>> hi there, the guys are getting ready behind me before the long weekend here's what's coming up on the show tonight ♪ welcome to the jungle, we've got fun and games ♪ >> the cat getting scratched this month the stock down more than 10% when the chart master sees something in the charts that could spell more trouble ahead plus, how low can the ten-year yield go rates hitting their lowest level in almost two years. mike ko will tell you how to profit the one name that will keep going up and later --

>> there is no place like home there's no place like home >> well, dorothy, dan nathan doesn't think so, and he'll tell us how he's making money from the trouble on the homefront it's time to risk less and make more the action begins right now. let's get right to it. the s&p locking in the third week of losses as wall street can't seem to escalate the trade tensions and taking the brunt of the impact caterpillar, apple, u.s. steel, deere, micron all down double digits in the past month and the chart master says there is more pain ahead for one of these names and carter worth is at the plasma c.b. dubs, take it away. >> it's the epicenter and it's a cheap stock and it's probably cheap now if you want to look at p-e and i don't think that's going to matter a bit and several charts >> here is a decade worth of caterpillar, and one could say

so what's the problem? it went from 20 to about 122 where it is now hitting a high of 175 here's the problem all of this and it's been underperforming the market basically for the past seven, eight years. so if you underperform in the bull face, what's going to happen in the bear face and let's zero in tighter. now if you want to look at the past two years, 17 to 19, this is the christmas low we'll put in a line here and take a look. the christmas low, in fact, that's the september low that's the christmas low what we know is that this stock is, yes, slightly above it's christmas low and where is it relative to the market it's making new, relative lows and this is a problem. let's keep going

here's the xli, and another way to look at it. comparative lines and here comes cat, take a look and what you've got is this. in fact, cat is almost down at its two-ier low and where might it be headed and we have the triple top and i'll highlight it again with these circles and let's do another chart same tops, here's the break in trend. we've got this, we've got that and the break in trend where might we go? to the low let's change one more time >> close at 122. that's 112 and i think that's what's going to happen 122 to 112 that's enough to warrant taking measures, if you're long getting long, and/or being low >> mikey, what's the trade >> yeah. so it's an interesting situation in caterpillar you know, this was a favorite

short some time ago and people may remember they were talking about a commodity super cycle, obviously whether it was good or bad. depending a great deal on china, and it did manage to bounce back from some of those lows and obviously it's bounced back from those december lows and the bulls might make the case and right now the stock looks cheap. here's the thing about cyclical stocks you have to be very careful looking at multiples, because typically forward-thinking investors recognize that there might be some hazards ahead and when you start seeing cheap multiples and that can be a warning sign as things like high dividend yields. so i'm inclined to go along with carter here, and i think that the fundamentals are telling us that investors have some significant skepticism over the last 18 months and i was looking out to july and the 120, 110 put spread and that would cost pretty close to the quarter of the distance between the strikes that we typically like to spend

on trades like this and one of the reasons that we're looking at a put spread is in addition to the skepticism that you see in the multiples and we're also seeing that in terms of implied volatility and also that helps mitigate in any case the decay that we're going to have between now and then if we're looking for a trade that runs out for a couple of months >> dan, what do you think? >> i don't want disagree with the technicals and i don't disagree with the way mike's playing it and the last time we had a growth scare from china is 2015 and '16 and eps, 25% for those two years consecutively. in 2016 they had $4.40 in earnings and this year they're expecting to have their 12.38 and that seems very unlikely so mike's trade it all makes sense and after july expiration. so you may get this flush that carter's talking about and i

think you really want to be careful pressing that short into earnings and mike's trade gives you that leeway down to those lows and when it does get back to those lows and into that print and i'm not sure it will stay short to me, you have to be cognizant of timing and that's why you have these expirations every month and you may get there before earnings any i'm not sure it will be short into the print. >> interesting caterpillar and it peaked in january of 2018 whereas most stocks attempted to get back to new highs in september, and october this is an issue this is the epicenter, and i think there are greater risks still despite, you might think that it's cheap, it's not. >> mike, i'll give you the last word on this >> dan makes a great point obviously, you want to keep an eye on catalysts such as earnings and frankly all of the other ones like trades and we'll have quite a bit of time and their numbers have been pretty

decent, but the stock hasn't responded well to them and if the stock happens to drop between now and the court date and we'll probably want to before that earnings rolls around >> okay. so let's move on to the homebuilders and the xhb and the etf tracks the space and still on track for its worst month since december and dan says the group is about to see more shaky ground ahead >> the xhb as a group is relative to the s&p 500 and it's up 500 and interestingly, though, it did not confirm the new high earlier in the month that the s&p made and i'll just tell you this and a lot of people are focused on rates here and the 30-year fixed, and i think the average over the last is 4.06 and from 4.66 a year ago and that's something that you would think would be bullish for new home sales, but we just got some data yesterday saying that new home sales, and it was a bad number and new home sales was

down 14% and that was really bad. >> my point is i think that rates going down right now are for the wrong reasons, and i know that you've been saying that the ten-year treasury is down to 2% and that is not exactly bullish about growth and when we look at credit card bli delinquencies and major appliance purchases getting slammed. so you put that all together and i say to myself over the last few months and i'm want so certain that this is a place that i want to be and b, the first hiccup about downgraded growth here in the u.s. and i know we're seeing it outside of the u.s. and xhb is going lower and look at the chart out there, and massive double top at that high from october, and what it didn't break out and it then broke the uptrend that had been in place since december and i'll let carter speak to that later i'm looking at the september

expiration and i'll give it a few months to play here over the summer and you can buy the september 30, 35, put spread paying $1.25 for that and buying one of the september 40 puts for $1.75 and selling one of the september 35, and it breaks out at $38.75 and that's down a little bit less than the price of the spread. why is that? it's because that 40 put is in the money here and i like the risk reward and you're paying in the quarter to possibly pay up to 3.75 on september expiration. >> so interestingly, and there's a high correlation from itb and xhb, but the thing that's helped is non-builder names i.e., specifically lowe's and home depot in this case, lowe's and home depot are the ones struggling, as well. i think you have the added

tailwind of the retail element. >> so they're not using the itb? >> options trade by appointment. >> but there is a divergence behr formance for the first time in a while and the things that held this one up is now starting to hurt it >> mike, do you have a thought on this trade? what do you think? like it or no? >> i do like it and a quick point i would make is in some of the higher end real estate markets we have seen some evidence that prices are leveling off maybe even in the bay area and some parts of the bay area they might be taking a downtrend and we've seen some of the homebuilders how they'll move away from those markets is because we're seeing a divergence between home prices and real incomes and that's obviously been subsidized by real rates and at some point you start running out of the fuel to help sustain those marks i'm with dan on this one and i hate to have these stacking bearish bets together on one show and the fact is it does

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>> welcome back to "options action." the chart master is back at the telestrator, and he says that move is good news for one stock. you're at the plasma to break it down, carter >> yields are low for a lot of things and we'll zero in on at&t well, you can see the numbers, dividend yields in descending order, right or not as good to better, 1.85 for xpy aspy, and utilities, an maybe back at the desk and let's look at the chart first. so many ways to draw the lines certainly, we can draw them like this effectively head and shoulders bottom a well-defined neckline with the

prospects of a move above that line, and you can also draw them like this with the same well-defined line about the prospects of a breakout. you can draw them like this and the butty eauty is that if you k back to it and you hold and you bounce off it again, that's good stuff. the chart is the chart and it looks quite good and i like it any way you cut it and old line loser is coming to life. >> so, mike, what's the trade then >> yeah, so at&t, we were actually talking before when multiples can be worrisome signs or high dividend yields and certainly, you don't get much higher dividend yields than 6-plus percent and why are those dividend yields so high and carter alluded to one of those issues and you have a tremendous amount of debt on the balance sheet and they're dealing with the time warner integration and these are challenges that people are concerned about and

obviously they're old business and the wire line business is in secular decline and we expect that to continue eventually, though, things like 5g will provide a tailwind the company does actually have significant free cash flow and usually when you're looking at heavily indebted businesses and the thing you're concerned about is that if you have significant cash release and in fact, the ceo during the at&t at pebble beach. he was referring to that specifically saying i think people are missing the point this is a company with significant free cash flow and ultimately we will see 5g provide a little bit of a tailwind one of the other things we can look at here is when you have the high dividends and you are concerned about the debt load and you don't want to reach out and buy the stock because you are concerned about the downside risk and the high dividend intends to make those calls, so if you'll look for price action in the stock, those calls are going get quite cheap. we see that. the july 32 calls when i see that earlier today we're trading at 95 cents and

let's consider that those are 30 cents in the money that's 65 sense of extrinsic premium to make a bullish bet in at&t in case the price should start moving up. i think there's an inexpensive way to bet on the positive price action without taking downside risk by simply going out and buying calls here. >> okay. >> telcos are notorious for heavy downloads and at&t is the most indebted company in the world, but debt can pay off. what we also know is after apple, at&t generated more profits than any other company that's just it they seem to be managing the situation in a way and the chart is bottoming >> yeah. so i think the way mark is playing it off of the bottom call is the way to do it you're not risking a whole heck of a lot for a month and a half, close to two months and it's already in the money and that being said the money can rally a

little bit and the story makes sense about all of that free cash flow generation and talking about the 5g move and that will be 2020 and maybe 2021, but the purchase of time warner is setting this up for all of it to come together and it will make a lot of sense to start thinking about what this company looks like when they have 5g and they have the content and what does the new telco and media company look like, and in the near-term, that yield is attractive and then the reach for yield which investors just started to pay attention to a few weeks ago to me, i think it makes sense, and at some point toward the latter half of this year, and i think it's what this company looks like in 2021 the way we saw disney just explode once they were able to articulate putting pieces together and what their future looks like >> mike, being simple is the best way to go. >> simple mike >> i'm a simple guy. i like a simple trade and here's something people should also

talk about we talk about volatility a lot on an options show when you add more leverage to a balance sheet, the equity becomes all volatile and that's one of the reasons why you want to use options and we're talking about the fact that there's a lot of debt. i do think that's well covered and i don't think it's a huge concern and to the degree that that creates leverage on the balance sheet and could propel it than you would otherwise expect and a simple call option makes sense. >> up inconext, energy stocks up more than 20% from the highs and there could be more pain ahead we are live from new york city's time square. there is more options action right after this (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!

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where did that get rejected at 65 i think there is an opportunity to get short with xle with the fine risk. you can buy the xle june 63 and 56 put spread without buying the june 63 puts at 290 and selling it at 90 cents and it breaks even >> this is one of those what will dan do now moments? >> it's exactly that >> and we've been doing this for ten years with you what will dan do next? i nailed the low in march. this etf rallied 10% and in the last mock it's donth and it's dn i'll let carter speak to it right here i think this is one of those views where we will see mid-50s and i'm not sure we'll see it in the next few weeks and i think you'll take the small gain and roll it out to july and give yourself some time >> it dropped in gap and it's only had three or four gaps in the past 12 months and usually that kind of jarring weakness is

followed by further weakness at a minimum, xle lower. >> mike, what do you think >> obviously, the key driver is going to be oil. oil got hammered this week these businesses also have to be fairly leveraged and just one block ago also applies here and i agree with dan rolling it out and the reason is after this precipitous gap you might actually get a brief pause before it continues lower and my inclination would be to give yourself more time okay all right. there you go with that one in just about a month ago, mike said consumer staples might stumble. >> here is your double top and all of this greatness is, in fact this, an alpha killer meaning picks made here have cost you in the sense that you could have, one could have found other things to buy. that poor, relative strength is the issue and i don't see anything fixing that any time

soon >> i think you just keep the trade simple and i was looking out to june and the 56 strike put just 75 cents for that >> okay. staples have been held steady. >> they've held in so they have the defense element the same way utilities and reits and they're a stretch and in this way there is a valuation issue and the betting here is that they can't keep this up much longer. >> mikey >> so we paid about 35 cents in decay and the 75-cent puts is about 40 cents as of today's close and they expire in june and we want more time and kind of like what dan will do on his energy trade and we'll extend this one and roll out to a longer put and give you the same strike >> i just think it's important to remember and one of the biggest components and just because you think this is defensive, i don't get it. it doesn't make any nssee to me. >> up next, your tweets and of course, the final call

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>> let's take some of your tweets ryan asks if i have a 190/180 put spread in apple and would you recommend i roll it down to 180/170 or close it out? what do i do >> do you think this stock is going to 170 between here and july expiration, if you do, then you want to roll this thing out and down a little bit and otherwise if it's near a bottom you have to take a profit. >> it's a tough call and we appreciate the question very much final call, mikey, you're first. >> i think put spreads in cap will help us execute that bearish thesis that carter articulated. >> good stuff. good holiday weekend to you and your family. the chart master >> one long, one short at&t on the long side for a nice bottoming out. caterpillar, the other way, short. >> okay. same to you, as well long weekend danny. >> do i get one, too

>> you want one? >> hxb, i think the homebuilders is getting ready to turn. >> did you not want one? >> happy memorial day, right and to all those who serve how's that >> that does it for options action catch us back next fday riat my mission is simple -- to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica if you want to make friends, i'm just trying to make you money. my job is to teach and educate you so call me or tweet me. tonight i want to share some of my accumulated wisdom, believe me, i've been doing this thing for a long time, because there are so many different things you