hey, there we're live at the nasdaq after a very big day for the markets the guys are getting ready behind me. while they're doing that, here's what's coming up stocks just closed out a blowout quarter, but if you missed the khouw and carter have one name to play catch-up, plus -- you have no style or sense of fashion >> that's what dan nathan is saying about retail stocks right now. and it could be about to get ugly for the group he'll lay out the trade. and -- >> what's there to eat >> get up, napoleon, make yourself a dang cass dia.

>> you might want to think twice about that, napoleon, because mike says chipotle shares are too hot to touch he'll break it down. it's time to risk less and make more the action begins now. >> and let's get straight to it because the s&p 500 just saw its best quarter in a decade, up 13%. the average stock rallying around 15% in that time. but if you missed the rally, don't worry, because carter has a way to play catch-up he's breaking it down. hi, carter. >> all right, we've got this ricochet where we had our best quarter since '09, preceded by the worst quarter since '08, down, up, unchanged over a three-month period, effectively, six-month period, and now the issue is could you find a laggard and play it for catch-up here's the sli, the industrials, versus spy, the market, and then 3m i think this is the opportunity, the lagging. you'll see the pattern next. the presumption is that this is a fairly important bottoming out formation. so, several ways to draw the

lines. you can use a moving average typically, i like the 150-day, but 200 is the same. what you have in many ways is a double bottom of sorts, but you also have this well-defined inflection turns and now turning again. and so, the bet is that this is on its way to meaningfully higher prices. another way to draw the lines would be as follows -- just a simple break above the down trend. and so, here, too, the bet is that this big name, lagging name, is going to play catch-up with the market. and then let's look at a long-term chart. what we know is it's found this line quite precisely and has bounced, has bounced, has bounced, has bounced, and ultimately, the question is does it go on and make a new high, make a new high, make a new high somewhere close to that. let's look at relative performance. and this is also key here's the same chart. here is the setup. here is the prospective resolution on the absolute

but what's so important is that relative performance, the industrials, basically 3m has done nothing for a long time but again, it has found support off of this relative line repeatedly, and we are here yet again, and i think this is the setup for playing a big name, a dow name that has lagged. >> all right so carter's very casual but he seemed very adamant about this trade, mike, so what is the trade here >> yeah, so, this is an interesting situation because we have a stock that's trading probably at a reasonable valuation on a historical basis. it hasn't seen a whole lot of top-line growth, but this used to be a darling for the longest time they have earnings coming up on april 23rd typically, it moves about 3% that's about what the options market is implying but this is a name where when you take a look a little bit further out, what we're seeing is that the options are not overwhelmingly expensive, so this is a situation where i think we can be pretty simple about the trade structure that we were choosing i was looking at it earlier today. you could buy the june $2.10 calls, spend $6.50, so a little

over 3% of the current stock price to make a bullish bet that will capture earnings and a decent amount beyond if you wanted to make a bullish bet here an important point i would make is that, you know, i think this is one of those situations where you wouldn't want to reach out and buy the stock right here i think you'd be committing quite a lot of capital if the market rolls over, has a beta of almost 1.2, so it would potentially get hurt but if earnings provides a positive catalyst, this is a situation where you could look to spread this into a call spread if it declines significantly further, you could even look potentially at selling some puts if you really felt compelled to buy the stock, but i don't feel that way i think options are cheap enough that buying calls is the simple way to play it. >> what do you think >> it's interesting. if i wasn't looking at the funny-mentals, just the chart, it looks good, poised for a breakout and showing good relative performance here, except for the fact that 60% of mmm sales come from outside the u.s. did you see what the dollar did this week? a lot of people were saying

that's it, the dollar's done, it's not breaking out. so when you think about all of the issues with trade in china and the potential for it to be pushed out, i say to myself, this is a company that is very -- could be adversely affected by any legitimate push-out, which is why mike is saying with option prices where they are and the technical setup pretty good, to buy calls at the money makes a whole heck of a lot of sense, because if you get all that right, this is going to be a big winner. this stock was trading at $260 in early 2018. so there's a lot of things i like about it, and i most like the idea of just defining your risk with a trade like that trying to be constructive. >> yeah, i mean, imagine if you -- consider how much the market moved this specific quarter. you know, what if we started to see something similar happen here if some of that overhang in 3m didn't present itself, could the stock be 15% higher in 90 days i think that's entirely realistic. but i also think that given those same overhangs, it could be 10% lower, and that's why we're risking 3% of the current stock price to make our bullish

bet. the hope is that if that proves to be correct, we're going to see an outsized win. and if we prove incorrect, we're not going to risk that much. >> the person that wants to be cautious would say listen, it didn't participate with the bounce in industrials, and therefore, something insidious and sin democratic and wrong my take is otherwise, that it's such a non participant that that's the opportunity and it is a sort of slower moving kind of safe name, a household name i think those would be beneficial things. >> yeah, i mean, the one last thing i would say that could give it an extra boost if things turn positive here is that the sentiment amongst the street, amongst analysts really hasn't been very positive in this thing. and of course, when everybody's looking down, that might actually be a time to start looking up. >> let's talk about another group that's been heating up, and that's retail. the xrt retail etf having one of its best weeks of the year and best quarters since 2014, but dan here says the chart is about to make a major fact faux pas, so what are you looking at, dan? >> a couple things here. obviously, one of the biggest

headwinds to just our economy right now is this trade situation with china, and it doesn't seem that there's going to be any resolution any time soon the other thing that's important to think about, and we just heard it with larry kudlow speaking to you earlier today, mel, is there seems to be the entire global economy is resting on the u.s. consumers' shoulder here and we've seen a lot of volatility in consumer-related data and i'll go back to i know the university of michigan consumer confidence is trading at an 18-year high we got that print a couple weeks ago. but an interesting thing when you pull back one layer of the onion is that long-lasting goods, the indication to buy those is actually at a multiyear low, despite the fact that consumer confidence is at an 18-year high sometimes that could be a precursor to kind of lower-end goods kind of slopping off a little bit and when you think about this, q-1 auto sales are supposed to be down 2.5% year over year. we just got pending home sales this week. they were down 1% year over year that's the tenth decline in the last 12 months so i say to myself, you know what, the xrt, the etf that tracks the s&p retail sector

doesn't act so great we have a chart versus the s&p 500 since the start of 2018. it really has underperformed, especially this year you talk about one of the best quarters, up 10% versus the s&p up 15%, yet still down 13% versus the s&p down 4% from its highs. i say to myself there's not going to be a trade deal probably until june or so. and i think once we get into may and start getting retail earnings and we start getting less clarity from companies, i think that the xrt turns down. i have a one-year chart quickly. i see resistance at $46, some support at 44, an air pocket down to 38, a december low look at the five-year chart. i'll let carter speak to it. i see that series of lower highs, the lower lows. it looks pretty nasty. you break that support at 44, there's an air pocket down to those prior lows so to me, i look out to may expiration when the xrt was trading 45 you could buy the 45-40 put

spread, paying $1 for that, buying one of the may puts for $1.15, selling one of the 40 puts at 15 cents it breaks even at $44. you could make up to 4 bucks between 44 and 40 between now and may expiration, and your max risk is $1 that's a little less than 3% of the stock price. i like the risk-reward here. >> it's interesting given the potential headwinds that you have here and the fact that this as a group really has been in no man's land now for a couple years. what's interesting to me is how cheap the options are. they're trading right now -- the trade he's looking at -- those options are priced at two-year lows, which is extraordinary, and if you're wondering why it's extraordinary, look at restoration hardware, what happened to that stock today this embeds basically any of the secular headwinds that you can think about in the economy this has a whole basket of those stocks and so, you know, if you think you're going to see some pressure, fact that options are cheap i think sets up pretty well right here. >> the truth is not only has it been underperforming this year, but four of the past five years.

its relative performance peaked five years ago and we know that it's a broad swath. it's 95 stocks, $1.9 trillion. and by virtue of being equal weight, it gives you a very good tell and there's something wrong. that's it. and i think it's a great short the levels are right. >> let me mention one other chart, which you may agree, and it may be going up for thehe oil chart? it closed above $60 today for the first time i think since november that's obviously another he of feels like that underperformance is really, you know, kind of telling us something's out there and it seems like given how cheap option prices are, this is a good way to be a little bit contrarian right here. >> no question if you look at the consumer discretionary sector itself, it was so influenced by amazon when it was in there, home depot, mcdonald's the underlying story is a very negative one for most of these consumer names, whether it's autos, whether it's individual stores, not good. >> that's the other thing. there's obviously a lot of stocks that are in this particular sector, but a lot of

those, you know, the headwinds that we have talked about for all of this time, the whole sector essentially has gone nowhere, thoe headwinds have not been removed and there are others in there, the car banas of the world, where you actually have a decent amount of leverage and not a favorable earnings picture you take a bunch of those things, put them together, it's not a great -- >> leonard, homebuilder, did you see that thing trading 53 bucks after that supposedly better-than-expected earnings two days ago. you know where the stock closed today? $49, reversed the entire move. so i feel like when you're getting good news and the stocks are not reacting with consumer-related stuff, i think we'll see a lot of that over the next month and a half. >> check out optionsaction.cnbc.com you can sign up for the newsletter don't miss out here's what's coming up next -- avocado. >> chipotle shares are on fire this year, but mike khouw's saying avocad-no to the fast

trade. he'll tell you how to play it. plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air when "options action" returns. i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

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the stock was up 65% in 2019, making it the company's best quarter on record since its 2006 ipo, its second best performing stock in the s&p 500 not only this year and has doubled in just the past 12 months, but mike khouw says it may be getting too hot to handle. he's over at the plaza to show you how in a "call to action." >> we'll look at a put calendar. now, this is a stock i've been skeptical about before, and of course, it's had a phenomenal quarter, you mentioned up 65%. it's up nearly 85% since the december lows, but it is exceptionally expensive stock. so are the options but how expensive? you know, i was taking a look at this thing earlier today now, let's assume for the sake of argument that the growth targets on the top line hold true and that, somehow, they manage to expand their net income margins basically to the widest that they've been since the company went public. that would be about 11%. this company is trading in that instance at about 28 times 2021 earnings i think that's pretty ambitious.

so, we're going to be having earnings coming up in the third, fourth week of april usually in the month going into earnings, the stock moves about 5% in that month preceding earnings we'll have slightly less when we go into the market monday on april 1st. afterwards, we usually see moves of about 10% so, the idea here is, with an expensive stock wanting to be bearish on this stock, but also recognizing that until they announce earnings, we might see some muted moves we can take a look now at the kind of stock price that we've seen you can see that this thing has essentially gone straight up so, you know, the idea here is that we want to make a bearish bet. we recognize that it could go a little bit higher. i'm not going to be inclined to short this kind of a chart, i can tell you that for sure, but i do want to make a bearish bet. how do we do it? the trade i was looking at was buying the june 700 puts -- expensive, $43.70 -- to reduce the cost of that trade i wanted

to sell the april $15.40 puts. i mentioned they're going to be reporting earnings in april, but that actually is going to be after those first options expire, so we're anticipating relatively modest moves going into earnings, relatively big moves coming out of them so, that's the whole idea here net-net, i'm going to be spending about $28.30, if you got this at the prices that you're seeing here today another quick point, as we look at this chart. if the stock somehow just basically went sideways going into earnings, looks like we're going to be losing money in here we're not. why not? because this thing is just going to be decaying away, but this put over here that basically gives you the opportunity to short the stock after earnings is going to maintain a good deal of its value this was the one that's really going to decay away here this is a trade that i think for now, going into earnings, is actually a good setup so that you can own a way to take a bearish bet if the bottom falls out of it. and you know, we do have a huge concentrated holder in big

ackman, pershing square, one of the largest shareholders in it it's been a big source of his winnings this quarter. it would have been unlikely he would have sold some shares going into the quarter, but might he take profits coming out it i don't know i might be inclined to. >> what do we think about mike's trade or do we say avocad-no on the trade? that was on the monitor. i'm not going to take credit for that amazing. >> here's the deal, i think the parabolic nature of that one, it's not going to give up a big bit of that until we have a catalyst mike targeting that date is making a lot of sense. and by selling the shorter-dated april put, it doesn't catch earnings and he's setting up to own that may put that does catch earnings i like this trade idea because i think the likelihood of any stock-specific news coming out before earnings is probably not great and his trade structure's given him room to the down side, a little room to the up side, and it's fine if it goes up a little bit, too. >> it's actually the june put we're looking at -- >> oh, june, yeah. >> so you'll have a lot more

time so essentially coming out of that, you'll get almost two months coming out of earnings, reported on the 23rd and 24th. so the week after that april put rolls off. >> i mean, the incredible thing is it's return to the scene of the crime. here's istock that was 50 bucks in '09 at the plunge low, basically gets to $750, $760 in august of 2016, and then of course people start getting sick, they get their problems, stock gets wiped out, goes to $25037 we a $250 we are literally back to the spot where the problems started and that is the definition of rushing to a difficult level where there is overhead supply so in principle, before you can exceed a high, you typically contend with it. contending is backing and filling or backing away. i mean, i'd rather sell my stock or put on options trade that reflects that view than make the bet that there's a lot more to go. >> yeah, i was speaking to karen, actually, before we came on the air about this, because i was just talking about how much optimism seems to be built in at the valuations we're currently seeing and her point, and it's a good one, is that if they are basically seeing peak revenues

and peak margins, those things may well indean cope cried, but the problem is it's basically posted right there right now, so how much potential up side could it have unless there is a squeeze? lululemon reaching for the sky on the back of earnings report this week and that's good news for one of our traders. plus, have a question about trading options or maybe just want to know how dan keeps his hair so sleek? you are in luck because we are taking your tweets rater in the show we're live from the nasdaq and times square much more "oa" still ahead (indistinguishable muttering) that was awful. 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.

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i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ welcome back to "options action." time to look back at some of our open trades. last week, mike khouw partnered up with guy adami on a bullish lululemon bet. >> chinese sales up 40% in china in an economy that's slowing down. apparently, they're still buying their lululemon because those sales were crazy and the last operating margins -- despite all the things they've done, operating margins have improved. >> i'm looking out to april. i wanted to sell the $135 puts for $4.30, buy the $145 calls for $9.45, and then sell the

$155 calls why isn't that drawing, for $4.95. >> they were right the retailer falling today, but still up more than 14% since the time of the trade. so, mike, what do you do now >> so, if you follow us on twitter, and you should, then you would know that we recommended earlier this week that you take the profits and run. we spent 20 cents to put the structure on when i was looking at it earlier this week, you could have taken it off for $9.15 the most it could be worth, actually, is $10 so, really, most of the money that you could make actually was made the options market was implying a pretty good move, but not as big as the one we saw. and i would make one other quick point here, because if you had just bought the calls, that obviously would have been a big win, but if you bought the call spread, it still turned out to be a pretty good win because when you look at how much it actually geared, it worked out about the same. so this trade obviously worked out for us. >> the word sublime comes to mind i mean, how good and also it stopped at the former high, right stopped right at that october high perfect trade, in and out.

what more could you get? all right, earlier this month, dan said western digital was heading for a rebound. >> it bottomed out on christmas. it broke up above that down trend line here's the really important part, it was able to actually get back above $50 today, and that was the breakdown level from the fall, so i think that is an interesting setup. i think you look out to may expiration with the stock trading at $51.50 today, you could buy the may call spread paying $4 for that. >> the stock soared with the rest of the semis today but still down nearly 7% at the time of the trade what do you do with this, dan? >> this was in the money at the time so we chose the $50-'65 call spread, and it closed today about 48 bucks i think what you really need to do here is you're targeting a $54 break even the spread is worth about $2.50. this is one where i really think you have to keep a close eye on and you want to keep a premium stop i usually like to use a 50%

premium stop, so you don't want this to go below $2, because the probability of it being worth much less on may expiration probably increases. >> the pattern's intact, right the play to bearish to bullish versus bottoming out, nothing's change i think you just stay. up next, your tweets and the final call 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. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those.

i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ ♪ baby love, baby love well, the "options action" family is growing! take a look at baby cortland, the newest addition to the werth family congratulations to carter, jill, big sister and brother congratulations. >> thank you very much. >> adorable. very adorable. time for "the final call." carter, braxton worth. >> play on the long side for catch-up. >> mike khouw? >> i think you want to use calls for that and if you're long chipotle, i'd think about taking some profits or look at maybe the put spread

calendar that i recommended. >> and nathan? >> yeah, i think there is something brewing in consumer land i know you think i always hate the retail stock. >> well, everything really. >> but i really hate them now. i think xrt put spreads. >> that's it for us here on "options action. see you nextfriday at 5:30 p.m eastern time don't go anywhere. "mad money" with jim cramer starts right now - [narrator] the following is a paid presentation for the power smokeless grill. brought to you by tristar products. what if we told you it's finally possible to enjoy the char-grilled, juicy, succulent food you love every day without the hassle of firing up your barbecue, standing out in the cold, and refilling propane tanks? introducing the power smokeless grill. the only indoor grill with smoke extracting technology. watch again as it sucks up that smoke and odor like a vacuum. the five star reviews say it all. people love the power smokeless grill. - i've never used an indoor grill that gave you outdoor charcoal results.