hey there. live at the nasdaq market site on this cloudy friday afternoon. here's what's coming up on the show. traders want to know about interest rates. the answer might just shock you. plus, a classic theory of big trouble for stocks. here's a hint. we'll tell you how to profit from the trouble in transports. worried about slow growth? we've got the stocks that could surge if the economy takes off, or even if it shrivels and dies. the action begins right now. ♪

let's get right to it because the job shocker. shares of banks plummeting. if a rate hike is off the table, will we see more pain from the financials? we kick it off with the chart master. carter, what do you say? >> i think you have to assume that not only does it take the hikes off the table, but it maybe pushes them back indefinitely. the price action in the banks is terrible. it's the second biggest sector by weight. we know it's been lagging only to be eclipsed by health care in the worst year-to-date. it's a problem, no way around it. >> we've spoken repeatedly about the financials look so cheap. of course, one of the things people often say is that when you're looking at cyclical stocks, i guess financials are now cyclical stocks, they usually look cheapest right before the other shoe drops. that's the reason. the market anticipating it. i'm actually a little bit surprised with the data we saw today. i thought we would get better data than that. i still think there's an off chance we will get a rate increase, because i think the fed painted itself into a corner here.

at the end of the day, you know, we were the best block in a bad neighborhood. if we're not good now, then there can't be any possible reason to -- >> what's most important here is you have the revisions in march and april. think about june, definitely off the table. july probably not so much in play. fed fund futures are pricing something like 30% or something like that. when you get into the fall, we know what's going on there. one shot in september. the next meeting is a few days before the election. that's not going to happen. maybe you get the ceremonial december increase. but it doesn't do enough for the banks. the bigger issue, when i think about it, we have a chart of the euro, bank stock index. it's a train wreck. it's an absolute disaster. we know that sovereign debt globally topped $10 trillion this week. that's the problem over with european banks. when you look at what's going on with our yields, i don't think they're going up. >> germany went to almost a new low here, structural low. >> it's like .066%.

>> rates are not the only problem they're facing. jamie dimon was talking about the risks as far as the auto loans are concerned. he said we're not taking exposure there, but he's saying there's a lot of risk there. that's not the only bad news. we also have talks about higher cap requirements for the big banks, basically making it even harder for them. you put all of these things together this week, it was impossible for these stocks to be higher. throw the rate issues on top of it. >> the 210 spread has been off also since november, december 2007. that's not helping. anticipation of a possible rate hike in june. and now that that's off the table who knows what happens. >> the roes that were available in this group -- >> oh, okay. >> talking about the 210 -- >> on "fast money," we also had this go on at the top of the show. the lights stopped flashing but apparently it's back again. that's what's going on at the nasdaq, there is a fire alarm

issue. but we'll continue the show. >> i want to look at citigroup. i think it's probably the worst position in the u.s. i think u.s. money centers are going to follow suit of europe. i think the european banks will probably take a shot at the lows at some point between now and the fall here. so citi, when you think about it, yesterday, their ceo was at a conference. he actually talked down net income for the q2. to me, you know, consensus was looking up 7.5%. i think you're going to continue to see a lot of negative trends in a lot of their businesses, having nothing to do with what rates are doing. to me, i want to look at citibank. we have a chart, real quickly. i've got to show you this. this thing is really -- it hit that down trend here. it's been consolidating over the last couple of months, anticipating a rate increase this summer. i don't think it's going to happen, that's why i think you take a shot at citi bank options. prices for citi are actually very cheap. probably about short dated in volatility, about 26%. it looks like across the term structure, if you want to make a directional bet against

citigroup, i think look out to september expiration. q2 results in july 15th. you'll have the next fed meeting that's going to come july 27th. if you don't have a hike then, or in june, which i don't think you're going to have, i think citibank retests the prior lows down toward 35. look out to september expiration, when the stock was 45, 50, pay $2.30. that is your max risk. you know where the break-even is, $42.70 here. what i want to do, because option prices are cheap, if i get a move lower over the next couple weeks, and i think that's going to happen here, then you can look to spread it and reduce the premium at risk, once option premiums have increased. >> if you make a bearish bet like this, you're not going to be alone. we saw as you were talking about before the show a massive spread to june 22, all 23, put spread in xlf. somebody bought 170,000 of the august 23 puts. obviously somebody's making a large bet there's going to be

substantial weakness in the financials sometime in the next couple of months. >> great lines there. >> i love it when you love my lines. >> if a down trend is characterized by sharp counter trend rallies, we've had an incredible countertrend rally. it's right back to a trend line. sell that. perfect. >> all right. perfect from the chart master. we could be heading into a slow growth economy. if that's the case, where are the safe names for traders to hide out in? chart master is taking a look at a name that could take off if the economy soars or stalls. >> we're going to look at some of the media stocks. time warner in particular. we'll look at it first in the context of where this consumer discretionary part of the market has done media versus xly, the entire sector. one of the things we know about getting long something is you have the condition of underperformance and recent outperformance. you have a setup. we have the preceding condition of underperformance.

this is a basket of media stocks. and i will show you the names in a second. and how much it's lagged over the last two years. down 14%, versus the consumer discretionary setup. so that's our setup. underperformance. but then you want after that setup, comcast, these numbers themselves. look at this group of stocks. this basket that i've got here, on a one-month basis, up 4.4. in a three-month basis 9. now look at that compared to the market. or compared to its peer group, consumer discretion. you've got massive outperformance in the context of preceding underperformance. that's a good setup. let's look at other charts and try to go through here. here's the chart that shows you now you're getting the outperformance. the 2% versus 11. and i think this is going to continue. you've got new relative highs compared to the xly.

here's the setup with time warner. draw the lines any way you want. you can draw them like that, which is we have a break above trend. draw them like that. head and shoulders bottom. or you can draw no lines. but the point is this, this is what a base or a bottom looks like. to my eye, i think you're going to throw back up into sort of 84, 85. complete this formation. we're looking to get long twx. >> mike, what do you say? >> do you agree? >> i do like this trade. first of all, on the basis of the news we saw this week, a stock is yielding a little over 2% in terms of the dividend. think what their closest competitors are, maybe espn, the only basically cable content provider that's got higher affiliate fees than they do for hbo. look at the company is valued in total at about $80 billion, which is twice as much as netflix. hbo actually has higher net incomes than netflix does. you take a look at that.

roll in the fact that the thing is trading less than 15 times earnings. this is a fairly attractive trade. >> all right. walk us through. it's very simple, actually. >> i don't see anything taking off right here. understanding that i think there's a floor underneath it. i think selling the july 75 puts, collect $2.15 for that. basically you'll be yielding just under 3% in less than 45 days. if the stock does fall, you'll have it put to you. any premium you collect you'll get it at a nice discount. you can look to write calls against it. but the valuation is attractive. these are the types of trades you want to set up if you think you can buy a stock at a reasonable valuation. in a situation like this where i think the market's probably going to go sideways. >> talking about pe relative to growth. it really is very attractive. especially when you consider disney trades above market multiples here. we know that a lot of people think that it should probably be a bit more in line with time

warner. you also have to remember fox is trying to buy these guys for like 80 bucks a year and a half ago or something like that. so i like your trade. if you think that the stock's going to consolidate here and continue to do that, but if you think it's ever going to break out and you think some of the stuff going on with the original content, delivery, all this stuff that's actually moving below our feet, you might want to sell a put and buy call. have that leverage to the upside rather than having a placeholder. >> they are stumbling a little bit. so you've got the "star wars" franchise on the disney side. i don't think we can say the d.c. franchise from time warner is quite the success. it's a gross disappointment. batman versus superman, let's be serious. it's a gross disappointment. some of the avengers stuff they're talking about, i'm not as bullish on that in terms of what the content is. they do set up well. they've got good affiliate fees. hbo basically has a direct to consumer proposition. which i think is nice competition for netflix. i like the business. >> we're getting into much more market trouble. it's a lower beta stock.

it will hold up better. it's idiosyncratic, and you have the opportunity to participate. >> if you think that there's a potential the stock will gap down 10% like we had last august or something, it doesn't change a whole heck of a lot, a few dollars out of the money. think about it, the risk versus reward, if you think it's going to break out the way you do, i'm saying if you're willing to be naked short a put, you might as well think about -- >> what is the breakout? you're probably talking, what, 10% to the up side? maybe? this is a low beta stock. to collect somewhere near 3%, in less than two months, actually that is a fairly good rate of return. almost 25% annualized. >> you went in the trade at the bottom line. >> i like time warner. i like all the reasons these guys say, but to me i'm not a place holder kind of guy. i want to get the juice. you think it's breaking out on the charts. >> 25% annualized rate of return isn't the juice. i think that's pretty good. >> keep doing that. i want to see you do it every three months.

>> got a question out there. send us a tweet at options action. for everything "options action" check out "options action".cnbc.com. we've got the hottest options news. while you're there, sign up for our super cool newsletter. what are you waiting for. here's what's coming up next. that's what the bond market says it's going to do. we'll tell you how you can protect your portfolio. plus, here's what one crucial group of stocks is doing. we'll tell you why it could spell trouble for the market 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.

♪ no, you're not ♪ yogonna watch it! ♪tch it! ♪ ♪ we can't let you download on the goooooo! ♪ ♪ you'll just have to miss it! ♪ yeah, you'll just have to miss it! ♪ ♪ we can't let you download... uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. 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." transports are in the midst of their longest losing streak in three weeks. that could spell trouble for the rest of the markets. the chart master explains. >> the setup here is long-term outperformance. and then the opposite, recent underperformance. just for fun, i went back to 1980. here you have your transports versus your market. that's outperformance. yes? you're talking about 3,000% versus 1900. 50% bettering of the s&p. that's our setup. not in principle sustainable. but then more recently, we have underperformance. so now we've reversed it. this is your problem, if you will. and then this is your opportunity. there's the blue line. i mean, transports are really dragging over the past two years.

in fact, the numbers speak for themselves. down 4.5 versus the s&p. so i want to look at the day to day action. this week they are one of the worst performing aggregates even as the market fought back. this is a two-panel chart. what it shows is the relative performance to the s&p as a relative spring line itself. what we know is important. even as you were making new highs here, this matched its old high. it's making new relative lows. not participating in line with the market. so let's draw some lines. i think you can draw them. like that. i'm going to make a bet that we're going to -- after this countertrend rally, the bet we're making on citibank earlier, again, this is going to fail. again, importantly, down this week. worse in the market. down today. it just can't -- this is what an upgrade in union pacific. second and third biggest weight from the street. still lagging in the market. >> all right. mike, you agree.

>> we got a lot of negative information on the transports this week as well. first of all, we talk about the jobs number. if you take a look at the trade deficit numbers, though, embedded in all that is basically a decline in trade. both imports and exports, about 5%. that's not good. we also heard that a lot of class a truck orders are down. that also is not good. the only place it really looks interesting in here is probably the airlines, because they just seem so absolutely cheap. we talked about that also. sometimes things are too cheap. they're cheap for a reason. rising wages could be a problem. oil has gone up. that's the biggest drive of their net profitability. take a look at all of those things together, look at the shipping indexes, none of it really looks that good. you need more economic activity for this to be a sector that's going to do well. i'm inclined to go with carter. iyt is the way you want to play this. look out to september. buy the 135, 125 put spread. you can spend about 2 1/2 bucks for that. i want to urge everybody that's watching, be sure to use your limit orders, because the option spreads could be a little wide here.

you're spending about 2% of the value of the underlying index to make that bearish bet. to me, the risk/reward relationship is pretty attractive. >> when we talk about the lines, they look similar to citigroup. it hasn't made a new high since the 52-week highs. you see this, it's a pretty well-defined downtrend. the problem i have with an instrument like the iyt, fedex, ups and kansas city southern they actually look very different. they look like they're consolidating. it's tough. 30% of the weight. >> top heavy, right. they are the big ones. but they don't act that well. then you've got the big three railroads that bring up the top five. again, think about this, so union pacific catches an upgrade. it really was in the sense that the person that had it had a price of 78, moved it to 80, the stock was already at 87. that helped the index itself.

it was really bad this week. >> that's the other reason you use a trade like this. risking 2% of the value of the underlying index. it doesn't take that much to drag it down to see profits on this. the thing is down 5%, this will be profitable. you've got a good percentage of this index that actually isn't seeing such a favorable income. >> if you had to slice it finer, what would you bet against? >> i've tried to short the iyt. those two top names, fedex and ups have helped me lose money in the trade. i don't need any more help with that. i know that boeing's not in there. i know carter, you hate that. see how related it is to the other names. i would rather pick on a mega cap stock like that that acts really poorly and is rolling over. it's in the same theme for all intents and purposes. i'm kind of maybe focusing more on single stocks than the etfs that are tough in the bull market. >> we've seen some of the long-term orders. they have a little bit of a backlog. i think boeing is still a fantastic company. i think airbus still trying to figure out how to compete with them. the stock has seen weakness lately. you know, to me, i actually need ever to see something come off the

back of the potential orders, especially in asia where that's basically the growth market for them. i'm not hating boeing right here. you're not risking a whole lot. general market weakness will take this into the next -- >> market kind of on juice, to some extent. if you really think there are problems, i think some of us do, the transports aren't going to reflect that. up next, bonds are breaking out on the heels of today's jobs report. if you missed it on the rally, fear not because our traders have a way for you to cash in. that's 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. welcome back to "options action." time for the upside call where we take a look back at some of the winning trades. last month dan said bonds were about to break even. take a listen. >> to me, i looked at the tlt when it was trading at 130 today. the trade is a risk reversal. i want to sell the september 1, 26 put at 2.50 and use the proceeds to buy one of these september 133 calls for $2.50. it cost me nothing. >> the tlt surged to its highest level since february. dan, what are you doing with this trade? >> the trade was to play for a breakout, to fade the enthusiasm about summer rate hikes.

that has come to pass here. the trade was to sell a put and use the proceeds to buy a call. right now, with the etf closing about 133 1/4 today, the put that you sold, which was the september 126, is actually lost about a dollar in value. the call that you're long, the 133 call, has gained in value. the trade is now worth two bucks. originally it didn't cost you anything. i think you want to take that put off. i think you want to buy that to cover for about $1.25. then you can do a roll. look out in september expiration and sell the september 140 call at about $1.25. that should cost you nothing. the beauty is you have a $7 wide call spread on continuing to play for that breakout. and you actually have locked in some gains on the trade. and you can't lose. this is how we try to use the trade structures to wiggle into something without paying a whole heck of a lot. play for a breakout. >> last week, carter said mcdonald's was a bit too pricey. take a listen. >> this is key. stock market is going straight up.

for four, five, six sessions. mcdonald's not participating. relative strength very poor. we've broken our trend line. we think maybe this is just too much of a good thing. maybe they finally priced in all-day breakfast. you've got to have good profits. take them. if you're a short seller, go after the short side. >> use the fact that options are relatively cheap here. you go buy the august 120 put spread, $1.30, a cheap way to make a bearish bet on this one. >> stock was down 1% this week. mike, do you stick with the trade? >> absolutely. basically everything we articulated last week remains true today. 2% decline isn't what we were playing for. up small on the trade, but there's still a lot more room. we've got all the way to august to let this thing play out. >> early in the going. the premise this has come a long way. priced for perfection. and that upside potential limited, down side risk unknown, but possibly important. >> up next, the "final call" from the options desk. stay tuned.

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.

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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 a tweet tonight. the first one is from thunder hawk. any updated thoughts on the vix crush as of late? professor, what do you say? >> this is a gift is what this is. one of the reasons you're seeing the vix come down, that's a short dated option really. people are pricing out a potential rate hike. that's part of it. but actually options remain cheap going throughout the summer. the s&p is not far off its highs. if you were ever looking for an opportunity to hedge your portfolio, now might be one of the best you've ever seen. i would probably reach out to september and october to do that. >> all right. time for the "final call." the last word from the options pits. carter, what do you say? >> long with time warner. short transports. visa ict. >> mike? >> the july 75 puts, sell those in time warner. a good way to collect some premium. >> risk reversal. >> to mike's comments about the vix, looking at the citigroup options. they look really cheap here.

you can kind of hold out a little bit. look out to september. get the move then look to spread. >> looks like our time has expired. i'm melissa lee. thanks so much for watching. check out our website. "optionsaction".cnbc.com. "mad money" with jim cramer starts right 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