hey there. we're live at the nasdaq in times square, carter, mike and dan are getting ready for the show behind me here's what's coming up -- ♪ >> tech stocks got taken out, but the trade tantrum is weak, and dan nathan says there's one stock reporting earnings next week that could make or break the market rally he'll give us the details. plus -- >> get in, loser we're going shopping >> and so is carter worth and mike kho mike khouw because they sa there's one retail stock to buy that can weather the market volatility carter's on the charts and mike is on the trade.

>> and later bond king jeffrey gunlock just made a bold call on the markets. >> i think interest rates are likely to go up. >> and he's got a way to make money using options. we'll break it all down. it's time to risk less and make more the action begins now. >> and let's get right to it because, as you know, it was a wild week for the markets and tech in particular the sector falling more than 3%, its worst week of the year as trade tensions are front and center and dan says there's one tech stock reporting earnings next week that could make or break the market rally let's get in the money what are you looking at? >> yeah. clearly in technology, i think cisco's earnings are important. they report wednesday after the close and the options market is implying a 5% move in either direction for that point and that is a 3.5% average over the last four quarters and what's interesting to me about this earnings event next week is that when they reported in

mid-february, they put up a stellar quarter and gave great guidance, and this was after we had been about six week into this recovery off of the q4 disaster and a lot of investors were very surprised about their execution and the ability to give guidance in this period and so i would tell all of you, go back and watch, jim cramer had this amazing interview with ceo chuck robbins. it was just a steady hand in what was a difficult time and now i flash forward a few months here and i think about what we learned this week and there is no quick resolution to this trade skirmish and we know that these tariffs will be around for awhile and know that technology is in the middle of this thing and we know that huawei, one of cisco's biggest competitors, is righ in the middle of this thing and i think about intel, which, you know what? this stock has gotten wrecked. i want to put a one-year chart up very quickly. it had a 10% gap the last week of april when they gave their guidance it was a disaster and then they had another 10% gap at an

analyst meeting this week after they guided down again i think about cisco and it's already 10% off of its 52-week and almost 20-year highs and much like intel was and i think there's potentially another 10% gap back to that breakout level just below 50 bucks. i want to do one more chart. if you overlay intel and cisco against each other over the last 20 year,s pretty interesting here they are two of the only mega-cap tech stocks that have not made new highs and we know the nasdaq has been making new highs for some time. intel had the 20% drop and maybe there's another 10 coming. one last point here and this is not about cisco's execution and i think they will continue to execute well the dollar's been strong and look at that in the last ten years and this p/e is gettin right back up to the ten-year highs at 17.5 times and that is really rich for a company that's growing like this and it's kind of priced for perfection here and the slightest bit of murky guidance, i think this stock is going to outperform that 5% implied move to the downside

so to me, this is a simple trade here and you look to may ex-pier riggs and that's nex friday when the stock was trading at 53.25 and paying $1 and selling one of the 49 puts at 20 cents and yo break even at 52 and you can make up the three between 53 and 49 your max risk is less than 2% and one-week trade playing for a downside move, where if it happens, this is not an indictment about cisco this is not good guidance. >> i got it. it's about the charts. the charts are setting up for something potentially nasty. >> i think the charts and fundamentals, as well. you might ask yourself why in a name that's not overwhelmingly volatile is the options market implying a slighter larger move. ask yourself this question the options market breaks out for a 5% move for a company of this side and are they pricing in the potential for some kind of a downward move

and that's why you're looking at a put spread and the higher implied volatility and the direction that you look at to mitigate the expense and the thing you want to think about is, you were talking about valuation and it's trading closer to 20 1/2 times trailing earnings and that's basically a five-year high you have to ask yourself, is this thing going to give you stellar guidance and results or are we basically trading at the upper end of its valuation range and i think it's the latter? >> i think the key thing here with cisco the market we know, most stocks peaked on may 1st. this peaked prior about six, eight sessions prior so while it's the same trajectory as the market that makes the low on christmas eve and rallies for the prior ensuing four months, the issue here is this is cyclicality within tech in a way and the move from 40 to 57 is a 42% move and this giveback of almost 10% is bigger than most techs. so you have an earnings event and that's what makes it exciting the risk is that there is more

downside than there is some kind of great recovery move >> spending a buck on the put spread, this is less than 2% of the current stock price. even if you hold the stock and even if you like the stock long-term but you're concerned about this particular earnings result, this is an effective way to hedge >> and i want to make one other point and we had this massive reversal in the market and cisco closed up on the day and i think we can get momentum followthrough into monday and when you're targeting an earnings trad for a wednesday close and you want to give this thing some time and you want to get your strikes correct and this is something that i would look to do early in the week possibly when i think that this reversal has petered out a bit. >> you want to throw these in your pocket? and teal better with these guys? >> there we go >> i never wear a pocket square. >> it's okay if you do that. the dow swinging 450 points to end the day up triple digits check out walmart, the best performer in the index and holding up in spite of the volatility is this the ultimate hideout

trade and how should you play it into earnings next week? carter, you want to go to the plasma and break it down for us. >> so, walmart, of course, i within the low beta and it's a staple even though it's a general merchandise and so well, it doesn't have the stable quality of a coke or a pepsi or soap or cereal company, in many ways because it traffics in those because it's in grocery store, it is very sort of low risk. what i'm thinking it's an offensive and defensive play first, look at all of the underperformance so of this entire decade, there's your '09 low you would expect a sleepier low cap name that has limite growth to underperform and the underperformance is pretty pronounced you're talking about this over the last decade versus that, 100, 300 yet over the past year, watch what happens it all flips around and over the past 12 months it's walmart on top and that's important because equities have been struggling for the last year and a half an

walmart is making progress and i think it's both offensive and defense. if the markets go higher, it will participate and in the event of a great sell-off, walmart in almost every other instance has held up well. so with that, let's look at a few charts. it's all over the plac and yet i think the lines -- and we're working int the apex and the presumption is there's a resolution of course, that's my bet it does have earnings coming up. where could it go as a minimum change the top line. that's 106.21. right on the bottom at a minimum you make that move, that would be about 4 or 5 bucks from here and then ultimately with a little luck, some backing an filling and then a real

breakout, but the trade objective would be $ or $5 just to the prior high. >> okay. what do you think? >> what's interesting is this isn't a name that we typically think of being a high-volatility stock and i think that's one of the points that carter is making here one of the things that i think is interesting, though, is when this stock starts to make a move it can make a fairly sharp one. take a look, for example, the move that we saw late october, early november basically to the lows that we saw in december that was fairly sharp and the recovery that we saw thereafter. so even though the intraday volatility is relatively low, over some period of time call it four weeks, eight weeks, you can get fairly significant moves in the stock. the other thing i would say is it's not overwhelmingly cheap and it's not a huge grower so my inclination was to keep it simple looking at july 100 calls. bear in mind that i think they

trade the well, give yourself some time for this to play out and that's how you want to make a bullish bet. >> a week in which walmart got downgraded and i can't remember the firm, but cut to sell somewhere. >> carter, obviously the technicals sets up as a constructive thing and it's building a lot of steam and the fact that it acts the way it does when you have that negative sentiment downgrade sort of thing, it makes sense and the way the stock recessio just don't have to go and how do we pass through the tariffs? they go back to the consumers but at the end of the day this thing looks constructive and mike's point about valuation makes sense. it trades really well and i think you guys are on to

something and i like they did that -- >> keeping in mind the defensive part when walmart dropped in '07 down 27% and what does the s&p do definitionally, walmart will outperform >> we have more "options action" still ahead. here's what's coming up next. >> options on tlt, the etf and on long-term treasury bonds has never been cheaper. >> the bond king out with a bold call on interest rates this week we'll tell you exactly how to make money with the billionaire investor plus, calling all "options action" fans, reach into your pocket grab your phone and tweet us your questions @optionsaction. if it's nice, we'll answer on air when "options action" returns. >> announcer: "options action" is sponsored by think or swim by td ameritrade.

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i'm not really a, i thought wall street guy.ns. 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 welcome back to "options action," jeffry gundlach, the billionaire bond investor, and i spoke to him on "the halftime report." >> the pricing of options on the tlt and the etf and long-term treasury bonds has never been cheaper, ever, and is completely plausible that that volatility could double when people change their mind and goes back to -- like its average

would be double where it is today. so my idea was why don't we take advantage of that given the idea that i don't think rates can really day here for a year at the long end >> so what exactly does the bet mean professor khouw at the plasm with a little options 101, mike >> when we hear jeff gundlach talk about rates it would be wise of us to listen we can take a look at the tl and that was the etf that he was referencing the 20-year bond etf. so you can look at this as a proxy and you will see this rise and the opposite will also be true why don't we take a look specifically at what he was talking about, which is the price of options this is the five-year history at the money help implied volatility in tlt and we can think about it as a proxy for the price of options on rate as he was pointing out

we are basically at all-time lows and this is about as low as you're going to get. why is that? well, we also heard him mention that part of it is because rates have stabilized and volatility hasn't been moving around that much but, again, we're at a situation here where really can't get much lower so it either stays her which would already be asking quite a lot because we've had a low volatility environment for quite a period or it could rise. he then was talking about putting on a straddle. what does that mean? in tlt in this case, i was looking out to august with the 125 strike which was essentially at the money at the time you can spend about $2.0 to buy the put and $2.30 to buy the call and put those together an approximately 4% and slightly less maybe than the current level of tlt how can a trade like this potentially make money well, obviously, if it goes much higher, it has to rise by about 4% you're going to make money at

expiration or lower by a comparable amount. there are other ways to make money as well. one is even if tlt just starts doing more of this, starts bouncing around a little bit more, even with this range, what will happen, implied volatility, the price of options will go up and elevate the value of this stradeven though decay, time will take away, you'll get offset that's one thing you could do. another possibility is that he's hedging his trades dynamically but this makes a great deal of sense and it is trading at the lowest price you've ever seen and there is a functional floor for how low it can go, to doesn't make sens if you think about buying it there because you may lose or risk very little to potentially make a lots. >> we've been doing this show "options action" for ten years and i can probably count on one hand how many times mike and i have said we think you should buy a straddle in something.

what jeffrey gundlac has suggested and a professor broke it down, this is the cheapest anywhere. i have a sneaking suspicion he probably has a directional view of where rates are going and when you look at the tlt and you look over that period of time where mike just showed that implied volatility at multiyear lows, the tlt, when the ten-year treasury bond was at 1.25% and right now it's at 1.26 and when we had rates at a multi-year high and the ten-year at 3.25, it was at 1.12 the trade makes so much sense, but if you have a directiona inclination you are going to buy that put or that call and it's half you know what i mean it's basically half the value of that straddle. >> jeff isn't here to talk about it and he's the bond math guy. when you take a look at stocks as they steadily climb higher you often seen volatility come in

here's the thing, though with bonds what do you see when rates get very low convexity increases. convexity describes the relationship between the price of rates and the price of the bond so we're in a situation right now where i think theoretically as well as just taking a look at historical numbers, this looks awfully, awfully cheap. >> i mean, independent of the volatility what, we do know is that every yea consensus is that rates will go higher and every year for the past, count them up, rates don't go higher and in the beginning of the year kong census was 3.1% and we hit 3.25 and now it's ratcheted down to 2.65 i think we're going down to 2 and i think you want to be buying long data treasuries. >> you think we're going down to 2. if it does you would only want to own essentially the call side of this trade. so depending on that at home, i do not

i'll leave that to smarter people than i, but i will say that the options are very cheap so your directional bets are cheap and options are definitely the way to play them. >> coming up, small caps teetering on the edge of correction down nearly 10% from their highs. and we'll tell you what's next for that group plus if you have a question for us, send us a tweet @optionsaction if it's a good one we'll try to answer it later in the show. we're live in times square more "options action" straight ahead. (indistinguishable muttering) >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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.

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. ♪ welcome back to "options action." time to take a look back at our open trades. last month khouw and carte said small caps could play catch-up to the rally. >> look what's happened. it's made no progress relative, but what i'm thinking here is that you've got something of a 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. >> i was simply looking out to the june 157 calls when i was looking at those earlier today those would cost $4.80 >> all right, well, the russell 2000 down more than 2% this week c.b. >> over the past month, i was up a bit, down a bit an

kind of back to where we started and at this point the trade and the opportunities is it's no good we didn't lose and make any money and i would walk away and not stay in it >> this is a situation where we talk about trade management, and this is certainly one of those cases. why is that? because we own the 157 call and im -- iwm got a hair above 160 in fact, before we saw this week's sell-off this trade was making money so if you had it on, and we talk about this very often. you either want to take a look at those long options and get in the money and something that dan talks about all of the time and sell a higher strike call against it to mitigate the cost and you've at least taken some of the money off the table and the view now is that there isn't a lot of upside to the russell and between now and june expiration. you wouldn't have much reason to hang on to this trade. >> i would mention that the russell is since mid-february traded from 150 and 160 in a tight range and it's 7%, 8% from its all-time highs and know all the other major indices have

matched those. so i do agree with a catch-up, especially if it stays in this range. it's hard to do it being long $3, $4 near the money calls, right? you would have to pick your spots pretty well. >> and it will, in principle, if the real beating comes in the high-flying tech names by default, this will hold up better with its heavy bank constituent, but still the opportunity was there and a month later it's not. i would say you just walk. >> up next, we're taking your tweets and we'll do the final call >> announcer: option optis acti responded by think or swim by td ameritrade 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.

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♪♪ ♪♪ ♪♪ >> welcome back to "options action," time to take your tweets our first fan says, i'm long the may spy $285 calls should i take profits? mike >> you can split the baby on this one why not consider rolling it and taking it off the table and the ones you own are five so take

half the money off the table and still preserve some upside >> okay. our next -- >> baby, people. >> our next fan jeff says with volatility high, what's the next best way to play a put spread in amd? danny? >> here's the thing. it depends if you're bearish or bullish. if you're bullish, then you want to sell a put spread and if you're bearish you can sell a call spread and this stock has shown tremendous relative strength. that's been 20% in the last month or so. >> can we do final call? carter >> walmart on the long side. wmt. >> mikey >> happy birthday to my mom today. >> oh, nice! >> and buy some straddles. >> happy birthday, mom. >> happy mother's day, too, in advance. >> to all the moms out there what do you got, danny >> happy mother's day to my mom and my wife. >> cisco systems again, the bad guidance and

you'll have this thing down 10%. >> it will be an interesting week between trade and uber next week as well. that does it for us here on "options action. have a good weekend. catch us here next monday. don't go anywhere. "mad money" with my man cramer starts right now - [announcer] the following is a paid program for automatic home standby generators. brought to you by generac power systems. - [narrator] there's no place like home and today, you rely on power more than ever for all the comforts you love. but when your power goes out, you feel helpless, out of control, you're in the dark without air conditioning or heat. food begins to spoil. many people lose clean, running water. the home network and internet are down. your home security system is useless and the basement sump pump is not working.