hi, there. live from the nasdaq market site on this expiration friday. the guys are getting ready behind me. in the meantime, here is what is coming up on the show. >> special delivery. >> fedex is getting ready to deliver earnings next week, but the chart master says there's trouble lurking in the transports he will tell us why he's pressing sell. plus -- >> we have a lift-off. >> yep, that's what stocks did this week. if you think the record rally is going to rage on, dan nathan will tell you how you can profit from the party and later -- >> big bank, small bank, i like to make money. >> us too. mike khouw will explain how he

is betting on a breakout in one big bank for less than a buck. it's time to risk less and make more the action begins now. we start with the transport. sitting in correction territory and underperforming the broader markets, trade tensions and fears of a global slowdown weighing on the group. key players like american airlines, jb hunt, and ups off double digits from 52-week highs. as fedex gears up to report earnings next week, our chart master says there's more trouble brewing. he is over to break it down. carter. >> it's all things cyclical. down today, industrials, materials, financials, and transports semis. anyway, let's look at the transports, and then, of course, zero in on fedex this is 2007 this is the '09 low, and this is where we are now you have the past decade let's put in some lines and put it in perspective. what we know is we have major sell-offs.

obviously in the '09 plunge you get a 61% drop you have a 30%, a 31%, and we endured a 26% drop this go-around, and we haven't made a new high, and that's going to be the issue, the relative performance. another way to look at it, just how simple it is in terms of trend work, right? it's come down to trend. this one didn't quite get there, and i think ultimately we have the prospects that we will you can also, of course, see that there is a very well defined head-and-shoulders formation in the transports. now, relative performance. this is really the issue here is the past ten years, and what we know is effectively relative performance peaked almost five years ago. so, yes, it's gone up, but it's not delivering alpha never a particularly good thing. if i do this on a short-term basis, this is just over the past year, take a look and and again, it's making two-year relative lows, the s&p.

so up, but two-year lows what we really have ultimately is a head-and-shoulders bottom that failed. it's not good. okay fedex. you have a perfect bottom. literally that's the christmas low. think what equities have done. equities have surged and so did fedex, but, of course, fedex is back at its christmas low. now, it's bounced a little bit, and i think that's obvious and elemental. but the question is, is it really going to carry much further? i think no i will make a bet that this is the beginning of yet more trouble. >> okay. thanks, carter mike, what's the trade >> i think when we look at fedex, i mean, obviously one of the questions we have to ask ourselves fundamentally because we're looking at a company trading at about ten times earnings, what is the problem here why does the market see so much trouble ahead for fedex? you know, we have really two stories here one is international, integration of tnt and how they're doing internally the other, of course, is the

800-pound gorilla in the room, amazon this is not simply an issue, because fed ex will point out, we were talking about this before that this doesn't represent an enormous portion of their business that's not the only consideration. whether they're going to earn those incremental dollars. the question is whether or not they will have a competitor in the form of amazon, and that obviously is very troubling. you combine that with the other headwinds that they're already facing, and that is the reason it's trading as cheaply, i think, right now as it is. the thing is the options themselves, though, are not that cheap. so looking at earnings next week, the market is implying about a 5.4% move or so for fedex, above its 3.8% average. so we're going to use a structure going into earnings that we have talked about probably infrequently, but i think it can be a very good trade in some situations where you think that a run -- we've had a little run up here -- might come to an end specifically i was looking at the july 170, 175 call spread, and i want to sell that call spread when i looked earlier today, you could collect about $5 with the

175 calls, buy 175 against them for 310. so net/net, you are collecting about $1.90 of the $5 wide spread, nearly 40% of the distance between the strikes the thing is if the stock sits here, you will start collecting some decay it can rise marginally, you can still see some profits obviously if it declines you get to keep all of that money. one other point i would quickly make is if they surprise to the upside -- let's say they got maybe a 5% pop, call it 8.5 bucks from here, taking it to about 172.5, that's the break-even even if it goes more than that, hits that 175 strike, it isn't going immediately to the full value of the $5. so it is not as if you are simply going to collect nearly 2 and risk 3 it's probably more like an even-money bet but the probability favors you >> i think the main point is that mike thinks the options are expensive in the identifiable event, and the flip side is that carter's charts point to lower lows and if you really are convicted that they've missed, which they've given us a sense that

the quarter they just ende is not going well and guide down enough, even at 10 times earnings, this stock has a 10% dune side. mike's trade gives you a hig probability of some success. it does not help you capture what would be maybe a 10% sort of move. this is an options trade for what i think is a pretty interesting technical setup into a fundamental event that makes sense because implied volatility of the price of options is high. >> yeah, this is not an effort to go out and try to hit a home run in case they really disappoint this is where we think that there could be at least some immediate ceiling and some weakness, and you are just trying to hit a single here. >> you know, it is funny, the 10 p/e. that's always the seduction. i think caterpillar is down almost 30%, down to a high p/e of 10 all the way down that doesn't mean anything - >> the value trap? >> of course when things go bad, it doesn't mean a thing. >> then it gets the downgrade. >> as it just did. >> shipping to staples has been a monster month for the sector led by names like estee lauder,

kraft heinz, campbell soup, costco all up double digits in june but as a group helps push the market to all-time highs, jim cramer isn't sure if surging staple sectors is good news. take a listen. >> now, a lot of the stocks that are going up in this particular leg of the market are the ones go up when we're about to go into recession the stocks leading the rally are procter & gamble procter & gamble does not go up when the economy's on fire >> what do you think of p & g? >> listen, it was a great discussion by jim in favor this morning. i was watching that and i immediately started looking at procter & gamble this is a, you know, a stock that we know that investors have kind of just -- kind of just, i don't know, just run into this thing, you know. it's up 10% over the last month alone, but it's up 21% on the year it's up 58% from its 2018 52-week lows here, and here is a stock that's trading at record-high multiples, i mean decades-long it's trading about 26 times trailing, about 23 times forward.

you're getting that for, you know, okay, you want that 2.65% dividend yield, but you're not getting a whole heck of a lot of growth, okay this is a company that's going to grow earnings mid-single digits, grow sales low single digits the thing that i think is really interesting, let's go to the one-year chart really quickly. this thing is on a runaway breakout it's a multi-year chart. you see that it was range-bound for a while, volatile below that range. but since january it has busted out and gone straight up here. i look at the combination of what jim just said we have a weakening economy here, and if we don't have any real resolution to the trade situation the back half of the year's not going to be great in that scenario you will have cyclical names continue to go lower, but i don't believe you have stocks like consumer staples up like this anticipating whatever they're anticipating, continue to go higher from here i think a name like procter up so much in such a short period of time, it's kind of damned if you do, damned if you don't. they will report earnings at the end of july. they have not set the date yet but to me i think this is a really interesting situation

implied volatility, unlike mike's trade in fedex, is really low. it's about 13.5% right here, looking out one month or so. that's making directional long premium trades, kind of attractive to me in a market i think has the potential to be volatile i want to look out to august expiration and buy a put spread and i want to try and capture a move back towards that breakout level in the high 90s. so today when the stock was trading at about 112.25, you could buy the august 197 half put spread, paying $2, that breaks down even to 108. you could make up to $10.50, down to 97.5 your match risk is that 2 bucks. to me i like the risk/reward risking two, i have two months to earn this out i have an event in the name particularly, but i think i have the potential to grab broad market volatility here i like the risk/reward risking two to possibly make 10.5 if the

stock is down 13% in the next two months. >> like the trade? >> i do like the trade considering what you're spending nor thing, it's less than 2% of the current stock price. and the valuation, you said that we are basically at 20-year highs in terms of valuation. >> yeah. >> and it is off the charts for the last 10. i mean if you take a look at this, it is just incredible. this is not a growth story, and yet it is priced as if it is that doesn't really make any sense to me. you know, one can only speculate that this is essentially a combination of two elements related to low rates you know, one of them is a chase for yield. the other arguably could be that, you know, they have a lot of maturities that will be rolling off on their fixed income side. their debt side, maybe people think, oh, low rates, they get to refinance a big portion of their balance sheet at low rates. guess what, people low rates isn't a good story in terms of even just keeping up in growth >> the thing is this phenomenon is not specific to consumer staples, right >> right. >> in every sector rails have done the best because they're

defensive, right simon properties is the biggest one of all it's terrible. what's the most defensive? towers american towers, surging sba surging. you see it even in certain utilities. but here is the thing. i don't see any difference between this chart -- which i agree, short it. hershey, money delease, you would have picked any of those church and dwight, but procter & gamble is the biggest. is that why you picked it? >> i think it is the biggest, the largest component in the xlp that is the staples ltf. to me it's a very, very crowded trade. >> waste management, public services - >> if there are stock specific issues in this when they report next month, it will be down to 100 like that. >> some of the crowds are hedging or exiting some of the positions you talked about, the rates and some of these places the people that own these things have been paring back these positions and hedging them >> check out our website optionsaction.cnbc.com check out our super-cool newsletter what are you waiting for here's what's coming up next maybe you should try a different bank a big bank. >> great idea. lucky for you, mike khouw has a big bank stock he is betting on for a big breakout

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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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." the biggest banks passing their first round of stress tests moments ago.

here is bank of america grinding higher through june along with the rest of financials even though a rate cut looks inevitable in july, mike khouw says now is the time to make a bet on banks he's at the plasma with the "call to action," mike >> i'm not sure if now is the time to make a bet on banks or if we found a decent one to make one if you're so inclined. taking a look at why you're going to trade a call spread with bank of america, we were talking about it in the earlier segment. valuation is very low, but a low valuation can be a two-edged sword because very low valuations can also be pointing to trouble ahead so if you are inclined to make a bullish bet you want to try to find a way to do it while reducing the amount of risk you take actually we have an opportunity right now because options are exceptionally cheap. going intoerings, typically this moves about 4% it's implying a move 2.5%. that's basically a tell options prices are lower than they normally would be. fed cuts, i mean obviously it is one of the big headwinds people are talking about, low rates, low rate environment bad for banks.

i think there's other issues we could potentially be concerned about, but obviously if you have very low valuation, some of the bad news is priced in and options are exceptionally cheap as we were just talking about. now you have an opportunity to try to use those options and get long them to make a bet here, in this case to the bullish side where you're not risking a great deal specifically i was just looking out to august. you could buy the 29 calls for 80 cents you could sell the 32 calls for 20 cents against it. net/net, you're spending 60 cents on a $3 wide spread. normally we look to buy debit spreads to buy a quarter of a distance between the strikes here we get to do less than that another way to think about it, of course, is in this case only about a couple percent of the current stock price. stock doesn't need to move that much for you to make some profits here and of course, if this tell in the valuation and all of the bad news in the banks proves to be true, you're actually only

risking a relatively small amount of the stock price to make this bet. i kind of feel it is kind of the asymmetric trade that you're looking for in situations like this, where there obviously is some downside risk, but if you get a little bit of good news here, maybe you get a pop to the upside in this case, you know, it's up to 32 bucks. it was trading about 28.60 when i was looking at it, a solid 10% move you have participation in while only risking a relatively small amount. >> all right, thanks for that, mike dan, what do you think >> i don't like it it's fine if mike is looking - >> do you know like what he is doing or the structure of the trade? >> it closed flat on the week. you know, it was a great week for the s&p 500. it was record highs. this and that. xlf closed flat on the week. okay unless you know something about bank of america's q2 earnings and their q3 guidance that they're going to give, i don't know why you would want to be in this space whatsoever. to me the banks are selling in every rally until something materially happens and i don't know what that thing is. i don't dislike the trade.

if you're bullish and you want to get that exposure, that's great. you're in the money, have a ball >> i mean, you said it there is an expression, old time, they don't act well. these are burdened securities right now. their operating environment is tough at the capital markets level, and yes, their credit quality's good, some people say their balance sheet is better than they've ever been that's always the case before it goes pear-shaped. what is the catalyst to get on their feet >> what is the catalyst, mike? >> that is earnings, one we identified here. if we have a situation on the rate side where people suddenly change their tune, that's a possibility. but here's the thing, right? so, is everyone going to run out and sell all of their stocks maybe up own procter & gamble, we've heard very good reasons not to own that. some of the stocks that have been performing the best recently i would argue are the riskiest places to keep your money right now. some of them would seem to b safe like procter & gamble, some it is hard to believe they would be like beyond meats but if you're looking for a place where you might be

inclined to risk a little that they could somehow catch fire, like everything else seems to have, financials are the weakest space. that's why you would use options to do it because in this case you are risking 2% of the current stock pace. >> even in the financials, back to the concept of people being defensive as jim was talking about, look at the insurance stocks they're literally on fire because they're the most defensive aspect of the financial market. >> their charts look good? >> fragility everywhere. weak stocks have the capacity to get weaker and strong stocks are too extended >> what you said before is everything is great before it goes pear-shaped if you look at goldman sachs and morgan stanley, considered best of breed, best in banking, they should be having a field day with the ipo stuff i get it, the net interest margin, the yield curve and all of that stuff is challenging these stocks are 25% off their 2018 post-crisis highs if you're telling me that that is not some sign -- it's like warning bells screaming in silence about what's going on here even at the s&p with

all-time highs. up next, check out the home builders hitting a fresh 52-week high this week great news for one of our traders. we'll tell you why plus, it is friday, so you know what it means, tweet us your burning questions at "options action. if you are lucky, we will answer on the line. we are live at the nasdaq market site in times square much more "options action" right after this. ♪♪ ♪♪ ♪♪

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." it's time to talk a look back at a couple of our open trades. last week dan said semis were about to short out >> 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. >> 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 >> the semiconductor etf up about 9% in june so far. dan, how do you manage this trade? >> yeah, so it's up 4%, week over week it's obviously outperformed the s&p we said if there's anything on the trade front on a positive measure, it is going to rocket back it did that. here's the thing we know micron is going to

report next week, it's really important, two weeks after broadcom's negative guidance so let's see what they have and let's see what they have into the g20, because if micron and the g20 stuff is disappointing, this stock is likely to be right back in the low 100s >> and the real thing is everything was up in june, and semis adjusted for beta and risk, underperformed the market. not impressive stay short. >> mike, what do you think >> yeah, no, i agree we're taking a look as we were earlier at relative performance. i mean we obviously saw the market performing very well yesterday, not quite as well today, but also very well, and some of these things are not performing well. they're doing exactly what they have been, which is acting terribly >> all right back in march, mike and carter said the homebuilders would hammer together a rally. >> if you take a look at all of the stocks in the shb, s&p, select home olders index, etf what you're going to see is the valuation of that whole group is trading right now about 12 times

forward earnings, a pretty cheap multiple the homebuilders themselves, which are a subset, are actually much, much cheaper you could look out at the june 38 calls, essentially at the money, about a buck and a half >> the xhb nearly 8% since then, hitting a new 52-week high this week mike, your trade's expiring in the green. >> yeah, so -- this is very interesting, of course because yeah, it hit a high, but when did it hit that high? i think tuesday. and it wasn't performed well sense. this was a nice double for us to have made, maybe hopefully some of you who put the trade on managed to sell those when it hit the highs on tuesday but i wouldn't actually continue to take a bullish position in xhb. i think they're done >> that's right. and they decouple with utilities and reads. ten years sunk below 2, they get a little lift, you see a stall the trade seems sort of over >> okay. next, tweets and the "final call." 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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action." time to take your tweets our first viewer asks, is it the right time to buy spy puts considering that we made an all-time high. i feel, mike, this person answered their own question. go ahead what do you say >> would there be a better time than right after you are reaching an all-time high after the market is looking a little extended, seeing the relative strength we are, identifying the overpriced segments we have, notices options premiums are low? so the answer to your question is yes >> next asks, would you buy july calls on microsoft when it's at a 52-week high with earnings in july dan. >> yeah, depends what you want to do here if you're long the stock, it could make a lot of sense to do stock replacement to find the risk right now the july 26 with stock at 137 at 4 bucks, so less than 3%, that's a good risk/reward for a stock, largest market cap company in the low, up from the june lows. to me that does make sense. >> all right time for the "final call." carter >> fedex, we think, has risks. don't be there >> mike?

>> sell call spreads, fed ex, and maybe buy spy puts >> dan >> procter, crowded trade. puts are cheap heading into earnings i like august put spreads. >> that does it for us see you back here next friday at 5:30 the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym.