welcome to "options action" live from the nasdaq market site overlooking times square as the guys are getting set up. here's what's coming up to today's show. >> that's what traders are saying about one hot trump trade. we'll tell you what it is and how to profit. plus -- >> want to see something really scary? >> well, then look at shares of retailers. and there's one name that could really feel the pain next week. we'll give you the setup. and, talk about a shocker. tesla shares are going in reverse, and there's one reason why they could go a lot lower. we'll explain. the action starts right now. ♪

>> let's get right to it, because as the dow's record run continues, there are a couple of names that may have come too far, too fast. so, which stocks could see a pullback? dan is looking at health care specifically. >> oddly, you know, the health care sector, biotech and big pharma stocks have been very volatile over the last year, especially when the results of the election were obviously pretty, you know, debated throughout the summer and throughout the fall. so, when i think about this and i just want to talk about a stock purchase like johnson & johnson that had this massive one-day gap on november 9th after the election and then gave it all back soon after. to me, those are names i want to look at again because they've been particularly volatile over the last few months here, and i think it presents a trading opportunity because we have a market that's not moving a whole heck of a lot. it's just inching higher every day, but there's a lot of really interesting opportunities in single stocks. and because of that lack of movement, options prices are cheap for making directional bets. >> i was shocked because i saw

health care and didn't realize it was up 8% this year! >> yeah, i mean, it's pretty incredible. first of all, i mean, there was a whole basically section of health care that was performing very badly relative to the rest of the market. so i definitely feel like it had to play a little bit of catch-up, but you know, this is an area that can end up being a political hot potato and that's one of the things that makes it vulnerable. basically, i think some of those concerns have really been alleviated. all trump has to do, basically, is open his mouth and who knows what's going to happen next, but there is obviously a lot of room to the down side in a lot of sectors. >> i mean, it's been the market in reverse. we know for instance, big tech, they were horrible in november and december and big in january and february. and health care can struggle. the only sector down in '16 is having a great moment. interesting about j&j, though, if you look at its correlation it trades tighter to consumer staples than to health care because it's a low bid stock in a lot of the consumer products.

>> and there's a couple reasons why i'm looking at it. we have a one-year chart, closed on the highs, up about 6.5% on the year, mildly outperformed the s&p, but that's almost to the dime the high of november 9th. i think that sets up for interesting near-term technical resistance. the other point is we talk about tax reform. this company has about $35 billion verify seaoverseas. most of their cash is overseas. repatriation, tax reform is important to them. since the november election, when this stock is now back up to those levels, the dollar's had a big rally. half of their sales come from overseas. so, like mike was saying, when you have a scenario where who knows what the next bond is going to be, and it's at technical resistance, trading at about a market multiple, growth is expected to be low to midsingle digits. they just guided down in late january. i look out to the next identifiable catalyst. that is their q-1 earnings that are going to come on april 18th. so, when you're mentioning about option prices, they're really cheap. when the stock was trading $122

today, you could buy the april $120 put, paying $1.50 for that, breaks down to $1.185. you're risking less than one of the stock price, a stock that rallied 10% in a straight line. i have a five-year chart. this is really important. over the next two months, if there was another bout of broad market volatility and these guys were to guide down again, look at that $110 level. i know you love my line. that's what you'd be targeting. and in this market with volatility as low as it is, you can be in the game for a bit here and have an event and have really a call on the market. >> yeah, i mean, the play when you're using a single option on a low volatility stock like this is you're simply looking for the stock to reverse course. that's really the situation. it doesn't make a lot of sense to spread because if you did try to, there's not going to be much premium in that other option. and take a look at how far the stock has moved in a relatively short period of time. if it can move that sharply up, it could in turn move that sharply down.

>> just a classic example of how money gets tired in one thing, find something else. disney was a laggard and that's come to life. j&j, nike was a laggard. you see athat when there's a lot of momentum in the market. this is pretty steep day to day. the day-to-day angle. >> when you're looking at johnson & johnson, because carter mentioned it's more correlated to consumer staples, were you looking at those names as well or did you look at one -- >> proctor and gamble's another one. i think they obviously have the same headwind as far as the dollar. tax reform is a huge thing for them. and i guess my point is that i think you can start to look at some of these names that have gone up, so offsides one different way, that i think that the expectation we are going to have tax reform or some sort of deregulation or whatever, infrastructure, in the next few months, i think it's very unlikely. and i think we'll continue to see poor messaging. some of these executive orders that don't turn into policy. and i think ultimately, some of these things are going to reverse, and you'll be wishing when the spot vix was 11 1/2

that you had done stock replacement or bought puts or something like that. >> i mean, we have rarely had actually as good an opportunity for purchasing options outright as we have right now. i mean, there have only been a few instances where we've seen volatilities this low. and obviously, if you're going to make a directional bet, it's a way that you can commit very limited amounts of capital to do that. moving on, as the market's hit records this week, one group showed some cracks. materials and industrials, two of the hottest trump trades, have suddenly turned cold with freeport-mcmoran, u.s. steel tumbling. the chart master is now calling them fake trump trades. what do you mean by this, carter? >> well, that's right. nice tie-in. but i mean, what we do know is that there is a thought that certain stocks went up because of the election. yet, this is a trump trade that never really was. and so, i've got some charts i thought we could look at the sector industrials and do a trade on the xli. so, the thinking is that industrials reacted to the

election, which they did. almost all stocks did. and that this is a so-called trump trade. now, i just want to put this in context. now, these numbers are pretty straight forward. it looks like industrials are beating the s&p. and that's the case if you bought on friday before election week and then you went to present. but what if you bought on the friday after election? so, we had the election on tuesday, and you simply were one week later. it's all of a sudden different. this is the loser, meaning if you were there for the first three or four sessions, yes, you're outperforming the market, but if you chased it on the election week, thursday or friday, you're actually underperforming. you had opportunity cost that's hurt you. you've picked something that the market is outperforming. there is no trump trade here. it was literally four sessions. okay, let's do it optically. the line i've drawn is on the friday of election week, so you

get this huge run on the election, three, four days. and what we know is since then, the industrials have traded up, hence the arrow that i've drawn. but their relative performance is down, meaning, so, if you weren't there for that week, those days, and you chase it the following monday, you're up absolute, and yet, it was a bad pick. there are other things that could have paid you more. let's take it back a little further. now, this is relative performance to the s&p. all industrials after the industrial recession that companies speak of have gotten back to relative performance almost perfectly to their prior high and stopped dead cold. up absolute. you're not winning if you picked it. relative performance is what everything is about. all right, put it in another sense. this is over the last five years. i mean, a beautiful up channel. how have you done compared to the market?

you've got nothing. a bad pick. and all of a sudden, they're acting very heavy here and now. so, let's look at a few charts. now, you could draw like this. some people like these things, head and shoulders. but that means it's already played out. it's already up here. another way you could do it is this, a trend line. you could do this, a straight line. you could put them together, and i think that's exactly where we're going to come back to, a nice check back here. i think you want to fave the xli, be underweight industrials. >> what's your trade for a pullback? >> look at the april 65-62 put spread and spend about 75 cents for that. caterpillar obviously had a huge run going in, not that far off its all-time peak valuations. that's obviously an area where you could see pullback. we've got a lot of defense contractors on the first page, constituents of this etf. donald trump's always talking about trying to get more for less out of the defense contractors. that's a risk factor they certainly have. you also have names in here with

some dollar exposure, and finally, you have ceos with the lesser known names who say we have basically been in an industrial recession as far as they're concerned for the last several years. so, we had obviously a great run. a lot of these stocks are looking pretty rich at this point, so i think you can use inexpensive options now. >> i like targeting the $65 to $65. that's your support level near term. i think it makes a lot of sense. i think the xli's an interesting etf. ge is the largest holding, down 4.5% on the year. i kind of like it on valuation thing. i think other things are going on there. immelt is obviously cozy with the new white house, but cat is an interesting one. you may want to look at specific names like that. cat is expected to have its fifth annual sales decline this year, fifth. as it goes higher and higher. so to me, that one's really expensive, and if we don't get the infrastructure plan in place, that one's going down -- >> even if you do, they get 17% of revenues from domestic

construction equipment sales, so that is really not the way you want to play the bet anyway. >> and think about how bad it was, and despite the headlines, there is no trump trade. if the trump trade was three sessions, that's not a trump trade. it should be in every newspaper and every radio station. it never happened. now they're starting again. transports are acting very heavy. not a good area to be in. >> fake trade. >> fake trade. fake trade. well, the options trade is no fake, right? the beauty of this is, you know, especially in index land, which is why i'm looking at xli, the vix is low. applied volatility on indices is low like this one here. 70 cents is a pretty inexpensive one. got a question out there? send a tweet to @optionsaction or check out optionsaction.cnbc.com and check out our super cool newsletter. it's huge in europe. go figure. in the meantime, here's what's coming up next. it's alive! it's alive! it's alive! it's alive! it's alive! >> that's what traders are

saying about retail stocks. but there's something in the charts that suggests the run might be done. we'll break it down. plus, here's what shares of tesla have done this week, and there is something in the charts that's pointing to even more pain ahead. we'll tell you what that is and how to profit when "options action" returns. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.

hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. welcome back to "options action."

retail's on the rebound today after a flurry of contrasting headlines about the border adjustment tax, all of this coming amid a flurry of earnings both this week and next. .com chu ma dom chu made it here to the nasdaq but didn't find his way up here to set. dom. >> i know, i know. it's my first time here in the booth in the nasdaq, but i'm just a few yards, i guess, away from you guys, but i guess you could say first of all on the retail side of things, there are a couple major cross currents affecting the retail industry right now. you've got the corporate earnings story and what's happening with the potential border adjusted tax or that b.a.t. the latter is weeks and potentially months before any kind of clarity. corporate fundamentals, though, are giving us data right now and results have been mixed. of the big earnings reports this week, we're seeing some at least positivity on the trading activi activity. so, look at the big reports this morning. nordstrom is up 6% since reporting last night, then macy's up about 3% since tuesday's report, and then tjx companies up over 2%.

walmart about 1% higher on this week. now, you can argue that the border tax stuff is driving the majority of the action, but still, those factor in information available to this point, so earnings probably factor in the price. next week, the retail parade continues. you have notable reports, target on tuesday, best buy on wednesday and then lowe's that day as well. as for what the options market's pricing in for how those stocks could move post earnings, you've got best buy, it has the largest implied move, over 9% up or down on the heels of earnings. target and lowe's each expected to move more than 3% in either direction as well. so, melissa, you add earnings to the speculation on that b.a.t., and we could have some continued real action on the retail front. it could be exciting next week, melissa. back over to you. >> all right. thanks so much, dom chu here at the nasdaq. so, what are some of the ways to profit for retail right now? mike khouw's at the smartboard with his calls to action. mike.

>> we'll talk about selling a call spread. what are we looking for? we're looking for situations where we have a neutral to bearish outlook. we want to look to sell shorter dated options. typically, i like to sell options that are 60 days to expiration or less. and this is a trade, incidentally, that you can do just as an options trade or against a long stock position. i'm looking at lowe's, which may interest some of you since we looked at home depot last week. this actually should have gotten a good read from home depot, but it has behaved fairly badly. so, the trade i'm looking at doing is selling the march $77-$81 call spread. you can sell the 77s for $1.30 and buying 81s against it. this will hold below that $77 level and breaks even around $78. a neutral to bearish bet. these are not as cheap as a lot of other areas. this stock is implying a 3.5%-plus move. >> what do you think of mike's trade, the structure, in light of the fact we got earnings from home depot? >> i think it's important we think about what make's trying

to do. there's a gap up to $80, $81 and mike's trying to fade the gap with defined risk. he knows options premiums are high into this sort of event, and it's a neutral to bearish sort of bet with defined risk. that kind of makes some sense, especially in a kind of slow market. yeah, home depot moved up a little bit. this thing didn't do a whole the heck of a lot. if you think they'll underperform home depot's results, then this is a good strategy. >> they have historically underperformed. they simply never seem to match up. even though they had comparable revenue growth over the last ten years, they did that by building new stores. home depot didn't have to do that. they didn't seem to catch up to home depot's performance. >> what you said is right. if your price action is poor and you're a direct comp to home depot, that's not a good tell, that's a red flag. but as to the general subject of retail, if you look at the broad etf xrt, equal weight, probably 100 names, it's down on the week, underperformed the market. there's no change because some

of the dead stocks bounced. it's still a very burdened area at the moment. >> it is very interesting how this sector in particular digested the news of the border adjustment tax. it seems the beleaguered stocks with their own problems do worse and the stocks at the home depot, which would theoretically also face problems with the border adjustment tax, they are just fine, trading at record highs. why do you think that is? >> for one thing, i think there are haves and have-nots in the retail space and home depot is one of the haves. the things they haven't done for growth is build new stores. they've been trying to build an online presence and have done that reasonably effectively. the other areas are just in secular decline and there's almost nothing you can do to fix it. jcpenney's may be the worst case, but nordstroms and others are facing the same thing. >> amazon is not a threat to home depot right now and they are to all of the others we mentioned. tesla sliding 6% this week after a disappointing earnings report and that has dan grinning ear to ear. he'll tell you his next move after this break. more "options action" ahead.

♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade. hi, i'm frank. i take movantik for oic, opioid-induced constipation. had a bad back injury, my doctor prescribed opioids which helped with the chronic pain, but backed me up big-time. tried prunes, laxatives, still constipated... had to talk to my doctor. she said, "how long you been holding this in?" (laughs) that was my movantik moment. my doctor told me that movantik is specifically designed

for oic and can help you go more often. don't take movantik if you have a bowel blockage or a history of them. movantik may cause serious side effects, including symptoms of opioid withdrawal, severe stomach pain and/or diarrhea, and tears in the stomach or intestine. tell your doctor about any side effects and about medicines you take. movantik may interact with them causing side effects. why hold it in? have your movantik moment. talk to your doctor about opioid-induced constipation. if you can't afford your medication, astrazeneca may be able to help.

oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. welcome back to "options action." it's time for "total recall," where we look back at our open

trades. last week, dan made a short-dated bet that tesla would fall on earnings. >> the stock awas raiding $270 today. i might want to short date it, march expiration and look up at the 2.90 call, equal to the prior high, and sell one of those against 100 shares at $4.75. then i'd use the proceeds and look down to that support level down near $240, and i'd buy the march $240.5 put for $2.45. that costs me nothing. >> tesla's down almost 6% since then, so dan, what do you do now? >> yeah, so really importantly, this was a position to hedge a long stock position. so you sold those calls, you covered them, because they're worth nothing, okay? and you get them out of the way and you don't have that risk to the up side. then you think about what you do with the $3.50 in profits of the put. that's offsetting the losses of the stock, okay? so, the stock is down about $13, $14 here.and you may think to sell the march 1 because it's only a few weeks away, and take the profits of that and roll it out maybe into a put spread,

something longer dated. >> a 6% decline on a stock like this is almost negligible, right? so -- >> even the run especially. >> it's had an incredible run, right? the valuation is absolute nose bleed territory. they're going to be outsold in the electric car business by companies that are a heck of a lot cheaper than they are, make a lot of money, and actually have substantially more in r&d and they'll have to raise capital. i think the problems are rolling into a put spread. if it does start to roll over, it could roll over very sharply. we're not talking about another 5%. >> we'll see what he those say about that. >> we know there are no stocks to this size, $40 billion to $50 billion that go up 50% in the matter of months. it's the only one. it did that in december to the level at which you made your trade. and the level you made your trade, which dan's a smart man, what he talks about on the charts it was at a prior high, right? and it failed right at that prior high. now it's sort of even money.

you had the opportunity to point against it, from a chart point of view, it probably starts to back up and fail, but where it failed, it did exactly what you said in terms of a level. >> would you make that into a put spread? because the next possible catalyst is probably a capital raise. you're sort of in no man's land at this point? >> it's funny, i hate saying this, because it's such a crazy stock, but i think the people who are in this for the long term are in it for the long term. >> they're in it. >> i think they're happy to see a capital raise. it gives them a longer runway, a greater likelihood to hit the targets on the model three. this is really about that vast market -- >> the low-cost base is big holders like fidelity. they're not going to do anything or go anywhere, but there are a lot of other participants who are much later to the party, though, and those are the types of participants that could get skittish. up next, your tweets and the final call from the options pits. hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade.

well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade.

♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade.

let's take some tweets here. our first one says "the chart master made a bear case for the soxx yesterday on "fast money." how does the put sound"? >> i think an april put sounds great because they're going lower. i'll turn it over to you to talk about the best one. >> when you're giving long premium, you want time for it to play out, maybe 60 to 90 days, which may be the time frame he's targeting. options premiums are low, specifically on things like indices, so i think buying the put makes a lot of sense. >> donald has a question for dan. the march 17th nvda 101 strike has three times the call open over the put open. >> it means absolutely nothing! you have no idea what all those calls are against. they could be sold to, you know, against stock. who knows? so don't take your -- >> the head of this company also selling a lot of stock at the same time, which is a little bit of a worry to me. >> time now for "the final call," last word from the options pits. what do you say? >> it's going to be a little less sangin on industrials, lxi

going down. >> i like call spreads and lows and earnings. >> johnny john too far, too fast. >> old-school! >> less than 1% of the stock picks. >> our time has expired. thanks so much for watching. for more "options action," optionsaction.cnbc.com. have a great weekend. >> announcer: the following is a paid presentation for the nutribullet, brought to you by nutribullet llc. ♪ >> hi. i'm david wolfe. and for 25 years, i've been teaching people, to get the most out of your life, you need to get the most out of your food. all this food is loaded with nutrition, and you don't just need some of it. you need all of it. and the nutribullet is the machine that can get all of it. for a limited time, nutribullet has an incredible offer. when you order today, we will upgrade you to the 900-watt