hey, there. we're live at the nasdaq market site. these guys are getting ready for big show. while they're doing that, here's what's coming up. ♪ turning japanese, i think i'm turning japanese, i really think so ♪ and that could be a problem for u.s. stocks. we'll tell you how you can profit. plus, remember those cool gap ads? >> i know you like your outfit styli stylish. any other line but the gap is childi childish. >> not the case anymore, because traders have fallen into the gap, and it could signal a much bigger trend for retail. we've got "the trade." and -- ♪ ♪ go low >> that's what traders are asking about rates, 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, because 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? let's get in the money and find out. mike? >> you know, 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 are what would look like very low valuations. look at a name like bank of america. this is the 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 multiples turn south. if you're looking at banks and the valuations, price tangible book, they look awfully cheap. what that's telling you is the market doesn't believe the good news is going to continue. >> as we think about next week

and we have q-1 earnings and we're looking at commentary for the balance of the year, the problem is that expectations aren't particularly high at this point, like you said. we've already heard from jpmorgan, citibank and deutsche bank and that disastrous quarter that included january and february from jefferies, we know that volumes are bad, capital markets activity is bad, regulation is a real thing right now, we know that leverage is down. so you know, it's not that investors are 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, because 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 lag. >> it's not just banks, it's asset managers. >> right. >> it's credit card companies. it's anything in that space. and while reits have done well, which are a part of the general sector, those will be broken out next year so we'll have 11 sectors, but the banks are terrible, they're worse in europe, terrible in japan. hsbc, new shocking lows, bad

space, and i would be short with you. >> to the point, though, 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 what we're basically on the cusp right now, i think, of a situation where they could really break very hard either way. they're cheap if you get a rate hike, and if you don't -- >> but that comes back to expectations quickly, because if you think about it, we know that there's basically a 0% chance that they go with the april meeting. and then you have to go to late june, and the fed fund futures is only pricing about 16%. so, that's where the expectation things. if that were to change, 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, eve if they were to go, i don't think they're going too frequently in 2016. >> so, what's your trade? >> if you get the rally, expectations are low, you have a bunch of earnings next week -- bank of america, jpmorgan, citigroup and wells fargo and the other ones the following week. i want to look out to september

expiration. you need time if you want to make a change on this trade. and looking at the financial sector, etf, when it was trading at $22 today, you could look out to september expiration, pay $1.20 for the september 22 puts. those break even down at $20.80. $1.20 is the match risk. seems like a lot of premium, the underlying stock price, but you have time. and you may want to look to spread them if you get a move in the right direction. timing will be crucial, but these are not going to decay a lot if the xlf stays in line here. >> we were talking about this before the show. actually, the premium is not that high when you look at the financials' behavioral historically, so the put is fairly reasonable. one other thing you could consider and you were talking about before, think about selling some may 21 puts, something like that against it. you're going to be able to collect the elevated presume yum of that expectation of volatility. and we are seeing higher expected moves in the names like jpmorgan next week. you're basically selling that elevated premium if you do that. >> look, it gets down to rates, doesn't it?

if rates aren't really 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, just as deutsche bank is threatening to do and as hsb is doing. >> so, you'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. >> okay. >> because if there really is problems -- this is the second biggest sector by weight in the market and it's the lifeblood of the system. and the way they're acting, not good, you know? >> right, right, right. >> i'll just say this, and we've talked about it a lot at this desk, jpmorgan, they talk about the dimon bottom, they announced a $2 billion buyback after he bought $27 million worth of stock, but the stock acts like garbage. it's not closed above $60, which was a big level for more than a couple days in the last couple months. i think the underrated performance -- wells fargo, we were talking, they look horrible. i think you want to sell rallies, but defining your risk and placing a bet on what you're willing to lose, that makes sense. you buy time.

let's move on to retail. a number of names in the space getting absolutely slaughtered this week. gap shares falling more than 19%, nordstrom, abercrombie, macy's down more than 10% and seeing more pain for the space. >> it is bad. we'll look at the xrt, which is a broad etf. it's 98 names and equal-weighted. amazon and walmart are in there, the same weight as tiffany's, ralph lauren, pick your poison. so, 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 gaap, guiding down in a terrible way. and what happened today? fast-forward to north america. gap stores, no pun intended, gaaping 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, by the way, 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 know, not because i say so, because history tells us this, when you have a well-defined trend, the odds are high that you will stay on trend. but when you do break, that's a problem. so, now, after this perfect ascent for essentially a multiyear 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. so, 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. so, i would draw the lines this way. i think we're going to hook back down at least to 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. >> 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 then walmart and target. so it's a broad etf that way. what's interesting, unlike the banks where you have a bifurcation situation where the stocks look really cheap but they have something that could make or break either way, on the whole, these stocks do not look cheap. whether it's the netflix and the amazons, which are high-valuations stocks or the no-growth stocks like targets and walmarts, walmart trading 16 1/2, 17 times forward earnings. so, to me, this situation going into earnings is a situation where you can definitely play for that kind of move. i'm looking at the may put spread, you can spend 50 cents for that. we like the math. it's the first out of the money strike. you're going to capture earnings and spend a relatively small amou amount. >> what would you say about this? given the -- >> i'm there. >> -- the talk today alone. >> that was costco yesterday. they missed same-store sales.

and listen, when you think about what gdp is tracking to right now for the q-1 and think about how consumer-led our gdp is, and it's way below expectations, so to me, i think you have a real looming disaster for u.s. consumer stocks -- >> all this is gasoline where it is. >> people keep moving the goal post, you know what i mean? >> one of the things we started to see, i think you probably saw this data point this week, but we're taking a look at defaults on auto loans this week, some of the worst news we've seen since 2008, since the credit crisis. that bottom tranche of consumers, and a lot of these retailers depend on them, are hurting right now. >> so, you agree with the direction. do you agree with the trade structure? >> i do. i think you have to give them time. i think one of the biggest mistakes we keep talking about on the desk every friday morning is going too short-dated, long premium, that stuff. getting the timing right will be hard, so you have to look for ways to finance it. >> the other issue is that,

really, we've seen it. we saw it with gap stores and the names that have been disappointing. if they're going to move and move sharply, now's the time they'll do it, between now and may. >> think about a very prominent, consumer name, call it retail, but nike. nike is acting very -- eight-month relative low to the market, and the earnings were a bust compared to what expectations were. not good. >> all right. got a question out there, send us a tweet to @optionsaction. for everything "options action," check out optionsacti optionsaction.cnbc.com. the winning numbers to tonight's lottery, they're all there. you can also sign up for our exclusive newsletter, so check it out. 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, bullion is breaking out. >> you mean that little cube you put in hot water to make soup? >> no, not the little cubes you put in hot water to make soup. we're talking about gold and

we'll tell you why it could go even higher when "options action" returns. 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.

(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. youto get the help you'refar looking for. that's why at xfinity we're opening up more stores closer to you. where you can use all of our latest products and technology. and find out how to get the most out of your service. so when you get home, all you have to do is enjoy it. we're doing everything we can to give you the best experience possible.

because we should fit into your life. not the other way around. 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. welcome back to "options action." the yen is surging. in fact, it hit a more than one-year high against the dollar this week. typically, the yen rallied in times of trouble. should that make investors worried? carter's at the smartboard with more. carter? >> that's right, big move. i mean, that's the biggest story 69 week, really, the move in the

yen. but i want to focus on following on the retailer and the largest component of the nikkei, fast plunging like that. look at this comparative chart. it's a one-year, exactly 12 months, of, let's say call it american equities, s&p versus the nikkei 225. and the optics are clear, which is to say we know everything started rebounding nicely, but the rebound that took place in the nikkei, and the rebound, the nikkei of course started to falter, rolled over. the stock in europe also look likes this. i ultimately believe the s&p will go that way as well, but this is a bad thing to be in. and it got worse in the sense that its biggest component at 7% was dropping and gaaping like that. so, here are a few charts. this is the vehicle you can use to trade it. it's an etf, of course, ewj. and basically, you know, with basically down and up and then down and up, we know we have something of a down trend line. and so, the issue is, are we going to falter here yet again

and go down two or even through the lows? that's my bad. that's a long-term chart. here again is the same thing on a one-year basis, which is what we've just studied here. so, the presumption is that we are precariously close to hovering at well-defined lows at a common level and that we're going to break those lows. you can call it head and shoulders, you can just call it a big, rounding top, but that's not a good setup. and more often than not, it's resolved lower, not higher. so, we want to be short the ewj. and just for what it's worth, to conclude, here's the yen. obviously, the yen's strength is a lot of reason for this, but this is a clear break in trend, and we think the yen, too, strengthens more, or on the chart, moves lower. >> all right, we've got breaks in trend all over the place, mike. how are you trading japan? >> obviously, we're going to use ewj. this is one of those situations where i also think we could get something much like we have in the banks, it could break both ways. ewj is not a edged etf, so it is

very sensitive to movements in the yen. so if you're going to make a directional play, you have to be aware of that. i'm looking simply at the june 12 $11 put tread. with ewj at $11.35 about i was looking at this, you could buy the put spread for 35 cents. you're paying 51 cents for the spread. now, the reason that's interesting is because you'll 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 actually working on your side. 50 cents is pretty much your max risk on this trade. and if you can sit here, it goes lower, it's going to be profitable. >> here's the thing, so, it may not achieve exactly the goal. you have a high probability of a small success, right? and then you have the potential that if you got it totally wrong, you're actually losing more than you could potentially make -- >> 51 cents versus a buck. it's pretty much a coin toss, except that it's already working in your favor. in other words, you flipped the coin and you can already see it

on its edge, you called heads and that's what you see, odds are in your favor. >> the way i see the charts, and i'm not chart worth here, i'm just going to say, if i'm going to play for the big one and i'm going to play for the break, i would look down at that $11 strike and see the $10 as massive support, and maybe you could look in june and buy the put spread and pay less than 20 cents for it. and to me, it depends, it's a matter of conviction -- >> when you look at the chart, it looks like it's going lower. >> yes. >> of course i do. >> let's go with your thesis and say the 11s are what you want to buy. and you could say i could buy two 11s for the price of the one spread, and that might be a rational alternative way to play it. telling the 10s is not your move, though, because those things are essentially worthless, so you're collecting no money to do it. >> as a percentage of the 11s you're buying. to me, it is a matter of conviction and what you think the magnitude of the move is going to be over the time period. so, to me, i don't love the risk-reward of your trade. i like the direction of it and i like his charts. so, it depends how convicted i

am. and if i really thought it was going to break $11, i'd want to own that strike put. >> okay, you can own the 11s. don't semi-tll the 10s. it's a 7-cent option -- >> in terms of the nikkei in japan, the second biggest player is toyota. autos sacked terribly and toyota motors chart also looks like this. this might be the center of the storm and actually may be some sort of black swan that kicks the s&p to the down side. japan is not in good shape. that's my view. >> a big call. up next, gold just posted its best week in more than a month, but if you missed it on the rally, fear not, because we have a way for you to get in and we'll explain after the break. 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. i'm spending too muchs for time hiringnter. and not enough time in my kitchen. (announcer) need to hire fast? go to ziprecruiter.com and post your job to over 100 of the web's leading job boards with a single click. then simply select the best candidates from one easy to review list. you put up one post and the next day you have all these candidates. makes my job a lot easier. (announcer) over 400,000 businesses have already used ziprecruiter. and now you can use ziprecruiter for free. go to ziprecruiter.com/offer2

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. 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. (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 take a look back at our open trades. last week, they thought gold was going to shine. >> today we closed almost at $117. this is an opportunity by my word. we'll get long gold if you're not already there. >> the way to play it is go out to june, play the $9 spread that will cost you $2.40.

basically, getting long that $117 strike right at the level he was identifying. >> well, gold just posted its best week in more than a month. so, carter, do you still like the charts? >> well, yeah. not much has changed. obviously, on a percentage basis it sounds real good. obviously, if gold has had a structural, multiyear run-up, the three-year collapse and now this bit of a ricochet, if the ricochet's real -- we believe it is -- there is much more to come, so we want to stay. >> yeah, we spent $2.40, it's now worth about 3 bucks, but it's gone well through the strike that we're long. so, i think the idea is roll the long strike, consider rolling them up to the $119s. you can collect a dollar when you do that. keep the $126s on there doing their job, which is helping offset the decay. now you're in the trade for $1.40 and maintaining your up side. >> you don't like gold here. >> i don't like gold, but i think the momentum players who are there are the ones that really believe it's that hedged. maybe it is, maybe it isn't as far as inflation that doesn't exist occurs. that's what they keep doing, they keep rolling the calls up

and out and that's the activity we've seen all year long. it goes back to mark cuban playing in his momentum play. we've seen the strikes as they've come into the money, like mike just said, roll up and out. >> also last week, dan said tesla shares had come too far, too fast. listen. >> today when the stock was trading about $235, it opened up about 8% today and closed up 3.5%. i think you could look to do a put calendar. sell april options, look down at the $2.10 strike and sell the april puts at $2.50. look out to june and buy the june $2.10 puts for $12.50. >> well, the stock was up 5% this week, but there's still time. >> yeah. this may surprise you that, you know, like you, i do some bonehead things and i was a little on this trade. monday morning the stock opened up at $2.35 and was at $it 2.60 before you knew it. i live by trading rules and i got to 50% premium stop i have in my head and i panicked.

basically, at the highs earlier in the week, but the trade's still intact. the only problem right now is that $2.10 strike. it's kind of too far out of the money. and we talk about rolling. you probably want to roll it up to something that looks more like the $2.20 -- >> structurally, if your premise was that the ricochet was already too far, it just got worse. and today was weak. if you could roll it out or do something, stick with it. >> we are at nosebleed valuations with this company. i understand the enthusiasm -- >> valuation hasn't mattered forever. >> because people don't know or care about valuation. let me tell you something, it's valued the same as general motors. general motors sold 10 million cars last year, just got 325,000 orders for model 3s, which we have yet to see when and if and how they're going to deliver these things. valuationwise, this thing has got it all baked in, folk. i'm telling you that right now. >> the comparisons to gm are a little faulty. to compare how much --

>> general motors made billions last year. this company lost $800 million. >> didn't make it a good trade. >> as enthusiastic as people are right now -- >> just talking valuatiovaluati >> they were pessimistic, so sentiment is a cruel interest when it comes to trading stocks like this. i might have panicked at the top. others may have panicked at the bottom, but i think it sets up as a decent consolidation play near the 200-day moving average, which is about $2.25. up next, your tweets and the final call from the options desk. 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. welcome back to "options action." let's get to some of your tweets. the first question here -- could the traders explain how they determine expected percent move in a stock for a certain date or time frame? and i think when we talk about earnings, we're always talking about implied moves, professor mike. how do we calculate them?

>> there are two ways to do it, one hard, one easy. we'll stick with the easy one. you can read about the hard one at risk avert. they have a great paper on it. basically, look at the weekly straddle that should be priced at the mean expected move for the following week, so all you have to do, at the money call, at the money put, divide the stock. >> there's a good book called "the options eds" which also discussed it. >> yes. just a lovefest on the "options action" desk tonight. next up from "options action" fan brett, any thoughts on uso puts at these levels, dan? >> it's a tough instrument. it's trying to track oil and the futures and there's a big drag on it. june options is trading at $10. the june $10 put is offered at 7.5% of the underlying stock price. that seems like a fat premium that you'd rather sell than buy. i don't like the uso. and 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 japan, which is big in retailing because nikkei biggest component is fast, want to be short that, too. >> use put spreads for both. >> dan? >> xlf if you get a pop early next week, that's when you lay it off. >> our time has expired. have a fantastic weekend. "mad money" is up next. >> announcer: the following is a paid advertisement for the new shark rotator powered lift-away from sharkninja. looking for a better vacuum? talk to someone who owns a shark. they'll tell you the rotator has more suction than the newest $700 dyson cinetic vacuum. >> my shark makes my home cleaner and my job easier. >> announcer: and now the shark goes from upright to powered lift-away to bring superior suction and a powered brush roll where other uprights can't go. >> there's no place dirt can hide from my shark rotator. >> announcer: the powered lift-away is the total transformation of the upright vacuum. it's no wonder americans now choose shark 2 to 1 over dyson. a year ago, shark re-invented