live at the nasdaq center on this dreary friday the 13th. the guys getting ready for the big show. while they're doing that, here's what's coming up. >> that's what happened to retailers this week. but if you think the pain is over, we have the next retailer to get amazon. plus, losing money in apple? well, we have a way to get your money back for less than a buck. we'll break it down. disney shares are doing something very odd. ♪ well, maybe not that odd. but it could signal a magical time to buy. the action begins right now.

let's get right to it. if you thought it was bad for retail this week, the real test comes next week. that's because big box names will report. will they go the way of the department stores? dan, what's your take? >> listen, this is the main event. we saw all these department stores, apparel guys, and for the most part the small market caps relative to next week. to me, i actually think you have the potential to see outliers here. a lot of the space has actually sold off in same p think. we've been talking about it on the show, the srt, s&p. retail etf got as low as 41 today. that's a big move in a couple of weeks. when you think about the events next week, some of the bad news may be in the stock. but i think obviously this is an options program, we'll talk about ways to define your risk and play what may be a continuation of the trend. >> and mike, arguably some of these names were from the beginning thought to be the

stronger of the retail group. >> definitely that's true. first of all, amongst the retail group, especially if you compare it to some other names that haven't reported, the valuations seem compelling when you look at their growth rates. the home improvement retailers as an example, good top line growth. much better eps growth. and there is a lot of fear baked into it. we can see that at the implied moves like home depot. expecting a move next week that's 50% higher than what it normally reports. that is indicative of fear, to me, and might be in support of dan's notion that these things are a little bit oversold. >> speaking of home depot, it is literally the crossroads of home builders, and the aggregates that go into it. if you look at the way the home builders are, lennar was terrible. things like mohawk and eagle and martin marietta and vulcan and gypsum and drywall, they're all doing very well. my own hunch this is going to be

tough for home depot to have anything big to the upside. let's talk about it. >> what's your take? >> to me, this consolidation has been pretty nice over the last five weeks. it showed relative good strength. >> yeah. >> to the group and to the market for all intents and purposes. on a one-year basis, maybe it has a great potential to break out there. i see it differently. i see it maybe up one, down two sort of scenario. if they beat and raise, the stock's going to break out. maybe it gets you back towards the high 130s. on the down side, if they were to miss and guide down, i think it's going straight to 125, largely because it does trade at a premium to the group and the market. when you think back to other market leaders like starbucks, disney, trading at premiums to the group, they actually lost their way over the last six months. if you want to play home depot for a breakout in this event, i think you want to define your risk. options prices are okay. implying 50% more than on average. but to me, i think it makes sense if you want to look out,

you've got to be long premium here. risk what you're willing to lose. today i think when the stock was trading about 133 1/2, i think you could look at what's called a call butterfly. essentially may expiration, buying one call spread and selling another. i'm looking to reduce the premium that i have at risk on this very short trade into an event. today when the stock was $133.50, you could buy the may 134, 138, 142 call. butterfly for $1. what am i doing there? buying one of the 134 call for $2.50. selling two of the 138 calls at 80 cents each or 160 total. and buying one of the way out of the 42 calls for a dime. this is how this trade makes money. between 135 and 141, i can make up to $3. my max gain is at 138 of $3. three times what i'm willing to risk. here is the thing i really love about this trade. it breaks even at 135. up about 1% from here.

so i don't really need the stock to break out in a meaningful way, just to break even. i've defined my risk to less than 1% of the underlying stock price. >> we've just gone down three weeks in a row. we've not had that in quite some time in equities as measured by the s&p. if it's a beat, it will probably be tepid. it can be much more extreme here, as you said. that's the tradeoff. >> does the tradeoff, though, change, mike, because we've already had a week where retail is terrible and home depot is down 2%? >> i think this is one of the reasons why -- butterfly trades in general are hard to put on because it's the thread the needle trade. you want the stock to go straight to the short strike. if you trade a long time out, that's a problem. he's got a one-week trade here. elevations in premiums slightly. i think this actually is traded just about perfectly. i really think that if you're going to ever put on a butterfly and make a bullish bet into home depot, this trade makes a lot of sense actually. >> mike's in a pretty good move.

you heading out to the pool right after we're through? >> i am. i'm going for a dip. it's not raining here. >> last word, dan. >> so here's the thing. i don't think you have to worry about this trade overshooting to the upside, if you get the direction right. that's why i like the butterfly trade. >> while home depot may be good, the chart master, you said there could be the next name for the shoe to drop. do tell. >> it's costco. let's try to figure it out together in the charts. very big name obviously. i think sales are bigger than costco. look at a couple of comparative charts. this is costco. now, it is about 50%-plus groceries. it goes into the consumer staples bucket. what i have here is a chart over the past six months. juxtaposing costco versus its aggregate. what we know is, in fact, this has been reversed. so if you could, you'll just notice that that is actually costco, and that is the consumer

staples. costco underperforming. okay. so here's that picture another way. this is the chart of costco. and the bottom panel is relative to all consumer staples as measured by the xlp. what we know is, even as it tried to go up here, it was still making new relative lows compared to the market. so advancing on an absolute basis, but underperforming the s&p and underperforming its peer group. things like coke, or kroger's or walmart, what have you. now, this goes back to when the bull market started. trends matter. trends are real. stocks typically trend down or up until they doan. what we know is, that is the trend line. by all accounts, we have responded to this line beautifully, beautifully, beautifully, and my thinking is, we're going to come down and check this once again. so that's sort of the setup. i want to do a few other things just for fun. a little bit of funny mentals. this is the price per share versus earnings per share since

the prior peak in 2007. so obviously price gets a little bit cheap maybe, maybe gets a little bit high. but it's certainly above trend if you were to measure, quote, trend by earnings. and you want to look at it in numerical form, here it is, trailing pe, 27. forward pe. 26. if you pay a multiple like that, latest quarterly growth, nothing. latest 12 months almost flat. and five-year growth, growth is decelerating. the multiple is quite high relative to what it has delivered. here is the multiple. again trading at 27, 28. look where the multiple was at the prior peak in '07. that's an all-time high in a bull market. we're now a much higher multiple, and growth is much lower. not a good setup for sellers at costco. >> mike, you see the matchup with the fundamental take? >> it does, actually. as carter just pointed out, 26 times earnings for something that's going to grow eps,

probably around 2% this year, top line growth is going to be similar. it's the exact opposite of the home depot situation where you're paying 20 times and getting 1 % to 15% eps growth. i would go along with this. what's also interesting is taking a look at the options markets. this is not actually implying a bigger move than you would normally expect which is one of the reasons why i'm interested in being net long premium to make a directional bet. the trade that i would make is purchasing the july 1, 135 quick spread. $2.95 for the spread. 470 for the 145. and this is, i think, a good way to make a directional bet to the down side. stocks only implying a move of 2%. >> are you going to give mike love on his trade? >> i'm giving him a lot of love. i love the charting, the fundamental take. we've been talking a ton about amazon. this wrecking ball with retail all over the place. we're going to see next week with walmart, target and costco, i have no idea why these guys would be immune in late april. they had their highest north

american retail margins than they've had in multiple years. and their sales growing 27% year over year. i have to assume it's coming at costco and walmart. >> and amazon is getting bigger in groceries. >> who wants to go around a giant store with a cart of water and toilet paper. just order online for free. >> the stock was at 160 a month and a half ago. it is a bit oversold, correct? >> well, unless you think the market's about to do something special. because if it does, this is going to be leading the way, i would think. >> mike, just curious, would cos costco be close to any other retailers? >> i think costco is a unique case. it's not like the conventional grocers or department store either. they're making a bearish bet on it, it does violate my principle. if i see it show up a lot on my credit card statement, that's not a stock i want to short. starbucks is also in that camp.

starbucks has shown some weakness and maybe costco will, too. >> maybe it's a contrarian indicator. send us a tweet for everything "options action." only one place to go. while you're there, you could sign up for our super cool newsletter. check it out. here's what's coming up next. that's what shares of apple have done this week. we've got a way to get your money back for less than a buck. we'll explain. plus, is this money on fire? or a very literal metaphor for what's happening to walmart shares? either way, we'll tell you why it may get worse for the world's largest retailer, next, 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.

herthey work hard.ade, 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. i'm dominic chu. to say it's been a rough few weeks for apple shareholders may be a bit of an understatement. since what many call a disappointing earnings report, the stock has lost around 13% of its value. now, that is a large drop. but looking at it in terms of market value lost, paints an interesting picture perspective. that percentage drop, 13%, translates into roughly $75 billion of market cap gone. that's around the same market value as, say, qualcomm. the value apple has lost is like losing an entire qualcomm from the market.

it's also about the same size as two netflixs or how about three cbss? so now the big question for traders and investors has to do with whether or not that big drop in apple translates into a big buying opportunity, or whether there's more, melissa, down side again. back over to you guys. >> thank you, dom chu. if you've lost money in apple in the last couple of weeks, you're not alone. you're not. dan has a way for you to make some of that money back. how do you do that, dan? >> i'll throw another number out that matches the $75 billion that dom was just talking about. since the stock was last at 90, about two years ago, in june 2014, the company has bought nearly $75 billion back of their own stock. so that means that higher prices than current levels. let's just take a look at the chart. let's see where this thing has been and where it could possibly be going real quickly here. that was that point, the last time it was 90. we know it got up to 134 last year. it could never really break out. it made it triple top.

it's down about 30% now from the all-time highs a year ago. about 20% in the last month alone. i know carter's been talking about a retest to the uptrend that's been in place from the 2009 lows. obviously a gap fill down in 80 bucks. that's the level i want to focus on here. this is how we're going to talk about using options to get your money back, or add leverage to an existing long position or look out to october expiration where we know the next catalyst is, and that's the release of the iphone 7. so i want to use a trade structure in the options market called a risk reversal. there's three reasons i would use it looking at apple right now. one way is to define your risk. for a very wide range, okay, over a period of time. the other is to seek leverage on a directional move. i have a directional bias, i want some leverage, and the last one is a premium outlay issue. i want to reduce the amount of premium that i have. because i'm looking out over time and i don't want to be naked long options that are going to decay. let me talk about the trade i want to do if you're inclined to

maybe make a long bet here looking out to october expiration, defining a wide range in which you would get long. i want to look out to october expiration, sell one about 80 plus. about $2.50. that's when the stock was about $90 today. this is how you make money. on a market to market basis between now and october expiration, as the stock moves closer to the short put strike, you are going to lose money. that put is going to increase in value. if the stock moves up toward that long 100 call strike, you are going to make money. the thing is here, with this trade, what i'm trying to do is isolate the potential for oversold stock. we have a catalyst. at some point this company is going to do what they call an accelerated share repurchase. they did not do it in the last quarter. last quarter was the smallest purchase. that could be sort of dampening. could put a floor in the stock.

to me, this trade structure, a risk reversal, looking out to october expiration, $80, $440 billion market cap for apple, they have 240 in cash at that point. when it gets down there. i think that's probably a decent level to get long. that is your worst case scenario. get long at 80, or long up at 100 on october expiration. >> mike, what's your take on dan's trade? >> one of the things is, if i'm selling puts in the name, i usually like to do it a little bit shorter dated than this. we have one other potential catalyst not as compelling as the iphone. but in july 19th, even for options that expire before that date, you could take a look at the july 90 puts. i'm kind of curious why you wouldn't think about selling those things. that's a very handsome return. let's consider, if you really do believe the down side is 80, you're net long around 86 1/2. you could always sell some calls against it and get your money

back right quickly. >> what do you say, dan? >> mike, i thought you asked the questions here. really, what i'm trying to do is give myself a lot of time in a very wide range. valuation to the down side at 80 bucks. i think it makes a lot of sense. i actually think when they report in july, it will be disappointing again. i think this stock probably goes back towards the 80s. i think this is the sort of trade structure you could adjust your strike as the stock continues to break. you tell me, is it going to break? >> it acts poorly. that's a highly unscientific phrase, but that is the phrase. it's not exhibiting any kind of life in a period, even when markets bounce a day here, day there. what we do know is there are two sort of magnets below, the long-term trend line that comes in at 80. there's a gap that's important. down at the 70 level. you have to wonder, have all of the retail investors and all of the brokerage accounts, have they given up yet? there are plenty of people hanging on. up next, a winning retail trade. yes, a winning one. betting against retails. what's he doing next? we'll tell you right after this 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.

herthey work hard.ade, 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. time for a little total recall where we take a look back at some of our open trades. last week carter made a bullish

bet on disney ahead of earnings. take a listen. >> the presumption is we're going to conclude this by higher prices. so up here, where the pen is trying to write, there you go, 107, 110, something like that. >> i don't like going into earnings getting into the long premium bets and going after things that have been rallying. i think a better way to play that is to take advantage of the fact that the premium is going to be slightly elevated going into earnings. sell the june 105 put. that's going to expire in just over a month. >> stock is down 5% this week. mike, what are you doing with the trade? >> you know, the first thing is, the good news is, because we sold elevated premium, effectively we're down 2%, about 2 bucks. if we had to buy the put back right now. i actually -- the results were disappointing obviously with respect to core cutting. they'll see eps growth below 6% for the year trading 16 1/2

times earnings putting it below a market multiple for a solid company that has a lot of good news the rest of the year. i don't mind owning it. i think i have the stock put to me and start selling calls against it. >> carter, how do the charts look at this point? >> if you're in for a catalyst in earnings related pop, and you get the exact opposite, the whole point is, the catalyst has come and gone and there's no reason to be in the chart. long term, that's something different. here and now, the trade's come and gone. >> now to a winner. a few weeks ago, dan made a bearish bet on walmart. take a listen. >> today when the stock was trading about 66.66, you could do a may 13th weekly, two weeks from today, may 20th regular 65 strike put calendar. bhar what are you doing there? you're selling one of the may 13th weekly puts at 50 cents. buying one of the may 20th regulars for a dollar. that costs you 50 cents. >> what is today? it is may 13th. where does the stock go? >> friday the 13th.

it went straight to 65. it doesn't normally happen for me like this, people. i'll tell you that right now. you had to manage this trade today. you had to manage it today on the expiration. you did not want to stay short that put on the weekly expiration. i actually had to pay a few cents, a dime to cover that. i looked out to the may 20th. what i was always trying to do is isolate next week's earnings event here. i'm long the may 20th 65 put. that has increased considerably in value. right at the money now. i sold one of the may 20th 62 puts. now i have a 65.63 put spread for this earnings event. now i have it 15 cents. i can make up to $2.85. at this point it's like money if the stock goes lower. if we get to the earnings midweek and the stock is down at 64, 63 1/2, i may take it off. there's no reason to risk that event. it may be oversold at that point. the stock could pop no matter what happens. >> and you've also got an open

put spread on the open etf spread. >> that one was really targeting a lot of the weak ones, the department stores. i want to leave that on. we kind of gave that one a little time into june. that's one also if it breaks at 40, closes at 41.04 today, i may also take off. you don't want to be a pig here. these things are getting a little oversold. >> coming up next, 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.

herthey work hard.ade, 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. we're joined by some very, very special guests. these handsome men are united states marines. we thank you all for your service to this country and welcome to "options action." they're all fans, of course. time for the "final call." the last word from the options pits. >> finding the ideal time for butterflies is tough. i think dan did a very nice job on home depot. >> carter? >> costco, low 35 to 165. 500% increase.

since the bear market low. too much rolling over, selling. >> risk reversal. >> if you're going to play home depot for the breakout after earnings, do it with defined risk. >> we'll see you back here next friday for "options action." "mad money" starts right now. >> announcer: the following is a paid presentation for the nutri ninja/ninja blender duo featuring the latest auto-iq technology, brought to you by euro-pro. ninja -- turn on your life. >> i feel vibrant. >> amazing. >> fantastic. >> incredible. >> whoo! >> i feel focused. i feel energetic. and i feel more alive than i have in a long time. >> announcer: why are all these people so excited? >> i have that energy that i had so long ago. >> i just feel so much more focused. >> i absolutely feel like a new person. >> announcer: are you ready to finally turn on your life? then get ready for a breakthrough that will help you feel fantastic, look amazing, and live a healthier lifestyle. get ready for the nutri ninja/ninja blender duo.