♪ >> hello there we're live at the nasdaq marketsite the guys are getting ready for a big show while they're doing that, here's what's coming up >> i'm so excited! i'm so excited i'm so -- scared >> big banks kick off earnings season next week, but after you hear what dan has to say about one name, you might want to curb your enthusiasm. he'll break down the trade plus -- lyft options just started trading. >> that's cool and all, but dude, where's my car >> after a wild week for investors, mike ko has a way to

buy the stock for less and he'll show you how to do it, and the markets are back near record highs, but there's one group of stocks sitting out the rally that the chart master says are about to come back in a big way. he'll lay it out it's time to risk less and make more the action begins now. ♪ ♪ >> and we start off with the markets and the s&p 500 posting its seventh straight day of gains and the dow and nasdaq setting up 2% off their highs. and check out the russell barely out of corruption territory and still down 9% from its record and the chart master says the small caps are about to break out in a big way and he's over at the plasma. hey, carter. it's a catch-up trade more than anything else and we know super cap, large cap names are stalling at the former high whereas this area of the market still has potential to make it

back to the high two lines, you can see the difference in performance over the past year. blue is spy. orange being iwm let's pull back and look at a different timeframe and here we have now the past two years. what we're seeing is a double, right? i mean, that's the issue, is small cap the better trade and going back as far as five years. again, it's about the spread s&p has this circumstance that's at risk. the russell doesn't have that and so the catch-up trade is i think the important one here now look how bad the relative performance has been and another way to show the picture. so here is the russell and what we know is it's been basically straight up with general equities off the december low, but look what's happened its made no progress relative, but what i'm thinking here is you've got something on the bottom on the relative that's

going to hold and then the bet would be that we break out both relative and absolute from that setup. let's look at the iwm itself you can draw the lines any way you want one way would be like this, head and shoulders and the implication would be that we have to get here and then, of course, do something like that let's draw the lines another way. this is key. if i were to zoom in here, just above the downtrend line and the thinking is that this is going to do this, but again, we're nowhere near the highs and that's the opportunity and the s&p stalls and churns at its high and this is the better trade. >> so, mike, what's your trade >> we'll probably observe the vix closed well below 13 today and that's an indication that options on indices are relatively inexpensive here and they're inexpensive on the

russell, as well and we have an opportunity to make a bullish bet and keep it pretty simple. i was simply looking out to the june 157 calls earlier today and those would cost $4.80 and it's essentially at the money call that represents 3% of the cost of the underlying to make a bullish bet and it doesn't take much for these things to be profitable and you're significantly limiting your risk if there is some other kind of convergence and the other convergence might be if we're getting a head fake here and the market's not going to go higher and we're testing the highs again and again and again and if the market rolls over this will fall and mitigating the risk seems to make a lot of sense. >> and that was the question that i was going to ask you and does this imply that the s&p 500 will at least hold current levels >> as a technique when anything has a sharp rally back to a former high, more than that, you contend with the high before you exceed the high and you'll see

in the chart a well-defined top and very rarely did we streak right through and we have the semiconductor index and the large cap tech and all right back to a high more often than not, you don't exceed the high and you turn and back away. >> dan >> i hate disagreeing with these guys, i really do because the charting was very good and i look at this thing and i don't want like it because i don't like the poor relative performance of the s&p the s&p is levitating and it grinds up 20, 30, 40 basis points a day and we were destined to get back to that prior high and for some reason the iwm has problems in the high 150s if you look at it over the last few years, i see what you see, and if i can construct a bullish, fundamental view for the broad market, i would say, yes, this thing is going back to 170 between now and the end of the spring or june or something like that, but i think the charts are great

your trade is the way to play it i just don't agree with it >> yeah, probably a portion of your concern comes from the constituents from the russell itself, as well, which you're probably not that bullish about, would be my guess. and that actually gets to the crux of the matter which is that in general, most of us have a rise in equities and the real question that we have is are we sitting on the cusp right now of continuing to go higher or in a long bull market and if you have that situation, then you have to also agree that the options are inexpensive. >> yes. >> so the vix closed low and 13 today and complacency is at the high that we haven't felt since when august september, when the s&p dropped 20% in a straight line over two and a half months. i think this is probably not -- i mean, listen, i like the idea of playing for catch-ups and i don't want see the s&p getting a

meaningful breakout here and i don't know how -- >> yes, i agree with that. the s&p being where the crowding is. >> correct >> we know specifically in software and other super cap tech names which this does not have that circumstance. >> from small caps to the beg banks, they kick off, j.p. morgan, wells fargo and pnc, these stocks have been underperforming the market all year and it is implying interesting moves and all three expecting to see a 3% rise or drop is this a make or break moment for the banks? >> earnings season is kicked off every quarter and until we get to next friday and the biggest focus will be j.p. morgan and i think wells fargo sticks out because it's been in the news of late and the ceo was forced to resign last week and the stock bounced a few percent and people were taking it positively and then it kind of gave back those early gains and it's lower than where it was after that

announcement and the general counsel is the acting ceo and the board will have to go outside of this company to find the new ceo and that creates some interesting near-term challenges for the company and i don't think you'll get the sort of person to come in unless you see some light at the end of the tunnel, and they see a light at the tunnel with the penalties and stocks this stock trades very expensive to the money center piers and city i i just don't get it. i think you'll have at least, a murky guy that is poor they have expectations to get 19 charts and i'll let carter look at them and hopefully he'll agree with me. as i did with him. but look at the text book chart.

is that a textbook head and shoulder, and it's now in a little bit of resistance >> it's all here it's head and shoulders and those were pretty wonky shoulders. >> whatever, dude. listen, this is the one. this is the one. look at the ten-year chart it just broke late last year and the 10-year up trend that had been in place here and it's a broken stock to me and you want to look at a catalyst and you want to find what you deem to be the potential to reinforce that pattern and i think it will be earnings next week and i want to look at may expiration when wells fargo was trading at 4880 and you can buy the 50 put spread and buying one of the may 47 half and puts forth 97 cents and it costs you 60 cents and you can make $1.90 many 45 and that's the max gain and you're risking less than two% of the stock price and you have this on and you have an event and i like the setup here

>> i was surprised when you said this was relatively overvalued >> yeah, that is one of the dilemmas that we've seen with wells fargo and you would expect that maybe the thing would have gotten cheaper over time they really haven't and this is a name where we've seen revenues decline steadily and financials are sort of facing almost the barbell of headwinds of sorts. one is as interest rates fall that's not necessarily good, but what did we see when we did see rising rates what we saw is a really steep decline in financing rates so basically, if you're not originating loans when rates rise and you're not making money when rates fall. that's a pretty bad recipe to be in so if the valuation is comparable to much better thanks than they are, it's hard to see why you would want to be long >> also the russell, do you do

the kre here or do you do the bk which is the more interesting thing. small regional banks have been really where the trouble is. and they don't have the capital market risk that a lot of these big wells and refi risks or opportunity. in terms of the big one this is by far the worse ones haves have you singled it out for that reason. you could have picked j.p. morgan or city there's something wrong beyond the headlines and it trades very poorly >> to your point, speaking of regionals, of the big banks it is the most regional, unlike a j.p. morgan that has other businesses and less of the investment banking and investment type businesses that, and would you be included to manage the trade right after earnings in case they announce a ceo, for instance? >> way we do earnings,it's really a hard way to make money,

right? but if you have that move friday, you may consider establishing some of that off right away but the other reason why i chose may is i also want to give myself some time and maybe the stock opens up a couple of percent and then it fails and we saw that with lennar and the stock was up 5% and by the end of the week it was down 7%. so you don't want to do weeklies into events because it turns into a binary situation and if you get the slightest thing wrong. >> options action.com and it's like you dayed and went to options heaven what more could you want here's what's coming up next >> it's here >> the cabs are here because lyft options just started trading and after an underwhelming week for investors, professor ko has a way for you to get long for less plus, calling all "options

action"s fans. reach into your pocket, not your phone and tweet us your question and we'll answer it on air when options action returns ♪ ♪♪ ♪♪ ♪♪

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to join the world of dance experience on my "it's my party" summer tour. cast your vote by saying "vote for world of dance" into your xfinity x1 voice remote. or as j-lo likes to call it, your v-mo. 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. ♪ welcome back to "options action." lyft making a u-turn after a volatile week of trading and that stock up 3% a day closing at $72 if you want to buy the stock mike ko has a way to do it for

next to noth's over at the plase call to action. >> the first thing i would point out and this is very important if you are thinking about buying the stock, right now the options markets are saying you might want to be careful about that. we are definitely seeing some warning signs in the options markets about what might be coming up for lyft so if you are inclined to do that and that's going to be kind of up to you, because i realize it's a transformative and disruptive company one thing you want to do it if you can is to buy it less than the prevailing price and the reason you're seeing this in the options market is because of the lockup which we have coming up in september and september 25th is when the lockup is going to basically expire right now the options market is implying the forward price for lyft which is about $75 is

well, we'll draw some reasonable bands of expectation around that we're really looking at a range in here, and you know, if you look at this range, that's a little bit of upside and it's kind of a lot of down side and that's one of the reasons why i wouldn't be inclined to simply reach out and buy the stock and because the options market is making these kinds of signals for us, it gives us an opportunity to take advantage of that when i was looking at this earlier today the october 77 1/2 calls were trading at about 7 bucks. and the 60 puts were trading for about seven and if you buy those for seven. net-net you're not laying out any premium and that means you get exposure if the stock rises just 3%. you get that upside, but if the stock should fall which is options market is saying they will do. you're not going to get the stock down about a decrease in

where the stock is trading buyer beware if you're thinking about buying lyft and if you are going to, take advantage of what the options markets is offering and you're want going to take any of the near-term downside risk in expiration, but you will get the upside exposure. >> one week is not a long trading history. >> no, it's not. what do you make of it >> what we know is if you look at the history of ipos, it is considered the most important thing to not break price and the underwriters do everything in their power to not let that happen and for the fact that on monday of this week it comes in and the whole things go pear shape with the gap and while we've climbed back, i would go so far as to say that the highs on the opening print will stand for weeks and months and that the stock is basically -- will be traded in the range from that opening print of 88.60 and that

we won't see those highs >> we've seen circumstances in the past with ipos where the options market also was implying what the price was going to drift lower and the reason for that is there's more demand to short the stock than there is stock actually available to short and it becomes hard to borrow because of that you have to pay to borrow the shares if you have to short it and we've had coverage on that on the network already because of some of the products that might have been offered for people to short the stock. that is what creates this dynamic. when stocks become hard to borrow, the price comes down and the prices of puts goes up and that is what allows you to take advantage of this in the way most retail investors probably cannot >> it's a real unique setup and he's playing the 77 1/2 call for the same amount and the stock is much closer to the call price. this is a much better way to get that sort of economic exposure than buying the stock right here and i would say over the course of this week the volume did

decrease and when this company started going around talking to investors, the initial range was 62 to 68 and it's kind of at the upper end where it found support and the main event and the way it's going to trade going forward it will be pinterest in a couple of weeks and all of these other names that are coming and the earnings event will be important and we talked about it last night on the network or on "fast money" you will have underwriters and then the first earnings report in mid-may. if those two go well they'll find the floor >> snap shares soaring today and that's great news for the red dent millennial dan nathan and we'll tell you why hey, you, yeah you out there, have a question for the options action traders shoot us a tweet and you just may get your answer on air we are live at the nasdaq marketsite in times square more after this.

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

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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." dan said snap was about to fly. >> obviously, it hit resistance

last week almost to the dime at 20 1/2 here and it's trading now about nine and a half bucks and i think you want to play a call calendar and with the stock around 9.50, you look at april expiration and you can sell one of the april 11 calls at 15 cents and you look out to july expiration and you buy one of the july calls paying 69 cents and that cost you, and that is your maximum risk. >> what a trade. snap is up more than 20% since the time of the call so dan, what do you do >> it was a good idea. it was a bad trade in hindsight, trying to thread that needle by selling the april 11 call and the stock was down at 9:50 and i was giving myself enough time and enough room and at this point i think there's more upside in snap especially out to july and that is the call that this trade is long so what i would do is roll that short april 11 call and maybe just turn the july long 11 call

into a vertical and sell the 14 strike and that seems to be the prior high from the fall. >> two weeks ago mike said homebuilders were a home run for investors. >> if you take a look at all of the stocks that are comprised in the xhp which is the s&p select homebuilders index etf and what you will see is the valuation of the whole group is trading at 12 times forward earnings and that's a cheap multiple and the homebuilders themselves which is a subset are much, much cheaper. you can look out essentially at the money and his is a trade where you can try to be nimble >> mike, what do you do? >> the calls are double at this point and i exceeded out recallier today and to sell that call up to the 41s and you would take profits off the table and

still maintain a long exposure. >> you have an offensive and defensive trade and the rates go lower. >> all right final call is up next. ♪ ♪♪ ♪♪ ♪♪ now kayak and opentable let you earn travel rewards every time you dine.

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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. ♪ >> time to take your tweets. one fan asks dan, are you sticking with your retail trade? >> hey, seattle vince. the s&p was up 2% and the last week the xrt is up 1.5%. i think you stick with it. the trade that costs a dollar worth 70 cents and at that's wher you would cut that trade >> all right time for the final call. carter >> long iwm. short spy. >> mike ko >> that's the best way to play it on the long side. >> mr. dan nathan. >> i like what he said that to he's got the short spy and i like that trade and i also like wells fargo. >> that does it for us on options action see us back here next friday at 5:30 p.m. eastern time

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