the guys are getting ready behind me. here's what's coming up on the show >> this is, excuse me, a damn fine cup of coffee. >> and former starbucks ceo howard schultz says if you like the coffee, you should love starbucks cheap stock. we'll tell you how to play it. plus -- >> money has got to be the shoes. >> shoes. >> shoes. >> shoes. >> it's not the shoes that has him so excited, it's an options trade that can make money if nike is up, down or nowhere at all into earnings. and here's your portfolio

and here's the market. and we've got one dow stock that could catch you up to the rally. it's time to risk less and make more the action begins right now. we'll start with that dow stock on a week that the ds down more than 2%. the chart master says he's got one name that could break out. carter, what are you looking at? >> i'm looking add johnson & johnson. a top ten name in the s&p and a major laggard, down 12% year to date, underperforming the dow 30 and the market in general. i think the underperformance is coming to an end so just for good optics, i've got a five-year chart. the colors are clean you can see the difference, this divergence, right, that we've seen just over the past sort of

six months with basically the market continuing higher and johnson & johnson. so we've got a performance spread that i think has reached maybe a maximum. just a few charts and then we'll get to the absolute j & j chart. look at that over the past year. you've got the market here and j & j. what i want to point out is j & j is not trading with health care health care is way up here if you were to look at it watch the next chart j & j is trading lock step with beaten down consumer staples we know consumer staples have started to come to life and i think that's exactly what's going to happen with j & j keep going just to put this in context, we have a circumstance where over the past six months, j & j down 12, s&p up 3 for a spread of 15%. that's only happened one time going back to the 1980s. what happens thereafter, when you have a spread of 15% or more, johnson & johnson, three months, six months, nine months was actually up. the odds are both median and mean and that's part of the statistical play here that i think is important in addition to the optics. another way to look at it, johnson & johnson in relation to its trend, whether you use the 200 or 150 as i do, how far

below is it from its average the next shows it. we are essentially at the 10% below the average. that's the lowest in three years. how about if i do it since the '09 low. ready? same chart we are sitting here. look at this this is exactly at prior lows where it got so bad that it's good meaning we've got a lot of setups statistically, optically okay finally the j & j chart itself two ways to draw the lines i think you can draw this, early stage head and shoulders bottom. i think you can draw a trend line we've just broken above it, so my hunch is this is all in play and we are going to do this and then finally, market down on the week, health sector down on the week, j & j up and the week. >> mark, how are you trading it? >> it is trading at less than 15 times earnings we have a fairly stable revenue and earnings picture here. one thing that is a little more expensive than usual, although not expensive on an outright

basis are options. so the three-month options in johnson & johnson are a little over 15% that's low compared to almost stable that that's actually so expensive. we do have earnings coming up in july on the 17th i think the way to play this is with a call spread specifically i was looking out to september the 125, 135 call spreads, you could spend $3.25, net, net you're spending $2.60, just a little over that quarter of a distance between the strikes that i usually look to i'm trying to give myself a little time for this to play out and capture that earnings event. in low volatility stocks when you're using options, give yourself some time because what you're really trying to play for is a change in the trend and then giving yourself enough time

for that trend to play out i know that you usually look for somewhere in the neighborhood of 60 to 90 days. that's what i'm looking for here and this stock also paying almost 3% dividend yield that should create some level of support and you're risking just a little over 2% of the stock price. >> obviously carter's technical work is pretty compelling when you look at multiple different inputs and a fundamental basis, mike has identified a catalyst and given himself enough time. i just put the whole thing together mike said he is risking a quarter of this $10 wide call spread to make this bet over the next couple of months. what's really interesting about risking $2.60 is to my eye and your eye is like 120 is a really important breakdown level. so he is basically setting a stop at 120 for this trade to work out the next couple of months if it starts to move up in carter's direction, mike could probably roll that call spread up there's a stock down 17%, 18% from those all-time highs. >> how much are we really

looking for, maybe 7% to 10%, something in that neighborhood >> let's just say the market is headed to real trouble j & j will probably offer you protection there is an element to that. if the market is just going to keep going, there is the nds this stock as it's found energy, as it found beaten up consumer names, as it's now finding staples outperforming. >> what does it look like overall? >> sort of dull. >> so this is a standout in comparison. >> standout because it's so bad. >> so bad that it's good. >> i'm just waiting for a little -- remember, it started to outperform this week. let it start and then go >> last word, mike >> yeah. this is one of those situations, obviously the market did look pretty woolly. i am comforted by the fact that it's a very low beta stock the fact that it held up well and the valuations should in theory create some form of a floor in terms of any other declines. let's move on to another stock in the dumps starbucks.

ward schent a rather unusual e-mail to jim cramer commenting on the company's stock. >> and then i thought this was probably the most telling paragraph. he writes the stock i have rarely commented on is cheap and undervalued. our team will lead us to the promised land. as my mother was so fond of saying, this too shall pass. >> despite the move today, the stock posted its worst week in two years after announcing store closures, taking down guidance, also warning on china. before we get to the trade here, what do we make of the former ceo's e-mail to jim cramer he probably owns a lot of shares what do you think, do you think it's undervalued >> i thought david and jim had their way with kevin johnson the other day on that call and i don't think it helped investor sentiment. so i like the fact that schultz who just left as chairman and left as ceo more than a year ago, he's got his heir

apparent's back. this stock has been an underperformer the last few years. it's been range bound. i think they have been very clear about articulating where their future growth is going to come and that obviously is in china. the news this week is they are accelerating the closure of some underperforming stores here. global same-store comps were much below what expectations were, just about 1%, and here's a company that's been missing their consensus estimates three out of the last four quarters so they need to start seeing some of these tech investments starting to pay off. so i think the ex-ceo and founder schultz says this is all likely to happen in the foreseeable future, so take it easy on our stock a little bit this may take some time. we have a one-year chart this is going to help inform the trade. the stock really broke down in the mid-50s here and i think that's a really important level to target as we think about this trade going forward. and the five-year chart, there's obviously pretty good support in the low 50s. if you want to play for a

bounce, you like what schultz had to say, you think the stock has to digest over the course of the summer they preannounce the same-store sales and will have earnings in late july and give some guidance hopefully it's not as bad as what we just saw i think you may want to use a call calendar. you're selling an out of the money short dated call to help finance the purchase of a longer dated out of the money call. so today when the stock was trading at done 51.25, you could buy the october call spread and the august 55 calls at 60 cents, you'll buy one of the october 55 calls for $1.10. that costs you 50 cents. here's what you want to have happen over the next five, six weeks, you want this stock to move up

close to that 55 strike. the call that you sold in august hopefully expires worthless. you have helped finance that longer dated october one what you really wanted to do is go back to that breakdown level and then you set up owning this october call, playing for a catalyst that may materialize into the fall. >> i like this trade one of the things that the recent price action suggests to me is that there is some real money that's selling this stock. that's pretty clear. there's something else that's also clear maybe it's not the growth stock it once was but it's trading at 20 times earnings. that's going to create some bit of a floor the moves they're talking about are the moves you'd hope any business would make with underperforming stores what do you do you close them, of course. when i hear the news about china, the news seems overwhelmingly positive. one of their biggest stores in china has 400 employees and they're just scratching the surface of what's possible from my perspective, this takes advantage of the fact that

there's obviously some weight on the stock at this time but i do think it's a reasonable value here. >> think about what dan started to say i think it will take some time there's some weight on the stock and that's the key point while it can be the low, it takes time to establish the low, so there's no rush from the point of view of just buying and saying i've got to get in because it's cheap usually they drop for a reason and then you have to put on a structure like this to make it work, because it's not just out of the woods, it just fell on its face. >> the key word there is structure. at the end of the day i would fought be buying the 55 calls out in october that are $3.50 out of the money if you're playing for this thing to digest and ultimately break out in the fall, that would be a horrible way to do it. so this call calendar really helps mitigate some of the decay that you would have in that out of the money call between now and the august expiration. >> all right for everything options action, check out our website. while you're there, sign up for our news letter. more than 100,000 of you already have don't be the only one missing out. here's what's coming up next. mike has a slam dunk trade on nike that can make money if shares go up, down or nowhere at

all. he'll break it down. plus calling all options action fans. reach into your pocket, grab your phone and tweet us your question at options action if it's nice, we'll answer it on air when "options action" returns. well, it's earnings season once again. >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. your insurance on time. tap one little bumper, and up go your rates. what good is having insurance if you get punished for using it?

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welcome back to "options action." think hot trades and you might think tech but consumer discretionary is the best performing sector of 2018 and it could be set for a bigger move next week. check out nike sitting near all-time highs the options market is saying a 5% move in either direction from the stock. how should you play it mike is over with the call to action. >> i'm taking a look at nike obviously it's had a great run here one of the things that has happened as a result of that is that we're getting pretty close to relative high valuations when you take a look at the stock on a historical basis the other thing is, of course, because we have earnings coming up, we have elevated options premiums, implying about a 5% move which is the average move we're going to talk about one of the things and that is that actually more often than not the stock moves 4% or less and a few times it moves a lot the last few years we've had moves more than 7%, 8% and one actually more than 10% so if you're going to fade the stock or bet on something that's a fairly neutral play, one of the things we need to do is make

sure we're not taking a huge risk as you pointed out the stock has had quite a run, it's one of the better performers we've seen in recent weeks the structure i'm taking a look at is selling the july 75-76 call spread. i could collect $1.75 and pay $1.25. we're collecting 40 cents. obviously the stock will need to get above $75.40 for us to lose money at expiration to the upside a modest move even if it trades sideways, this trade should work out pretty well. and one of the probabilities that these things will happen? that it ends up below 60, about 60%. the chance that it gets above that higher strike is going to be less than 40% actually, only 33% that it gets to that higher strike.

so this is a trade that has a better than not chance of being profitable we get to collect some premium, collect some of that elevated premium and maybe fade a stock that's had a pretty good run that might come to an end over the next week or so. >> what do you think of mike's trade? >> i like the trade idea if you think it's run ahead of earnings the way i would think about it, if they disappoint it's easily going to come back to 70, which is that breakout level but if it's just like okay, you might have a stock that's flattish so mike's trade structure has very high probability of success in that scenario, so i like it i like the fact that he's defining his risk and selling premium into an event. >> in the sense that it's a hot space. we know nike is on its own deckers up 42, steve madden, big moves in footwear across the board. nike is its own asset. having moved from 50 to 75 is a little hot does it rest or does it pop again on its number? my hunch from a charting point of view is that it is a little

hot and is basically likely to consolidate back sometimes stocks are fairly priced it kind of belongs right here. >> that's kind of my point and why i'm playing it this way rather than putting it on a premium outlay which would require something to happen. this is a trade that makes money if nothing happens or if the stock trades lower of the of the things that could happen, higher, stays right here or goes lower, two out of three of those are good things for this trade if it does rally, you think about it, your risk will be 60 cents. the most you can make is 40 cents. even if it did rally through you have a chance to cover it for something less than that 60-cent risk. >> carter called nike its own asset. do you think it is idiosyncratic? >> when this stock was at 50 last year, we were looking at starbucks around 50 and saying the same thing in the quick

serve or coffee space or whatever so these had a head of steam on their own. nike started moving before those other guys too. >> nike was under pressure because adidas had such a big comeback >> we have wimbledon coming up and federer is going to -- he will tell us what to do next. plus let's take a peek inside the "mad money" studio with our cramer cam. jim is talking to the ceo of red hat after the stock sunk a whopping 14% today and took the cloud stocks along with it that's top of the hour on "mad money. we are live in times square. much more options action still ahead. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that.

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$1.60, selling one at 35 cents >> well, dan was right the fxi falling more than 6% since the time of the trade. dan, what are you doing with fxi now? >> one of the catalysts i was just identifying i think is going on a summer long here. the fact that they broke that support level at 46, i think at some point very soon closer to that short strike down there at 43, i think you want to take the profits on this thing. it's going to be volatile. then on a bounce back toward that breakdown level, you want to put this back out and have this short exposure with defined risks throughout the summer. >> the lows are so well defined that dan cited well defined lows at a common level. when you break, when you break out, you don't contain it. it breaks out further or breaks down so really what dan implied should be more trouble throughout the summer. also carter and mike said micron's big rally was running

out of steam. >> you can see the following off the line, off the line, off the line, off the line we have lile oa hing prospect of having not made a new high my hunch is that we've got a next trip down towards the line. >> i was looking at the july 57.50 put spread spend $3.60 and sell the puts against it for 90 cents. >> micron is now down more than 3% since the time of the trade mike, what now >> i felt like the news was good but didn't perform that well so i'm inclined to continue to lean short. >> when you have good news and bad price action, that's particularly insidious much more to come. >> much more to come. >> in that case we stay in it. >> yeah. i want to reiterate, last quarter when this company reported a beat and raise, i think you have the almost exact setup.

>> do semis look weak overall? >> that's just it. the cyclicality within tech is stalling, is struggling. m.e. has been one of the best ones and all of a sudden it puts up a good number and can't follow through the problem is, the net is, it's not progressing. >> up next, tweets and the final call well, it's earnings season once again. >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool

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(indistthat was awful.tering) why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." time to take your tweets but tonight we're doing something a little different weaver taking your video tweets. who better to kick it off than a video from our number one fan, alex. >> hey, melissa. i'm alex and i'm from los angeles, california. i'm a big fan of options action and all of cnbc. with all of the news about disney acquiring fox assets, how

would that play move through options. thanks >> what should he do from here >> i'm not as committed to the stock. looks like a coin toss to me 100 looks like the danger zone to the downside. sell something out around like the 115 level and sell the 100 puts against it to keep the premium down. >> there's a minor triangle formation so the implications are minor. from my point of view, the stock is sort of a pair of 2s, a nonhand. >> so you're telling alex don't play for a breakout period. >> i'd rather not do it. but alex, maybe you're going to make a fortune on it. >> by the way, if you want your video featured on the show, just tweet it to us at options action time for the final call. last word from the options pits. carter. >> johnson and johnson, a case of so bad, it's good. >> buy call spreads in johnson & johnson.

>> i think it's important to reiterate that point about micron it is rolling and i think smh is the one to stick with. >> looks like our time has expired. i'm melissa lee. for more options action, check out our website or tweet us. see you next friday, 5:30 eastern time meantime "mad money" with jim meantime "mad money" with jim cramer starts right now.e follom for microderm md paid for by trophy skin woman on pa: our audience are all seated. rozz, we're all set for you. i'm ready. let's go change people's lives. announcer: and now, to the exclusive premier, "the truth behind younger looking skin". i think when i look in the mirror the one thing that gets me down about my skin is just the aging that happens so quickly-- the fine lines, the wrinkles, the pigmentation, the age spots. i really didn't like the wrinkles that were coming around my eyes, all that crepey-ness underneath them. i'm too scared to leave the house without makeup