hey, there we're live at the nasdaq in new york city. carter, khouw and dan are getting ready for a big show here's what's coming up. ♪ disney shares have been on a magical rally, and one of the traders says its run is far from over he'll tell you how to play it. plus -- ♪ that sums up what happened to semis today. and carter and dan say it's about to get much worse for the group. they will break it down. and later -- athleisure stocks are on fire this year but mike khouw says there's one name

that could be about to take a hit. he'll tell you the name and how to dodge the sell-off. it's time to risk less and make more the action begins now. and we start off with the semis getting crushed today after broadcom lowered its guidance, citing demand and trade worries. the smh semiconductor etfs sinking nearly 3% as the key players in the space fall deeper into a bear market so, will the semi smackdown continue let's get straight to the chartmaster, carter. >> it's a big mess in the sense that semis were so strong and drew in so much capital and was one of the greatest head fakes of all time, a classic trap, a false breakout in fact, let's look at it and start with that. this is a three, four-year chart of the semiconductor index, the stocks you can see the breakout let's put the line on there. when you draw in a lot of money and it ends up being wrong, that money that pushed it higher becomes an seis rant on the wa out as people have to reverse

their positions. so not a good setup. now, most importantly, how do we know that it was always going to be a trap? it's all about relative performance, meaning the cyclical trade -- if you look here, what we know is that even though semis broke out, their relative performance to the tech sector never was working so, again, put the lines in here and you'll see this. basically, there's your breakout, but it was never confirmed, meaning you weren't actually outperforming as a tech or tmt portfolio manager because picks here were still doing worse than other things one could have chosen within one's benchmark or index then from there, let's look at this that's the dotcom high that's literally march of 2000 what do we know? it was also a trap in this sense -- it, quote, broke out just above the dotcom bubble, only to fall back and fail and this is a horrible kind of setup longer term.

so, here is the etf smh. so many ways to draw the lines but one of several ways would be this, a classic trend and a break in trend another way to draw the lines, of course, would be this, which is, it's a fairly well-defined head-and-shoulders top on a minor base with the neck line right in play, and a break of this, which is the presumption, would give you something down into the mid-to-low 90s or close at 102 on close days not good, sell. >> usually it's khouw and carter, but today it's nathan and carter dan, what's your semi trade? >> i couldn't resist he wants to sell the semis, i want to be with him. i think the charts are interesting, set up pretty well here i think what's most important if you think over the last couple months since we had that sell-off in the market, then that quick recovery, the nasdaq composite sold off peak to trough about 10%, the s&p about 7.5%, the semis about 20%, and they haven't made a whole heck of a lot of it back. then i look at the funnymentals as carter likes to call them

you look at the guidance, i think that's a start of something we'll see when we get into q-2 earnings season to me, i think it's simple he said he thinks he sees a retracement back to the mid to low 90s. i'll just target 90. 80 was the low back on christmas or so, and i think a break below 100, you find yourself in the low 90s over the next couple months i'd look out to august expiration when the etf was trading at 103 this afternoon. you could buy the august 190 put spread, paying $2.50 for that, buying one of the august $100 puts for $3.60, selling one of the august $90 puts at $1.10, costs you $2.50. that is your match risk, between 97.50 and 90, you can make up to $7.50 between 97.5 and 100 below that, you lose $2.50 you're risking 2.5% of the stock price to possibly make 3x your money. err defining a risk, pressing your short, and it is controversial. if there was a magical answer to the trade war, this group is

going to rocket back quickly, but i'm not playing for that i think this will be pushed out over the course of the summer coupled with bad earnings guidance. >> before looking at the structure of the trade -- i mean, that might be the case if trade sort of gets resolved, but there are also cycle peaks in semis prospectively, and it is not random that it stopped right dead cold at that dotcom-era high. >> talking about just the nature of pricing and cyclical stocks, it's interesting you know, you often will see stocks look cheapest at the top and look most expensive at the bottom, and that's because, basically, you're looking at your trailing earnings this is one of those situations -- if you take a look at where broadcom, for example, is trading ona valuation basis it is actually more expensive in terms of forward valuation today than it was before we saw this decline. that's how much further those expectations have dropped than the stock has, which indicates that there could be further down side with respect to the structure, it makes a lot of sense, too we talk about put spreads a lot, and usually we like to use them when you have a situation there, it's either a catalyst coming up that raises implied

volatilities here's a vacation where you have a basket of stocks, oftentimes volatility is less it's not here. right now the implied volatility in smh is close to 30. that's very high for a basket of stocks for some form of an index, even though it's just a sector here. so it makes sense to try to mitigate the higher cost of those options in this kind of environment by using something like a put spread, and that ratio, $2.50 for a $10 spread makes sense to me. >> and we like to look at darlings leading groups like this, and nvidia was a darling for years and when it broke, it broke hard and it's down it's been cut in half basically and is banging along the bottom, 15% from the recent lows i think if you have a darling like this really break, then it's kind of lights out for the group. and one last point, because everybody's like, point to a&d well, a&d has a fraction of the sales of some of its biggest competitors. it's got a third of the market cap is in nvidia i'd rather take my cues off of the bigger guys, than one out of the park name like a&d.

>> from a semi smackdown to the battle for streaming supremacy, wall street bets big on disney stock ahead of the disney plus deblue this fall netflix shares have sunken to a bear market. mike says the disney dominance will continue. what are you seeing? >> let's just talk about disney as a company, first of all it's a much more stable and kind of a play to make i think than netflix. netflix, obviously, we've for a long time been seeing that it's an expanding space, but this is not a company that's been generating significant free cash flow disney, on the other hand, is a proven player in the space obviously, they seem to be moving their business in the correct direction. they have a couple winners as well -- "avengers: end game" i think is an interesting situation. the stock has been performing well and the valuation is not unreasonable it's trading around 21 times earnings we've seen some good stuff coming out of espn for me, from a fundamental standpoint, almost everything looks good we obviously are going to have some earnings coming up. the only thing that concerns me

here is that the stock has, indeed, been as strong as it has. we've had a huge move up, so what do you do if you don't own the stock, you want to, but you're concerned about the fact that you had that appreciation and you want to get long, but you are a little bit worried about that sort of upwards gaffe? i think the way you can look to play something like this is using a call spread risk reversal we're trying to deal with the fact that options prices around that event might be slightly elevated, but also we're trying to give ourselves a way to participate to the near up side without having to participate to the near down side in the event that it might give some of that back the trade i was looking at was the august 130, 145, 155 call spread spend $1.45 and sell them for $160 and the 130 puts for $1.85 to help finance it the idea is that you're going to get participation above, you know, $1.46 and change, essentially. those wing options are actually going to decay a little bit faster than the at-the-money option will. so even though you are laying out a bit of premium, i don't

think the decay's going to be that bad my worst case, the stock will fall, put to you at $130, a little bit more than that, but you'll basically offset the chance, if there is a gap back down, that you participate there. so you're going to get long, just a little bit higher than where it was before it broke out. >> so, the entire subject all is defined by the gap, right? so, disney was in a five-year range, it was stuck $120, $120 and rather than trading 2 to 4 million shares it gaps up and it's effectively an ipo, meaning it's a new security. price doesn't matter it's not steep it's not overbought. i think it has more room to run and it's the kind of thing you want to be involved with one way or another. >> wow. >> so, mike said a couple things interesting about the trade structure. he said the wings are going to decay faster that's the out of the money put and the out of the money call and he's short both of them by design, because he really wants this strength structure to give him a little room on slippage, and he's also saying that the worst-case scenario, i'm basically putting an order in,

and the stock, to buy it down at $130 to carter's point about that gap, that's where it gaps straight to when it went there i think it's going to have a lot of support there so, if margin's not an issue in your trading account, this is a great way to finance an upside call spread in a name that has really positive sentiment and a couple identifiable -- >> i think one of the reasons it's trading like a new security, a new stock, is because of new businesses, and it is the streamy business if you look at the valuation thrown on other businesses like netflix, you would say that disney looks enormously cheap by comparison and i think it does. and i think this is a way that you can participate without being concerned that you're getting in a little too late. >> and interestingly, of course, netflix, which is the sort of other side of this, netflix is dormant. it's literally stopped trading it's in a tight range. equilibrium persists but doesn't last forever something will come along to break it out or break it down, and right now it's a pair of 2s. it's a nontrade. it's a nonhand. >> for everything "options action," check out our website

and check out our supercool newsletter it is the best thing since sliced bread, really here's what's coming up next ♪ activewear is hot, but mike khouw says there's one name in the space making him more like an active bear he will tell you the name and 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. ♪ ♪♪ ♪♪ ♪♪

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we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not. 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." after sprinting out of the gate to all-time highs earlier this year, nike shares have taken a tumble the stock falling more than 7% from its april record, underperforming rivals under armour and lululemon and with earnings later this month, mike says it might be time to bench the stock. he's at the plaza with a call to action. >> let's look at nike. they'll be reporting earnings on the 27th, so a little less than two weeks away what are the things that concern me here? certainly, the first is the valuation. nike is trading at quite a high valuation. we have a chart to give you a sense of that. obviously we have an upcoming catalyst is the stock going to go materially higher or materially lower? is it just going to stick around here we'll look at that as well and specifically, one of the things that i've noticed is that over the course of the last two

years, once they've reported earnings, they actually haven't performed all that welcoming out of it. so, let's take a look. step one, we're going it take a look at the trailing earnings. and we'll see if we can clear these little checkmarks just to get a sense of this. right now it is trading about 32 times trailing earnings. this peak right here, just to put things in perspective, is less than 35 times so, we're just off of the all-time high valuations that we've seen going back ten years. so, that's certainly one area of concern. what's another area of concern well, we can take a look here. over the last eight quarters, looking a month from when they reported, how's the stock done well, the best it has done is up 1.9% the worst it's done is down almost 6%. and on average, it's down about 1.3% so, putting in all of those things together, combined with that valuation number, it's hard to see how the stock can go materially higher coming out of their earnings on the 27th

here we can take a look at the stock chart. so, what i'm trying to do here is figure out, essentially, what level i'm looking to target. i'm looking right back at this level that we just came from here that's about 77.50 bucks what is the trade structure? i'm looking at a calendar spread we talk about these a lot because we want to sell the elevated options premiums going into an event and own the longer dated options that will decay a little less. i can buy the $77.50 puts that expire in saturday for 2 bucks and buy those that expire in july for $1. net-net, i'm going to spend $1g to put this spread on. this chart is actually a little bit deceiving. why is that? because actually, if the stock does this, just comes down to this level right here after earnings, this put is going to increase in value, but this one may well expire worthless. so, you can still see profits in this region after earnings as that option dekays away and this one could appreciate in this region and obviously the sweet spot

will be around $78 at expiration. >> thank you dan, what do you think >> like the trade structure and i like the idea, because when you think about it, go back to mid-march when the company reported last, the stock got hit 6.5% the next day, and it was coming off a high from not too far before that. and one of the main reasons was decelerating sales growth in north america, obviously a very important region for them. then they got it lower to low single-digit sales growth for the current quarter. so you may say to yourself, maybe they have low enough guidance that they can beat when they report in a couple weeks, but it also may be the case that this is the sort of name that may be faced with the same sort of headwinds we're seeing by others in this kind of global supply chain and this tariff situation may be hurting them. so i like mike's fundamental view and the trade structure. >> carter? >> and you know, there's just an old-time tenant that the stock's not doing well when a pitcher's not doing good, you get him out of there so it's suggesting distribution.

heavy volume selling, it makes incremental new level. it looks to me like it's going to the low 70s. >> another interesting thing to me is we often talk about beta if you're worried about the market rolling over, you want to be in lower-beta names, obviously, because you'd be mitigating your risk this is interesting. this has a beta of about 0.83, think it's lower risk. look at how it performed last year it declined peak-to-trough 25% the market overall was 23% it has to do with high expectations the down side can have a lot of air in it. that concerns me. >> i would make one point about the trade structure. mike went into the calendar aspect of it if you are really bearish and let's say you agree with carter, it doesn't act well and you look at the charts and say this could be back at $75 where it was a month ago. you know, mike's trade structure, it's okay, you'll make some money, but if you're really convicted on the fundamentals, you're going to miss and guide down again and you don't like the whole trade situation and you don't like, you know, the chart setup, then you do want to actually target maybe a put spread, right, where

you're risking what you would basically be, you know, possibly making if the stock were to go down towards your short strike at $7. .50. >> and that short strike may stay the same, so that's a good point. if you're getting more bang for your buck, but you need more things to go your way to make that bet. >> that's right. >> that's the thing. what does the market do generally over any 30-day stretch? almost two-thirds of the time it's actually higher so those make those low-probability bets in this case, though, i do think there's more danger to the down side than there is a risk that it's going to pop on you. >> all right. up next, gold hitting its highest level in more than a year, but the chartmaster says there's another metal traders should be looking at ahead of the fed next week. he'll explain. plus, hey, options fans, got a question for one of the traders? dig deep into those pockets, pull out your phone, send us a tweet. we will try to answer the question later in the show we are live from the nasdaq in new york city. much more "options action" straight ahead

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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 a couple of our open trades. last week, khouw and carter predicted gold's rally would shine on. >> we are making new relative

highs right now. it has bounced perfectly off of this relative line over and over and over, and it did it again. and now let me put in the top line we are just now -- you can see it here -- we just moved above that high. >> i'm looking out to august the 122-133 call spread. you could buy the 127 calls, which were essentially at the money when i was looking at this earlier today, $2.65, sell the $133 call for $1 against it. >> well, gold just capped off its fourth straight week of gains, so mike, what are you doing now? >> you know, this actually demonstrates why we use spreads like this sometimes. the calls we bought were $2.65, $230 now, 35 cents were the decay. the ones we sold for $1 are now 80, 20 cents decay so much of this was mitigated with a call spread instead of calls out right. i think we're well positioned, 60 days to expiration. >> gold hit 15 bucks an ounce off the high, but bullish weak

and in principle a bullish setup. then there is, of course, silver, which the ratio to gold is a 26-year low it's the ultimate beta trade, if one is hoping or thinking there's more to come the spillover effect in silver, when it does happen, can be massive. >> all right back in may, dan said ford was gearing up to hit the gas. >> trump has told us that he's going to meet with president xi at the g-20 on the weekend of june 28th -- >> in japan. >> in japan. and i think that if we start getting some building sentiment that we have a trade deal, a stock like ford could really benefit. you could buy the june 28th $10.50 calls, paying 30 cents for those. those break even at $10.80 your risk is 3% of the stock price. the break-even's up about 4%. >> ford lost steam since then, down about 4%. what do you do now >> first things first, i was playing hurt and nobody acknowledged that back then. >> i don't think i was there. >> sorry about that, people. here's the thing, like you said,

mel, the stock's down 4% it does not look like we're going to have a trade deal at that time, they had pushed out tariffs on autos and i thought that if you had the one-two punch of a deal with china, then this starts to rally. but here's the thing, that $10.50 june 28th weekly call cost about 30 cents back then. now it's worth about 5 you don't sell it. it's a lotto ticket. wait and see what happens. maybe we get some sort of announcement, maybe autos rally. and at this point, you have a low-premium bet that that would happen. >> what do you think of ford, carter >> ooh. >> that says it all. in case you missed it, he smirked and rolled his eyes, so what does that mean, verbally? >> yeah, exactly just that, what a roll of the eyes and a smirk might imply verbally >> i mean, obviously, well, the valuation to me just looks so cheap that any kind of good news, it does have some up side. but obviously, the market doesn't like it and there's good reason for that. >> all right. up next, your tweets and the final call

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. ♪ the first survivor of ais out there.sease and the alzheimer's association is going to make it happen. but we won't get there without you. visit alz.org to join the fight.

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we've got time for a tweet jim asks -- "when you're selling a covered call and the stock price keeps rising, when do you roll the call out and up"? dan? >> great question. a lot of inputs and scenarios. i think the most important thing is if you're long a stock that you want to stay long, you'd better make sure you roll it up and out prior to expiration or you will get called away if the stock is above that short strike. time for "thefinal call" from the options pit carter >> sell semiconductors, buy gold, buy silver. >> special guest trader tonight, sam khouw. sam? >> buy nike shoes, not nike stock. happy father's day >> couldn't have said it any better myself, but you want to use calendar spreads in nike to make that bet. >> he's excellent on tv. >> that's one sharp kid right there. chip off the old block. >> dan >> so listen, semis, sell them on rallies like carter's technical strike, but i think put strikes over the summer look great. and happy father's day to all of

the "oa" fans out there. >> that's it for "options actio action". see you next friday. happy father's day to all the fathers out there. don't go anywhere. "mad money" starts right now (announcer) the following is a sponsored program for prostagenix, furnished by prostatereport.com. (upbeat music) ♪ hi, this is larry king. over 30 million men in america have prostrate problems. i know, i was one of them. and all these natural prostate supplements like the ones i have here in front of me are everywhere.