even with the drowndraft and dominated by other things like whirlpool and -- >> those stocks are extended too and starting to get expensive, home depot and whirlpool -- >> you choose it over -- >> and options don't trade in the itb. those february auto sales data was really bad. that could be another nail in the coffin. >> more americans are working apparently and retail stocks are beating the market. why has walmart been such a lagger. what's going on? >> in many ways, this is its own thing, a department store, grocery store? it's a lot of things come together. i've got charts and we can look at them and figure it out together. the one thing we know, walmart has been underperforming

generally. i want to go through charts and we'll try to dedeuce. this is a two-year chart, and the performance is nothing short of a disaster. almost a third as much as the general retail of the s&p. look at a five-year chart, we're talking about a third. in many ways that's the opportunity. walmart did just break out earlier this year. take a look at this chart and i've drawn the lines. back to the original and back to the lines. the breakout that occurred is very important and as a rule of thumb, if you fall back to the pivot point from which you broke out, the probabilities of a rebound are pretty high. we like the actual stock itself but then let's talk about how the stock does as we enter a bad period for equities. if you look at the last two bear markets, of course this is the s&p and this is walmart and when

the s&p drops on 50% from the peak in 2000, walmart while it did drop was an outperformer, you're talking s&p down almost 60 and walmart outperforming on an absolute basis. we think that there's breakout potential here after having bounce to go again absolute, but a good place to hide if things get worse for the market. >> do you agree with carter's take? >> well, there's a couple of interesting things, walmart is not incredibly cheap compared to its own valuations. the top line growth, 2%, maybe less, that's even lower than our overall gdp growth. when i look at the growth prospect, not that good and the stock concentrated in strong hands, the walton family not selling any. as i look at this stock, despite the things that suggest it's

stable, it is a stock that moved more than 5 bucks over a period of two months or less eight times in the last year. it can more around a decent amount. as i look at this, i'm womeniil to go along with the trade and concede the stock can move $5 or $10 against me. i'm going to take advantage of the fact that options are cheap in the name and i'll look out to june and those are going to cost me $2.40. that was a closing offer and represents less than 3% of the stock price. there's a very good chance that whether the market will strengthen or weaken here, it's going to move significantly more than that amount by june expiration. >> we don't look at trades in a vacuum. look at target, up more than 30%. there seems to be a growing incentive. will that be a headwind to this thesis that walmart can bounce? >> it could be. walmart was the preferred thing

and the stock was in that massive two-year base that carter showed us here. all things being equal. walmart had the massive breakout and target had their breakout, they put up better numbers. less exposure, i think this is an okay trade. if we're having it a week or two from now and the stock was back at 80, i think all of us would be pounding the table and that is the pivot point and want to take the shot. you may be early, but you have until june here to have this thesis play out. >> carter, how does a target chart look comparison to walmart? >> the problem with walmart or opportunity. target is quite extended and the bet here is that walmart lagged so much that it is a relative safe trade but an absolute possible winner. >> send us a tweet at options action. sign up for our newsletter, our

by weekly love letter to puts and calls. >> >> talk about weird -- >> inside of a robot built in the form of a woman. >> note that weird but something strange could happen to apple after it joins the dow. >> i want to smash your face in. >> what do record stock prices and divorce have in common? one incredible chart will explain when "options action" returns.

♪ ♪ little piece of news you may have missed today. apple is going to join the dow. on a terrible day for the market, that helped the tech giant stay in the green. is it actually a good reason to buy the stock? dan, break it down. >> well, you know, listen, i don't think it's a good reason to buy the stock. i think there was a lot of excitement this morning. i think the sentiment towards a stock in general is very positive and i think people are more inclined to go in and buy when they see a big headline like that than they are to sell. the stock, obviously, got hit towards the end of the day. closed up small here. obviously, monday, the main event, is this watch launch here. we already have a lot of news about it. so to me, i think it does set up for the potential of a sell the new situation. i want to make one point. i know we're going to talk about this. i think while the world is generally positive on apple, the stock up, gained more than $120 billion in market cap this year, there is a potential bear story.

over the next few months, you could make the argument that all the catalysts are known and there is a potential to disappointment. so here's the one thing we could get in april. we are going to get probably some first weekend sales from the watch, at some point in april. and then could disappoint. the critics could not like it. that's one big thing. obviously, people are expecting greater cash return, okay? they could disappoint there. they bought back a lot of stock over the last few years here. and the last one is that this is one of the huge multinationals when they just reported that didn't show a huge adverse impact from the strong dollar. and so maybe we start to see that come into their q2 results when they also report in april. so if you line those things up, there is a bear case to be made here. and no one is making it. and so to me, if you have that, you could have a perfect storm in the next few months. >> what do you think? >> the thing is, though, here is obviously an important name. and it's trading in market multiples. so in a sort of fixed world, if you had to choose this equity versus equities in general, this equity is likely to serve you well.

relative to being in the s&p, for instance. so despite being in or out of the dow, despite the stock split, results, cheap or expensive, i would rather be in apple than the s&p 500. >> the bull case, to play devil's advocate, expectations for the watch are so low that it will surprise to the up side. but there will in fact be capital return that will be at least in line with what analysts are expecting. so either a buyback or a dividend increase. and we will get first weekend sales of the watch. and they will be decent. >> you know, i think the watch actually could be a big surprise to the up side. i mean, if anybody is going to sell an electronic digital watch and do so successfully, i think maybe the only company around that would be able to pull that off is apple. so if there's -- anybody is going to sell one of these wearables as successful, they're probably going to be the one to succeed and show everybody else how it's done and playing catchup as they always are. the other thing i would point out, with 5% free cash flow yield, there is a lot to support the stock here, even if they disappoint in terms of returning

cash. at the bottom of that stock, that's what you're looking at. there's $178 billion there right now on a market cap with $780 billion bucks. and by the end of the year, you're going to add another $30 billion. so, you know, when you have that kind of thing supporting it, and valuations are relatively light compared to the rest of the market, it's hard to figure out why this is the place you would sell. >> so the fact that there is disagreement on this desk that both cases, bull and bear, can be made, sets up for wanting protection, dan. so what's your trade? >> so to me when the stock goes 127.50 today, there is a trade at that sets up and i think it makes sense. when you get the fear of having monster gains that a lot of people have over a short period of time, we know there are catalysts and stocks when they disappoint with high expectation, they can go down a lot. so here was a trade that looked interesting to me. it's an options trade, okay? and so you're long, let's say 100 shares of stocks, you could

look out to may and sell one of the may 140 calls at about $2.40 and you could use the proceeds to buy one of the may 115 calls for about $2.40. and what you've done there is you have created a collar. you would have gains between 127.50 up to 140, be called away above that, but you would also have protection below 115. and you would do this trade if you think that there is the potential for a massive move to the down side over the next few months, because of all these catalysts don't pan out. but you really want to participate in some further up side. >> mike, how do you -- how does one decide whether or not to do -- trade like dan is putting forth or a stock replacement strategy at this point? >> well, you know, one of the reasons you might think of a strategy like this, because options premiums in apple actually are a little bit high when you consider that it's not a levered business. you know, if i take a look at the situation like this, the question you want to ask yourself, is that a level where i would want to buy the stock or sell it? because if you're buying a put, that's what you're doing, saying that's a level where i want to sell it if the stock declines. i think this thing gets down into those levels and probably a lot of people who would reach out and buy it. i do like the idea of selling

calls because of the elevated premium. so for people who hold the stock, you can do one half of the trade, look at selling some up side calls to essentially collect a little yield. i think the down side, though, here is probably pretty muted for apple. >> carter, how do the charts set up for apple these days? >> as it's said, what's not to like? it's not too hot like xhb and hasn't rolled over so the benefit of the doubt is the with the bull and burden of proof is with the bear. >> your exact complacency is the exact reason you should be considering other strategies here. that's it. >> all right. coming up next, the nasdaq soap opera in one chart. you've got to see it. that's when "options action" returns.

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with the nasdaq hitting 5 k with the nasdaq hitting 5 k earlier this week, everyone is talking about bubbles. but carter has the chart that tells the real story. >> that's tongue and cheek. this is from advisers, a classic kind of thing. down here, you know, 1996, i think i better go to the store and buy me an internet. people have no idea what's going on. and my neighbors are making money but i'm still not involved.

i can't stand this. what do i do. and all of a sudden i'm all in, baby. just, of course, before the crisis hits. and then here, people say i better double down and then here hide statements from my spouse. and then here, of course, you're back in on margin. and this is where the divorce occurs. and ironically, of course, we're back to the tops. and this is where people start to feel good again. but you know what's interesting as we talk about apple and nasdaq and the milestones, we're nowhere near the peak in terms of real money, meaning adjusted for inflation. look at this chart. this is the s&p. just last week, we got back to the 2000 peak adjusted for inflation. even though we're 30% higher, we're not really 30% higher. we're same price, 14 years later. and the nasdaq, despite all the talk of 5,000, is still some 30%, 25, anyway, below its all-time peak in real terms, real dollars, adjusted by cpi. >> so what is the -- dan, in your view, what is the extrapolation? if i wanted to make a bullish

case, there is more room to run. >> i think it's easy to make a bullish case when you think about how much more profitable these companies are. and the earnings. and actually think about the cash on the balance sheet of those companies. i think that would be the take-away here. and we don't nearly have the mania. we lived through that. there was an all-out mania. carter's chart displays that. and all things being equal, 5,000 was not a big event. >> mike, your take. >> cisco one of the biggest names in the nasdaq and tech bubble, still one of the big names today. but valuation wise, well less than a tenth of the price it was back then when you take a look at what earned per share. i think carter is right. the market is actually cheap compared to where it was back then. >> so carter, are you saying that the nasdaq has more room to run based on that? >> well, in the sense that it's gotten all this attention, this 5,000 miles, so apple going to the dow, tech. it's nowhere near as excessive, of course, as the prior peak. and, you know, the tongue in cheek stuff sort of suggests that, to some extent.

so we would say, obviously, it's nothing like that peak, even though we're back there but not really. >> all right. coming up next, get out your phone. we are taking your tweets. hey mom, you want to live by the lake, right? yeah. there's here. ♪ did you just share a listing with me? look at this one. it's got a great view of the lake. it's really nice mom. ♪

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♪ let's take a tweet. bench us 300 said cities should rally after march 11th, i'm selling the june 55 puts. mike, what do you think? >> one of the things i think is that banks have big balance sheets and that makes them fairly levered and at ease. it's a place where if i'm going oh to trade options, i usually like to do it on the long side. you're buying calls on calls if you use that to make a bullish bet and volatility is relatively low here. that would probably be the way i would favor making a bullish bet in the name. >> what do you think about citi after the 11th when banks find out how much they can return if they are allowed to return capital? >> oh, you know, look, the

situation here is, we saw what happened to goldman sachs. their situation where people were looking at the possibility of returning capital on some negative disappointments there. you know, my view of it is, the banks have strengthened their balance sheets, u.s. banks are very strong. not as cheap as they were, however. still, favor using calls to make bullish bets in that space, especially with the market having had as long a run as it has. >> can we talk about bank of america? this is a tremendous stock in the past couple days and today in particular on a down day. >> in general, if you look at the kre regional bank index, because it's interest rates. net interest margin in the spread business. so in principle, it's not random they did well today. very well. and i would expect more of that. >> and that's the trade next week. if we get a continuation of today's weakness and the banks go down to certain levels, bank of america an obvious level 1550, $15, that sorts of thing, i think you buy in front of the march 18th fed meeting. time for the final call.

mike? >> your bullish bets in financials, calls are the way to play it. >> carter. >> walmart gets them. >> dan. >> i would consider protection. >> looks like our time has expired. i'm melissa lee. thanks for watching. for more "options action" check out our website. i'll see you back here monday for "fast." is a paid advertisement for dr-ho's physio belt, brought to you by dr-ho's. >> hi. i'm john cremeans. welcome to our show, "living without back pain." do you suffer with back pain, hip pain, or shooting pain that runs down your legs? well, stay tuned and discover how others just like you have found the new way to relieve their back pain. >> it's really funny. i just put the belt on. i've had it on for about a minute, and already, there is a reduction in pain that i have in a particular spot on my back. it's weird. i didn't think it would work so fast. >> the belt allowed me to walk for the first time in a year without a cane.