we are live at the nasdaq we are live at the nasdaq market site on a friday night. carter, welcome back, did you miss us? >> i did. >> of course he did. carter and the guys are getting ready. while they're doing that, here's what's coming up. thar she blows! >> we're going whale watching, you won't believe which name hedge funds are piling into. and what do jane wells and casino stocks have in common? >> i don't know what you're talking about. >> here's a clue, they both just hit the floor and the results are downright disgusting. we'll explain why. how would you like to turn time into money? >> do you know what this means? >> it means you could get rich.

so you better listen carefully. the action starts right now. ♪ next week it comes down to just one thing, you, the consumer. that's because we get results from walmart, target, home depot, lowe's and best buy and more. what can we expect and what will it mean for stocks in general? let's spin the money and find out. mike, everybody thought low oil prices would help the retail sector. we haven't seen much evidence of that so far. >> it's interesting. one of the things that was pointed out this week actually was that some people highlighted the fact that actually more people were paying more when they were submitting their taxes than they have in year's past but actually the average rebate has declined. there was $40 billion that came out of consumer pockets, they're still going to get the $200 million in rebates they usually get. but consumer sentiment to me it seems that people aren't near ly as confident what we are seeing right now is going to persist. i think that's one of the concerns we have. people have to feel like the good times are not only here right now but they are going to stay and persist before they start whipping out the credit cards and spending.

>> the weakness so far in consumer has been idiosyncratic. individual names that have not performed because of earnings. but the big names, disney, amazon, starbucks, nike, home depot, these do not show signs of trouble. >> and speaking of not showing signs of trouble, we did see yesterday in the xly a put seller out to september, the 69 strike. a bunch of those sold for roughly $1. so certainly that is saying basically they don't expect any sort of downside in the xyl, the consumer discretionary index any time soon. that's safe. when collecting premium, not a heck of a lot of premium, saying hey they are taking some of the risk off. the trade is on the upside for the consumer. interest rates still low, good for the consumer. gas prices low. that's good for them. the question is real wages and what mike is talking about, has real wages gotten better for the economy, has the consumer feeling better for themselves? that's what is needed. for it to take another leg up.

>> i would push back on gas >> i would push back on gas prices. jeffrey had an interesting note out today pointing to the fact in a in the past four weeks since mid april gas prices are higher by $.25 per gallon. even though it is still lower versus what they were paying maybe a year ago, they are still high, they are feeling it right now. >> that's a good point because one of the other things that was brought up when they were talking auto sales is that historically as gas prices went down the purchase of gas guzzlers went up considerably. and actually, in this particular instance, that relationship didn't hold as true. which suggests the consumers thought this particular decline in gas prices was likely going to be temporary. actually it's interesting they would say that because of course that's in fact the case. right now what we have is a short-term glut of crude. we've seen the rig counts drop. so consumers might be savvier about commodities trading than you might think. they are not racing out and buying an excursion thinking that gas prices could climb.

>> with all that said, carter, let's talk about home depot. >> we have charts. it is a big name. what happens here will go a long way to informing what happens in the sector. so i have several charts. and the first is a long-term chart and one i wanted to juxtapose here is a stock which is a part of the sector. home depot versus consumer discretion over the last 15 years since the prior peak. we see here of course that the relationship is quite close, meaning home depot hasn't really done much relative to consumer discretion stocks as a theme. now, take a look at this. that's the same time frame. and i've got three things here, home depot, the sector, and home depot's earnings, however, are up here. meaning this time frame right here is exactly the same -- and i've done it again. but what i've given you is the picture, and then with earnings.

the earnings are up 300% versus the stock. if you like that, it would suggest maybe it's not that expensive despite the big run. look at the daily pattern. here is what my eye sees. a well-defined left level and a well-defined breakout and we are right on trend. yeah? and we know in principle that stocks respond to trend lines. we have come down yet again. our bet is here we bounce yet again and go on to make a new high. we would play home depot on the long side. if you are long, stay. if you are not, get some before the earnings. >> mike, what's your trade? >> home depot, better than 20% eps growth six years in a row. better than 5.5% revenue growth over a similar time frame. it is trading a little over the historical multiple, but the growth rates suggest that it's probably worth it. they are going to be announcing earnings. right now options are relatively cheap compared to how much the stock has historically moved. buy the june 113 calls for $2.60. you're risking a small percentage of the historical

stock to make that bet. it has historically moved 3% the week of earnings. this is a simple way to make a bullish bet without risking much more than you would normally have to pay. >> do you like it? >> i like it for the technical reasons as much as the points carter laid out. i think when stocks trade around their trend lines, it makes sense to own stocks than being a seller. typically, what happens those stocks will bounce off the trend lines, like carter pointed out, and where you get the jump up and the bang for your buck. if you get a move higher here, i'd look to sell something else around it. obviously, volatility being so low, who knows how big that move is going to be. but certainly this is the right time to make this kind of trade. >> might be the right item seasonally also for home depot to try and be in this trade. >> that's right. historically the home improvement retailers have done very well at the tail end of spring and into summer because of course that's when homeowners go out and buy lawn maintenance items and home improvements. this is the hot season. you often see a lot of hiring around this same time.

right now it seems to me that this is the time to make a trade i can this one. let's do whale watching. investor filing showing which stocks hedge funds are buying. dom chu has more. >> let's focus on the financials for this our final update on "options action." let's talk about the banks. bank of america and city. there is two-way traffic. that's what makes a market. david teper's appaloosa takes a new stake in bank of america. 650,000 shares. then there is a mutual fund, bruce berkowitz and fair home future they cut their stake in bank of america by 20%. meanwhile when it comes to citi. omega boosts their stake in city to about 4.3 million shares. one of his long hauls from the ira sohn conference. dan loeb eliminates 5 million shares but held on to a be in of warrants for citi stock.

also another financial to mention, this is not a bank, but we bring it up because john paulson has this as one of his big new shakes. 14.6 million shares in aig, worth around $800 million. a decent call, sizable from aig on the long side from the likes of paul johnson. >> thanks don. >> what are you looking at in financials? >> well, dom brought up omega, omega upping their stake to over $1 billion. in doing so they cut their position in apple. last week on "options action" we talked about the change in leadership. it might be coming from the banks. when you look at this and the xlf and the financials, as the ten year treasury has risen the steeper curve in the treasury the steeper skew bill is good for the banks. sometimes it's hard to know what's going on inside the banks, where their risk is. but certainly an increase in that 10-year note, the steepness in the treasury, that bodes well in the banks and i think that's why you are seeing them taking bigger stakes.

>> what's your trade in jpm? >> the july 67.5 call. purchasing that. and at the same time selling the july 62.5 net put. i only make a nickel for this trade. when you look at the charts for jp morgan, it look like it has made a breakout. when i'm behind the curve i want to play to the upside i do the risk reversal trade buy the down downside call, and place a put. if it breaks below 62.5 i'm long j.p. morgan, but i'm okay. i'm getting long there. >> one time's tangible book value, trade being ten times next 12 month earnings. j.p. morgan is not particularly expensive. a more important point is that even though implied volatilities, the price of options in the market and individual stocks is very low. one of the things that brian and i were talking about, is the puts have remained relatively well bid. some of the downside puts, there are people buying the downside protection, that's why the

trades set up with favorable risk/reward. >> what does the chart look like? >> it broke out with a gap. had to be news related. it filled that gap, fell back to the pivot point and was gone again. it has the cover of course of other big banks acting well. regional bank act well. schwab is acting well. online sites, insurance stocks, aig, the group is in play and it's obviously rate related. it looks good. >> do you think financials could be the next leadership in the market? >> they almost have to be. as the second biggest sector by weight. the most important sector. they need to come to life for the market to finally get out of this range. otherwise we're going to stay here forever. >> if not jpm which individual stock would you have chosen? >> wells fargo would be a good play we are looking for ones that have a decent bit of exposure to the net interest margins, doing consumer lending assuming there is enough consumer lending demand. that remains to be seen. >> got a question, send us a

tweet to @options action. if it's civil we'll read it in the show. for everything "options action" run to our website, optionaction.cnbc.com. white hot options news. what are you waiting for? check it out. here's what's coming up next. >> like sands through the hour glass, so are the days of our lives. >> but those days could be turned into money, and we'll show you how with a simple options strategy. plus -- >> yes, sir gotta love this town. >> well, you might be the only one, especially after we show what you casino stocks and dirty carpets have in common. it's a special report and it's coming up when "options action" returns. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information

for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

witanywhere on any device.you can manage your account anytime, just sign into my account to pay bills, manage service appointments and find answers to your questions. you can even check your connection status on your phone. now it's easier than ever to manage your account. get started at xfinity.com/myaccount here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday.

this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. here's a question for you, here's a question for you, what's more disgusting a new york city subway or a floor in a casino? jane wells is in l.a. with the answer. jane? >> both? you know, here's the thing about carpeting as opposed to a subway. well, carpeting really takes a beating and it holds onto the stuff. that's why this corporate carpeting like we have here is usually dark and textured and eventually has to be replaced. casinos take it to a whole other level. the pachanga resort and casino, which is the largest in california, has 100,000 square

feet of carpeting it has been pulling out. rather than just throwing it away, they are sending it to a recycler to be turned into carpet padding. >> if you can understand how much carpet is in one of these casinos, basically, just to do the main floor down there, it would be like an average house of say 150 yards. you would take 1,000 of those houses and go dump them in the landfill. they don't do that. >> now, unfortunately, the new carpeting which goes on top of the pad and is also made of recycled materials still has the same seizure inducing patterns you so often see at casinos. when i asked why is that? the pachanga folks said we don't know why the carpeting looks like that. they are all kinds of theories. some are that the carpet is so wild you can't look down and so you will keep looking up to play the slot machines or poker games and certainly it will hide just about anything. back to you. >> i don't want to know what

that "anything" is, jane wells. way to end it for us on a friday. thank you. the only thing worse than vegas carpet is the chart of many of the casino stocks. carter, are you doubling down? >> this is unhappy stuff, obviously. and there is no reason to be ever long on a stock in a down trend. this is a testament to that. weakness begets more weakness. las vegas sands, wynn. it's not good and it's not just recently. it has been going on for some time. here is the established down trend of the past two years. take that look and juxtapose against what is going on in the shanghai composite. if you can't get a bid when the chinese equities are doing this, what's coming next? we think the next down leg is at hand. daily chart, you can draw the lines like that, head and shoulders, top, call that a neck line, but what you can do also is put in your pattern here.

put in the head and shoulders, top, here is our first neck life. we are covering at a break level yet again and we are betting it's going to break. sell las vegas sands if you have it. if you are a short seller try some. >> mike? would you also be a short seller? >> the primary driver for the casinos has been mccow. every since they had a crackdown on the junkets that they were sending people there, the revenues have been hurt. in the las vegas sands you are looking at a top line revenue decline of 20%. declining revenues is not what we like to invest in. and it's not like it's terribly cheap when it's trading around 19 times what it's expected to earn this year. one thing, though. watch out. you don't want to short a stock like this, it was $60 in april. that's not the way to play it. i'm going do look out to july, buy the 50 put spread and they then sell the 45s for about 65 cents. in this manner you are going to risk less than $2 to make a

bearish bet, a move it could make easily in a much shorter period of time and obviously try to press a short. this is really the only way to do it. >> great point. i mean, you don't press a short with just outlaying capital and being short and caught off guard a put spread makes sense here. i would say the casinos have been beaten down so much it looks like technically there is one more leg down. i think after that valuations get somewhat compelling. i mean you still have potential growth in macao in terms of the sheer number of people who can visit those casinos when you talk about the population of china and the middle class that continues to grow there. certainly i would be careful here. i like the put spread temporarily for now. but later on in the year. if we get one more plunge down here in the casinos i like the valuations. i don't buy stocks for dividend yields only, but the dividend looks attractive. the valuation starts looking attractive. at that point you take a shot. back to the upside. >> you want to monetize if you get the down leg. but the point about the dividends, it made the upside calls cheap with the dividends.

you will want to flip and it do another options trade and not get long on the equity. >> when you have an individual stock that's weak it's one thing. when you have a group that's weak, you have much more assurety that the trade is bad. >> does wynn look different than the rest of las vegas? it dropped and gapped again. probably coming with lds. coming up next, facebook shares falling in today's session. get this, mike has a way to make money if the stock goes up, down, or nowhere at all. he'll explain after this. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim?

for all the confidence you need. td ameritrade. you got this. here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement.

there's no way to predict that. for all the confidence you need. td ameritrade. you got this. ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. he can not see through doors. his speed, anything but superhuman. but when it comes to health care options, george found helpful information

and resources at aarphealth.com this makes him feel unstoppable. well, almost unstoppable. discover real possibilities at aarphealth.com today and tomorrow take on the world. it's one of life's greatest it's one of life's greatest mysteries -- time. why did it start? when will it end and how does it affect the prices of put and call options? >> that's for real. >> that was mike explaining how time impacts options prices in an "options action" tutorial. mike you have a strategy that puts time on your side. >> it's time to explain it. here are three things to take a look at. first of all if you are going to sell a put to try to collect premium, expiration.

we want to look for short dated options. that means less than about 90 days. strike. now, remember, this is where you could be compelled to purchase the stock if it drifts through the strike. you want to look for an attractive entry point, usually lower than where the stock is currently trading. premium. if it's a one-month option, i'm looking for 1% a month. that works out to 12% annualized. do we have a trade that fits this criteria? we did. look at facebook. it has been trading between $75 and $85. it dropped a little bit today. that provides an opportunity for a put seller. i'm looking at the july, 77.5 puts. 60 days away. you collect $1.65. that works out to a yield of 2% over that time. hits that 12% annualized mark we were looking at. and this is the effective purchase price of the stock. $7585 if the stock is put to you. which represents about a 5.5%

discount. or right near the bottom of the range we were talking about. so if you are looking to collect premium in a name like facebook over the next couple of months, july 77.5 puts might be an attractive sale. >> carter, what do you say on facebook? >> almost to the point of perfect equilibrium. the bears and bulls are matched up equally. there is no character to the trading. you could say this is about to break out or break down or bounce off a trend line. this is not showing any of those signs. exactly where it is a trading right now. fair money, dull money. >> flat. >> they will close the market and they won't trade this one. >> kind of like the rest of the broader market this year, right? >> like the rest of the market. >> in the broader market the s&p has not moved more than 2% up or down all year. 1.8 to start the year and that was about it. facebook represents the broader market right? here's an opportunity where there are some premiums in puts to collect. you want to own facebook down there. there has been little to no tail risk in this market. those are times when you want to sell a put.

how long this continues? i don't know, seems like maybe another month or two here where you will get the compression and volatility. maybe it picks up in the second part of the year if interest rates rise or whatever. facebook, this seems like a good opportunity to pick a level and get longer. >> mike when you are sitting to that stool did you realize that the sun was rising behind you? >> i had no idea. >> amazing. >> the sun king. >> crazy. so poetic. >> i think if morgan freeman is looking for an understudy mike might be the guy. >> the sun rising behind me was green, i think, if i remember how that went. >> catch the full version of mike's ground breaking tutorial on monday exclusively on optionsaction.cnbc.com. >> coming up, checking the score with the cofounders of draft kings fantasy sports with real money. plus meet the company that could be a major threat to paypal. they've done it overseas and now they're taking over america. the ceo of klarna talks to jim about the evolution of e-commerce. that's coming up at the top of the hour. coming up your tweets and the

final call from the options pit. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. i'm here at the td ameritrade trader offices.

ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim?

for all the confidence you need. td ameritrade. you got this. time for a tweet. time for a tweet. dennis asks thoughts on wells fargo and ibm. berkshire boosted their holdings. we talk about financials a lot. he's do ibm here. >> i understand the wells fargo, ibm, i don't get. i'm not sure where he's coming from here. this is a situation where the company hasn't demonstrated that they've got a good plan. we've seen declining revenues, sequentially again and again. i wouldn't personally get involved until i see the turn-around. time for the final call. the last word from the options pits. carter, it's to you. >> if you have any money left. take it out of there and put it in home depot. >> june 113s are the way to play home depot long. >> what's your final call? >> money center banks i love. jp morgan is the one to play.

breaking to the upside. risk reversal, sell the down side put, play the upside and get long financials, the 10-year plays well for them. >> i'm melissa lee, our time has expired. see you back next friday. "mad money" starts now. >> announcer: the following is a paid presentation for the worx air, brought to you by worx. prepare to be blown away. [ whirring ] you're not looking at an ordinary blower. there's no cord. there's no gas. it goes where no other tool could ever go, does things no other tool could ever do. it finds every kind of dirt in every kind of space... and makes your whole home cleaner in just minutes so you get to spend more time enjoying it. the incredible worx air -- so versatile, you'll wonder how you ever led