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>> that's what traders are asking about rate, but it's setting up for a perfect trade. we'll break it down. the action begins right now. >> let's get right to it. the only thing that matters for your money next week is bank earnings. financials are the worst performing sector this year. the big question here, will it get worse when stocks like jpmorgan and bank of america and citi report next week so let's get in the money and find out. mike? >> you know, well, i think obviously it does matter. prices for the banks actually indicate that people are really concerned. i mean, if you take a look at the banks on a fundamental basis right now what you're seeing is what would look like very low valuations. take a look at a name like bank of america. this is an interesting thing about fundamentals. people like to look at the multiple and say stock is cheap but cyclical earnings, cyclical stocks typically trade at the cheapest multiples right before fundamentals actually start turning south. so if you're looking at banks the same way and you're taking look at the valuations, price to tangible book, they look awfully cheap. what that is telling you is that the market doesn't believe that the good news will continue. >> yeah. >> i would just say, as we think

about next week and we have q1 earnings and looking for commentary for the balance of the year, the problem is that expectations aren't particularly high at this point. and we heard about it already from jpmorgan, citi bank and deutsche bank and the disastrous corn their included january and february from jeffries. we know that volumes are bad and capital markets activity is bad and know that regulation is a real thing right now and know that leverage is down. so, you know, it's not that investors are not particularly excited about bank stocks which makes it kind of a difficult trade when you're thinking about it and then you throw in the context of the federal reserve, and what is the rate policy. one of the biggest issues for the banks right now, is that net interest margins, and they really need to see that yield curve do something other than it's done, which is flat. >> it's asset managers. >> right. >> it's credit card companies and anything in that space, and while reits, of course, have done well and are part of that general sector they will be broken out next year but the banks are terrible. terrible in europe and worse in japan and hsbc, new shocking lows, bad space and i would be short with

you. >> to the point though that if we do see a potential bump up in the prospects for a rate increase, and there has been chatter about that more recently, that totally changes the picture. so i think that we're basically on the cusp right now i think of a situation where they could really break very hard either way. they are cheap if they -- if you get a rate hike and if you don't -- >> but that comes back to expectations, really quickly. if you think about it, we knows there basically a zero percent chance that they go at the april meeting. then you have to go to late june, and the fed funds futures are only pricing 6%. if that changes you would see bank stocks rally, okay, and that would be a great opportunity in my opinion to sell them because i don't think the fed, even if they were to go, i don't think they are going too frequently in 2016. >> so what's your trade? >> get the real, expectations are low and have you a bunch of earnings next week and bank of america, jpmorgan, citi group and wells fargo and a bunch other ones the following week.

i want to look out to september expiration and you need time if you want to make a short on this trade. in the bank stocks, i want to look at the xlf and the financial sector, etf, when it was trading at 22 today. look out to september expiration and pay $1.20 for the sept 22 puts. those break even, down at 120 with the max risk. seems like a premium with 5% of the underlying stock price, but you have a lot of time here and the other thing you may want to look to spread them if you get a move in the right direction here. timing is going to be crucial, but the fact is these are not going to decay a whole heck of a lot if the xlf stays up. >> we were talking about this before the show. that premium is not that high when you look at how the financials have behaved historically so the valuation of the put. and one other thing to consider, think about selling maybe some may 21 puts, something like that against it. you'll be able to collect the v elevated premium of that expectation of volatility and we're seeing higher expected moved in names like jpmorgan. you'll be basically selling that elevated premium. >> look t gets down to rates,

doesn't it? if rates are not going to move this is not a good place to have capital. and it's a risky place in fact if things really get bad because there's beta here and these can make shocking new lows as deutsche bank is threatening to do and as hsb is doing. >> so it's not that you're advocating against the trade when you say it's not worth the capital, but if you're going to do it, do it this way. >> right. because -- if there really is problems, this is the second biggest sector weight in the market and it's the lifeblood of the system, and the way they are acting, not good. >> right, right. >> just say this, and we've talked about it a lot on this desk. jpmorgan, talked about the dimon bott tomorrow and the company announced the $2 billion buyback after he bought $27 million worth of stock, but the stock acts like garbage. it wasn't able to close above 60, which was a really big level for more than a couple of days and the last couple of months. so i think relative underperformance, wells fargo's chart. you and i talked. you want to sell rallies and defining your risk and placing a

bet on what you're willing to do the way i'm doing it i think that makes sense and you buy yourself some time. >> let's move on to retail. a number of names in the space getting absolutely slaughtered. gap shares falling 19%, nordstrom, abercrombie and macy's down around 10% and chartmaster sees even more pain for the space. >> it is bad. so look at the xrt, a very broad etf. it's 98 names and they are equal weighted. amazon and walmart are in there. the same weight as tiffany's, ralph lauren, pick your poison. it's a big index, and i want to start with just the recent action in two names. last night in japan, this is the biggest retailer in japan, and you're talking about a massive drop in gap guiding down in a terrible way. and what happened today? fast forward in north america gap stores, no pun intended, gapping down like this. again, apparel-related, but bad action for a while, not recovering with the market, and then yet shocking new lows. whether it's japan last night, biggest weight in the nikkei,

biggest single weight in the index and then gap stores here. so this is the long-term picture of xrt. it's, again, a broad etf and what we do know -- not because i say that because history tells us this -- when you 4 do have a well-defined trend, the odds are high that you stay on trend, and when you do break, that's a problem, so now after this perfect ascent for essentially a multi-year period, after breaking we've attempted to throw back and now we're struggling. so we're going to study this right here now, this period. here's our throwback. again, the break in trend, and we're going to look at this throwback. this throwback right here huge move. but what's key is we're starting to hook back down again. i'd draw the lines this way. i think we'll hook back down to at least the line. so you're talking about a 5% to 7% move. not good. i mean, retailing, action like that in a market like this has been straight up something's wrong. >> so it's all bad. >> mike?

>> to his point. there are a lot of names in the xrt etf and the story isn't the same for all of them. you have names like netflix and names like walmart and target so it's really broad etf when you look at it the that way. what's interesting, unlike the banks where you have a bifurcation situation where the stocks look really cheap and can make them break either way, on the whole the stocks do not look cheap. whether it's amazon, or the no-growth stocks like the targets and walmart, trading 16, 17.5 times forward earnings. so this situation going into sense, a situation where you can definitely play that kind of move. i'm just looking simply at the may, 43 and 41 put spread. spend 50 cents for that. quarter distance between the spread. we like the math. it's the first out of the money strike and you'll capture earnings and will spend small relative to the amount of the index. >> what do you think about this? >> i'm there.

costco yesterday, missed their same-store sales and when you think of what gdp is tracking to right now for the q1 and how the consumer led, and where our gdp is, and it's way below expectations. to me, you have a real looming disaster for u.s. consumer stocks. >> and all this with gasoline where it is. >> and people keep moving the goalposts about when that will be effective. >> sure. >> one thing we started to see, probably saw this data point this week and taking a look at defaults on auto loans, some of the worst news we've seen since 2008, the credit crisis. the bottom tranche of consumers that hey lot of retailers depend on are hurting. >> you agree with the direction. do you like the trade itself? >> i think have you to get the trades, and my time and you know things to materialize and we keep talking about on the desk every friday afternoon is going two short dated and long premium and really get in the timing right is going to be hard. look for ways to finance it or mitigate decay. >> that's what we're doing here. options, right? >> and the other issue is that

really we've seen it. we saw it with gap stores. we've seen it in the names that have been disappointing, if they're going to move sharply, now is the time when they'll do it. between now and may. >> think about prominent nike, nike is acting -- eight-month relative low to the market. the earnings were a bust compared to what expectations were. not good. >> got a question out there? send us a tweet @optionsaction. trades, winnings numbers for tonight's lottery. are you listening out there? they're all there. sign up for our exclusive newsletter. here's what's coming up next. >> that's what's going on with the japanese stock market, and it could get a lot worse. we'll explain and give you the trade. plus, bullying is breaking out. >> those little cubes you put in hot water that make soup? >> no not the little cubes you

put in hot water to make soup, talking about gold and why it could go even higher when "options action" returns. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade. wyou could just forget frthe beach wedding... and the beach booty... you could just book a different resort. like in alaska. they've got igloos.

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here at the td ameritrade they work all the time. sup jj, working hard? working 24/7 on mobile trader, rated #1 trading app on the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of other competitors do on desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey? td ameritrade. welcome back to "options action." the yen is surging and hit more than a one-year high against the dollar this week. typically the yen rallied in times of trouble. should that make investors worried? carter is at the smart board with more. carter? >> that's right. big move. that's the biggest story of the week really, the move in the

yen. but i wanted to focus on following on what we saw about the retailer and the largest component of the nikkei. fast plunging like that. look at this comparative chart. one year, exactly 12 months of let's call it american equities, s&p versus the nikkei 225 and obviously the optics are quite clear, which is to say we know everything started rebounding quite nicely but the rebound that took place and then the nikkei, of course, has faltered and started to roll over. the stock 600 in europe also looks like this. this is a problem, meaning i ultimately believe the s&p will go that way as well. either way, forget about the s&p, this is a bad thing to be in. and it got a lot worse in the sense that the biggest component at 7% was dropping and gapping like that. so here are a few charts. this is the vehicle you can use to trade it. etf, ewj. and basically down and up, then down and up, we know we have something of a downtrend line. so the issue is are we going to

falter here yet again and go down to or through the lows? that's my bad and let's look at long-term charts. here again is the same thing on a one-year basis which is what we've studied here and the presumption is that we're precariously close to hovering at well-defined lows at a common level and are we going to break those levels. head and shoulders or a big rounding top and that's not a good setup and more often than not it's reserved lower and not higher. here's the yen. obviously the yen's strength is a lot of the reason for this, but this is a clear break in trend and we think the yen, too, strengthens more or on the chart or moves lower. >> all right. we have breaks in trends all over the place. how you are trading japan? >> obviously we have to use ewj. this is one of those situations where i also do think we can get something like we have in the banks. it can break both ways and ewj

is not a hedged etf, so it's very sensitive to movements in the yen. so if you're going to make a directional play on this you have to be aware of that. i'm looking simply at the june 12 put spread. this is interesting because with the underlying, with ewj at 1135 when i was looking at this. you can buy the put spread for just over 50 cents. pay 77 for the june 12 puts and seat belt june 11 for 26 and paying 51 cents for that spread. the reason that's interesting is because you notice this put spread is already 67 cents in the money at that price, okay? so basically if it stayed right here you're actually going to make money so time is on your side. 50 cents is a max risk on this trade. and if you sit here, it goes lower and it will be profitable. >> here's the thing, it may not achieve the goal. have a high probability of small success, right, and then you have the potential that if you got it wrong you can lose more than you potentially make. >> 51 cents versus a buck, that's a coin toss, except it's already working in your favor. in other words, you flipped the

coin and you can see it's on its edge. you saw heads, and that's what you see. >> the way i see the charts, and i'm no charter worth here, but if i'm going to play the big one and play for the break i would look down at that 11 strike and i would see the ten as massive support and maybe you can look in january and buy the 11.10 put spread. >> you can look at the chart and see it's going lower. >> of course i do. >> let's go with your thesis for one second and say that the 11s are the ones you want to buy and you can say, okay, i can buy two 11s for the price of that one spread. and that might actually be a rational alternative way to play it. selling the tens is not your move, those things are essentially worthless. you're collecting no money to do it. >> as a percentage of the 11s you're buying. to me, it's a matter of conviction and what you think the magnitude of the move is going to be over the time period. i don't love the risk/reward of your trade. i like the direction of it and

his charts. it depends on how convicted i am. if i thought it would break 11, i would break the 11 strike put. >> own the 11s and don't sell the 10s and it's a seven-cent option. >> in terms of the nikkei and japan, second biggest player here, of course, is toyota. we were talking about this earlier, and the toyota chart looks like this and this may be a black swan that kicks the s&p to the downside. japan is not in good shape. that's my view. >> a big call. gold posted its best week in more than a month if you missed it on at rally, fear not. we have a way for you to get in. we'll explain after the break. here at td ameritrade, they work hard. wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade.

steve, other than making i'm here atme move stuff,rade trader offices. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and 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. td ameritrade. (singing alougetting to know

you. getting to know all about you... getting to like you. getting to hope you like me... is someone getting to know your credit? not without your say so. credit lock lets you lock and unlock your transunion credit report with the swipe of a finger. getting to know you. getting to know all about you... get one-touch credit lock, plus your score and report at transunion.com. get in the know. welcome back to "options action." time for total recall where we look at some of our open trades. last week, carter and cole thought that gold was ready to shine. take a listen. >> today we close at or near the house and bounced quite well and closed almost at 117.

this is an opportunity by more work. we would get long gold if you're not already there. >> go out to june and buy the 117 and call spread and that will cost you $2.40 and getting long the 117 strike right along the level he was identifying. >> gold just posted its best week in more than a month. carter, still like the charts? >> yeah, not much has changed. on a percentage basis it sounds real good but obviously if gold has had a structural multi-year run-up the three-year collapse and now a bit of a ricochet. if this ricochet is real, we believe it is. there's much more to come so we want to stay. >> we spent 240 and it's worth three bucks and it's gone right and well through the strike that we're long. the idea is we'll roll the long strike and consider rolling them up to the 119s and collect a dollar when you're doing that. keep the 126s on there doing their job, helping to offset the decay, and now you're only in the trade for 1.40 and still maintaining the upside. >> do you like gold? >> i don't like gold, but the momentum players are there and those who believe the hedge is maybe it is, maybe it is isn't.

they keep rolling the calls out and that's the activity we've seen all year long and gone back to when we heard mark cuban with the momentum play and seen the strikes when they come into the money and as mike just said rolled up and out. >> also last week, dan said tesla shares had come too far too fast. take a listen. >> today when the stock was trading about 235, that was off of, you know, it opened up 8% today and closed up about 3.5%. i think you can look do a put calendar. sell april options, look down to the 210 strike. sell the april 210 puts at 2.50 dollars. look out to june, by the june 210 puts for $12.50. >> the stock was up 5% this week but there's still time. >> this may surprise you, like you, i do some bonehead things and that was a little early on this trade and monday morning the stock opened up at 225, and before you knew it the stock was at 260. i live by trading rules and i got 50% premium stop that i have in my head and i panicked,

basically at the highs earlier in the week, but the trade is still intact. the only problem right now is the 210 strike. it's kind of too far out of the money. we talk about rolling, you probably want to roll it up to something that looks like the 220. >> the structure is this "v" or rick coshare was already too far, it got even worse. and today was weak, so i think if you can roll it out, stick with it. >> we are at nosebleed valuations in this. i understand the enthusiasm and the numbers that came out of it. >> that hasn't mattered forever. >> valuation hasn't mattered forever. >> people don't know or care about valuation. let me tell you something about valuation. enterprise valuation, general motors sold 10 million cars last year. they just got 325,000 orders for model 3s, which we have yet to see when and how and if they're going to deliver these things. valuation-wise, this thing has got it all baked in, folks, just telling you that right now. >> i think the comparisons for gm are a little faulty. >> to compare how many

vehicles -- >> general motors made $8.5 billion. >> i get that. >> this company lost almost 700 million. >> didn't make a good trade. >> as enthusiastic are -- >> we're talking valuation. >> they were pessimistic about it in february when it was trading 145 and sentiment is a pretty cruel when it comes at trading stocks like this. i might have panicked at the top, a lot of people might have panicked at the bottom, but i think it sets up as a consolidation play back near the 200-day moving average. >> up next, your tweets and the final call from the options pit. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

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here at the td ameritrade they work all the time. sup jj, working hard? working 24/7 on mobile trader, rated #1 trading app on the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of other competitors do on desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey? td ameritrade. welcome back. let's get to some of your tweets. could the traders explain how they determine a percent to move

of a stock in a certain date or time frame. we are always talking about implied moves, professor mike. how do we calculate that? >> there are two ways to do that, one hard, one easy. we'll stick with easy and all you need to do is take a look at the weekly straddle which should be priced at the mean expected move for the following week. so all you have to do is at the money call, at the money put, and then put them together and divide them by the stock. >> and there's a very book called "options edge." >> just a love fest on the "options action" desk. next up from "options action" fan brett. any thought on uso puts at these levels, dan? >> it's a really tough instrument. you're looking at something trying to track oil, but tracking the futures. and there's a big drag on it. and june options are trading at $10. the june 10 put us offered at 7.5% of the underlying stock price. that seems like a pretty fat premium you'd probably rather sell than buy here. i don't like the uso. >> time for the final call. last word from the options pits. carter? >> retailing, we want to be short that or underweight that

or take your profits in that and then japan which is big in retailing because nikkei is the biggest component is fast. wanted to short that. >> use put spreads for both. >> dan? >> xlf, if you get a pop, that's when you lay it out. our time has expired. have a great weekend. "mad money" with jim cramer is next. >> female announcer: the following is a paid presentation for focus t25, brought to you by beachbody. >> hello, everybody. if you're struggling to lose weight and don't have time to work out, well, that's all about to change starting right now. >> ♪ welcome to "the trend" ♪ come on, it's time >> male announcer: if you think you're too busy to work out, think again. a revolutionary new fitness program called focus t25 solves the biggest reason for not working out. time. the secret? t25 takes only 25 minutes. created by superstar trainer shaun t., t25 gives you an hour's worth of results in 25in