hey there, we're live at the nasdaq markets. tough afternoon for the stocks. guys out here trying to make sense of it all. while they're getting ready, here's what's coming up on the show. >> england! >> yes, you can add that to the growing list of concerns, but relax, we've got a way to protect your whole portfolio for less than 5 bucks. plus, here's how thirsty investors are for yields. good thing we have a way to create income out of thin air. we'll break it down. plus, forget gold and oil. another group of commodities have gone hog wild.

it's setting up for a perfect trade. let's get to it because stocks posted their worst day in three weeks. should investors brace themselves for a summer swoon. let's get in the money right now. mike, what do you think? >> summer is not typically a great place to invest anyway. they say sell in may. historically, that has held to be true. they've done a lot of research on this. you add to the fact that we're sitting very close to all-time highs and we obviously have plenty of global economic risks to concern ourselves with. we have the brexit vote, concern about the fed and bond voices telling us we're in no growth forever. you put all of that together and you have to say there is nor potential for the down side than the up side. >> how are we setting up for the charts? >> as an asset class, the equities, median stock in the russell 3,000, 98% of the

investment capitol in the united states, has made no progress in two years. on the january lows you're talking about half of the russell 3,000 had lost 1/3 of its value. we're not in a bull market. now there's a question is this a new bull emerging or bull trap which ultimately results in lower prices. >> we heard what these guys had to say. at the same time there are a lot of people who will say because of bond yields and doing what they are doing and because of what's going on globally, that there is no alternative but u.s. equities. >> yeah, well, listen, all the u.s. equities are not created equal here. the s&p 500 levitates here. there is a safety trade asset to that. when i think about the summer here and when i think about risk/reward, i agree with these guys. let's talk about this. three weeks ago fed fund futures were pricing, what, a 35% chance that the fed was going to raise rates next week and a 5 5% chance that they were going to raise in july. if for some reason we get a surprise, now the probabilities

are like zero and 20%. if we get a surprise, u.s. equities aren't going to like that. i get the argument. we've been talking about this. look at how equity markets act in europe and japan where trillions of dollars of sovereign debt are below the zero interest rate. i don't think this will be positive for u.s. stocks. >> what you see in japan and europe is fear. nobody wants to buy risk assets when your central bank is telling you we're in a whole lot of trouble and we're not exactly sure what to do about it so we're going to start experimenting. if you want to experiment, you don't want to take your nest egg. >> the fed had an opportunity to normalize rates. now they have to experiment if they cannot raise any time soon. we have some sort of crisis that engufls the u.s. >> the real part of tina and evaluation, if things were working and the s&p is almost 6%

and most stocks are yielding more than the ten-year treasury, the s&p multiple shouldn't be what it is at 1670. it should be 24, 25. the market doesn't believe in it. if it did, things would be higher. something is not right. i think the market knows that. if you look at it on an equal basis, stocks are so cheap they should be bought, bought, bought. for two years they're not being bought. something is wrong. >> what they're doing is they're forecasting a decline in earnings. >> further decline. >> that's right. so what they're saying is we had 120 bucks a share in the s&p, now it's 100. maybe we're looking at 80. >> you're looking at the russell 2,000. >> small cap stocks, they use the iwn, the etf that tracks the russell 2,000 here. if you like to look at portfolio hedges or put some sort of short delta position in your portfolio i think you get the most bang

for your buck in the iwm. it's made back about 23% here. you have an opportunity if it starts to move lower, you'll get more bang for your buck. it shows worse relative strength. i don't think you press this next week. you give it an opportunity. you rally into fed meetings. maybe you get a wlift. i would look at a put spread. when the etf was trading at 116. you could have bought the august 115/100 put spread for $3 paying 3.75 for one of the august puts and selling one at 75 cents. $3 is your max risk. you can make up to $12. lose up to 3, between 112 and 115 on the up side. max lost. i like this. it looks like decent support. it's basically 2, 2.5% of the

underlying etf price to get a good bit of protection if things hit the fan in the summer. >> what do you think of the trade? >> look, you want to be hedged in this situation. it's pretty simple. we'd add a little bit of uptick in implied volatility but it's incredibly modest. >> also what we know is these have outperformed on the absolute low because of their higher beta, but it's where they are in relation to their prior peak. they're still down 10% which shows how not fixed the market is. meaning the s&p is flirting with this notion that i'm going to break out or not but the russell 2,000 is nowhere near that kind of circumstance. >> right. what would derail your thesis? >> if we just made a new high from the other day and it just got back on this horse but, listen, i actually think that the fed is not going to be raising rates this summer. i think that is going to add a whole heck of a lot of

volatility. i am not of the belief that lower yields in the u.s. from here is going to be good for risk assets. >> raising rates would increase volatility, too. i think we're in store more more volatility. >> now two commodities because while everyone focuses on gold and oil, quietly, one area has been surking. breaking it down is our main man, dom chu. >> melissa, let's talk about what's happening with the stock and bond market. all of the time we talk about these things, nice change of pace to talk about commodities. we know what's been happening with oil. it's been a week, a huge one for some of the softer side of the commodity. specifically assets like wheat, corn, soy beans, sugar. some of the commodities took a hit after a government report forecast bigger wheat supplies. today over the course of the medium term these have been pretty hot trades. if you take a look at how the trades have performed over the last one-month period. wheat futures have already gained 7% over that time frame.

soy beans up around 9%, corn risen 11% as well. sugar high, i call it that because we've seen about a 24% gain in futures in the last month. as traders look for some of these opportunities, there has been some decent action in some of the soft commodities. melissa, you can see the sugar trade there. you can't leave you without a hat tip to that movie "trading places" and how much all of us talk about what happens to frozen orange juice and pork belli bellies, i knew it. one stock that can benefit from the surge. >> we'll look at the biggest fertilizer, pot ash. soy beans are up 42, corn, wheat up some 25 from their absolute lowest. i thought i'd start with all commodities. this is a broad index of equal weighted commodities going back

to the 1960s. what's incredible is the analog. a ten-year move from 1970, 1980 and you had a 10-year move this time, 2000, 2010. you had a five-year pull back from 1980 to 1985. and here, 2000 to 2005. if this analog were to play out, we're in the midpoint. ultimately it doesn't go anywhere. if it has. what's crazy, this was inflation. this was deflation. this is analogous. i want to look specifically at food stuff. this is the crb food ip decks. it has coffee, corn, wheat, soy beans, so forth. to my eye i see the lines like that. a break above a down trend line or you can draw them like that. a head and shoulders bottom, but i think we're going o move higher. holding that thought, take a

look at this index. same index relative and now here's pot ash. so we're playing for a catchup with the commodity. here is the chart of potash. here is one where you can draw the lines. it is starting to get above the line the way the food stuff index did. what i'm thinking is something quite nice like this. so higher, we want to call this an asymmetrical risk/reward. unknown but possibly very juicy upside. >> what's your take and what's your trade? >> my take is somebody got ahold of the crop report. the reason i say that there's the stocks to use which tells you how much inventory you have on hand. we've been around five-year highs. the usda report that came out on corn and soy beans is forecasting 14.2%. that is the lowest it's been in five years. it's one of the lowest it's been in a long time. that has been between 12 and 46

basically going about 50 years. 50 years is when we were doing farm aide. we had a lot of agricultural problems. there is some bullish news here. look out to september and you're going to do something called a call spread risk erosion. buy the september risk calls. sell the september 20s. a net debit against 50 cents and sell september 15 post for 15 cents. net net you'll collect a dime. long at 18, up to 20. you don't have the stock put to you down until it's about the 14.90 level, net of the premium you're collecting. that happens to correspond to the recent lows. so you're basically saying i realize it's had a little bit of run. i'm not going to take risk right here i will buy it back on the local lows. otherwise, i get to participate on the right side. >> i don't think i've ever heard the word potash come out of dan nathan's mouth. >> it is 4:20.

let's hit this. my take of the trade is mike has nailed the levels. 14.20 was the multi-year low. i agree with carter's technical take. i would get a little aggressive. i might not sell the september 20 call. you have a nice relationship between the put that you're short and the call that you're long. i know what you're trying to do. not expend any premium. here's a stock that was beaten up. if there is a rally, there is no resistance. >> if it pulls back, that up side call will go down in valley. you may get to cover that cheaply. >> commodity-rated stocks do that. >> you wouldn't sell the up side call either? >> i leave that to my man mike here. >> sounds like you agree with dan, carter. >> are the odds of this better than the odds of that? i would say they are. >> basically what i'm saying the forecast invens totories for co

have been very bullish, which means you want to associate it. maybe even deer is a buy on the heels of this. >> got a question out there send us a tweet to watt optionsaction. or check out our website. sign up for our newsletter. makes for a great weekend read at the beach. here's what's coming up next. >> lisa, i want some more. >> that's what investors are saying about yield, but we've got a way to generate income out of thin air. we'll explain. plus, talk about a bank job. >> this is a robbery. >> shares of financials are in a free fall and it could just be the start. we'll explain why 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.

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." how low can they go? bond lows tumbling. if you're an investor hunting for yield, where should you look and how should you play it. dan is at the smart board with a simple strategy. >> we know where investors are looking. they're looking at u.s.telcos and big pharma that pays big dividends. we want to super size that yield. let's look at a stock like verizon. it's deemed to be pretty defensi defensive. let me look to see if you are

looking to sell strangles. you're already long. one of the reasons here is you're there because of that defensive nature. and we're going to get to what selling a strangle is. one of the other things you want to do is let's do it in a stock that's range bound that's not going to be gappy. we're going to be selling options against your long stock. the last part is we talked about selling overriding. we're going to be selling a put. you want to do this in a stock where you're willing to buy more. let's look at the chart here. this to me, we've had this recent move as treasury yields have come in in the u.s. over the last few weeks. the stock has moved up. if you look here, there's pretty well-defined rings. this was the breakout, it got rejected up here at 54. that's what i'm going to use for the range bound. what am i doing to add yield to verizon. i would look out to august. i would look at selling the august 48.55 strangle. that would be selling against 100 shares.

about 40 cents. selling one of the august 48 puts at 45 cents. i'm taking an 85 cents in premium here and what that really does, it sets up an 85 cent buffer to the down side but it gives me an added yield in between the short strikes while i'm also long in the stock. i can make money right here up to $55. on august expiration my stock would be called away. that would be 55.85 the premium i received. that's up 6% over two months. that's a pretty reasonable annualized yield. then on the down side it gives me a buffer from 52.75 down to 51.95. the worst case scenario is the stock is down 9% at 48. against one contract i would be put 100 stocks. you have that dividend yield. this is a strategy, if you did this routinely, you could

actually really super size that dividend yield. you would annualize something far greater than the dividend yield. >> a lot of people are watching the strategy and thinking this is something i should consider. everybody is walking into these yield stocks. trading at a premium to the s&p 500 so they don't know where they go from here but they want to hold on. >> take a look at the strike and put that he's selling at the 48 level, collecting 85 cents. if you are put the stock you're going to own it at 47.15 which is a hair above the level that it was trading at the level it broke out in january. this is a really smart investment strategy. it's one that a lot of sophisticated long-term investors use that. leon, cooper man and omega use it. this is a good, smart trade. >> nice yield for what it's worth. yields less environment. >> exactly. >> as the bond yields go lower, this makes this even more attractive. up next, financials

stumbling to the tune of 2% this month. we'll tell you why there could be even more pain ahead after this 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. time now for the up side

call. we take a look back at some of the winning trades. last weekend we had a bearish bet on citigroup and the financials. listen. >> if you want to make a directional bet against citigroup, you can look out to september expiration. chart it. 2/2 results on july 15th. today when the stock was 45.50 you could buy the september 45 puts paying $2.30. that is your max risk. >> shares of citi tumbled along with the rest of the space this week. dan, what do you do now? >> i think you stick with this. this is the way i'm going to trade this. we know we have a fed meeting next week and one in july. that will come after citigroup's disappointing q2 earnings. a pretty nasty outlook for the back half of the year. stick with this trade. what i'm going to do if we get a movement down to 42 bucks. $2 down from here. it's a 40 delta option. every dollar the options are worth more, about 40 cents. at that point i am going to roll the premium to a lower strike. i think 40 is the breakdown

level. you want to be here for some september action. you have to manage the risk. as it goes lower the options are going to be more expensive. i don't want to spread it. >> this one traded like water, get in, get out. it looks bad. >> all right. now to nike. a few weeks ago cohen carter thought the stock would retest its low. have a listen. >> what i'm just expecting is that we're going re-approach these prior lows if not more. so close around 56 and change. i'm thinking we can get 52. want to sell nike. not a good setup. >> i'm inclient to go along with it. 15 to 20% of their revenues coming from sales. you can sell the july 57.50. collect 95 cents. sell the 57.50 for 1.95. cover the upside for $1. >> nike did hit a low but it's managed to crawl back. what do you see the charts now? >> we didn't get the 52 price, hit 53.

now annoyingly firm today, no red tape. stick with the trade. that's what i see. >> yeah, i agree with this. even at today's prices we have made small profits. our up side break even is 53.10. it's up 3 bucks. they report on the 28th. we'll probably want to revisit it. >> up next, final call from the options pit. 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.

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. you tweeted, we listened. first up, we've got a grievance from jennifer schwerman. why do you keep playing duran duran. please make it stop. it can be found by max meier who is of another era. even though he is a young man. >> we now know. >> we have one from brad holt. brothers and sister, ford is just flat over the last month. what crews control trade is there in ford? >> being flat after the market

rallied the way it did is a problem. relative strength in most tests comes back after a factor that is efficacious. ford's strength is a disaster. the group is worse, global autos. >> the stock looks immensely cheap, probably forecast to make 2 bucks. there's a reason why it looks so cheap. we are at declining sales. declining credit quality. the only way to make a bullish bet is to buy a longer dated call but i wouldn't buy the stock. >> yeah. go back to real quickly, ford, we have all the toutos, home bu something is going on. >> time now for the final call. last word from the options pilt. carter. >> get long some potash playing for a cashup in the move in the underlying commodities. >> i like the way he says potash. >> in potash, i'll follow the lead. call spread risk reversal.

collect a little money and make a bullish bet. >> don't sell the up side call. we have anna, aaron, shout out to them and then iwm, if you get a bounce into that meeting, that's when you put it on. our time is expired. we'll see you back here for more "options action." meantime, cramer is up. >> announcer: the following is a paid presentation for luminess air. take a look at this blemish. now you see it. now you don't. >> it is amazing. >> announcer: do you see this age spot? don't blink. it's gone like magic. >> luminess is stupendous. >> announcer: watch this redness disappear at the touch of a button. >> people have said to me, "you look amazing. what have you done?" >> people ask me if i've had a face-lift. >> people asked if i got botox. >> announcer: these women all switched to a new foundation. >> people come up to me and say, "your skin is beautiful." >> announcer: it's not a in