hey there. at the nasdaq market site on this summer friday and tim stuck around for the big show. here is what is coming up. ♪ up, up and away >> delta shares have been up, up and away this year mike khouw and his co-pilot tim seymour think the sky is clear for the stock earnings next week they'll layout the trade plus, the dow hit a new record this week, but there's a handful of stocks sitting on the bench >> the kid is a l7 weenie. >> take a chill pill smalls, because the chartmaster says

there's one name to play for a breakout he'll tell us what that is and -- ♪ take the money and run >> financials have been on fire, but mike khouw says it could be time to take your money and run as the group gears up for earnings this month. it is time to risk less and make more the action begins now. and we start with the financials, a bright spot in the market today the xlf etf hitting a high, up 6% in the last to months shoo you had take your money and run? let's get in the money and take it over to mike khouw in san francisco. hi, mike >> hi there. financials in an interesting situation as you pointed out it is a great performing sector so far this year, and one of the reasons for that clearly was when they hit the lows in december a lot of the big names in the group were trading at very cheap multiples you know, oven times with the big banks people like to look at their price to tangible book, but we have gotten a situation

here where these stocks have actually moved quite sharply, and they're getting i think maybe towards the upper end of their valuation range we have seen over the last couple of years. what is interesting, too, to me is that in the same time frame we have seen implied volatility, the price of options drop considerably we are going into now a period when most of the largest constituent of the xlf are going to be reporting pretty soon. we are talking about, number one, berkshire hathaway, and the big banks, jp mortgage an, citi and wells fargo and so on. they have an implied volatility of about 15%, as low as we typically have seen it when we think about the valuation range being at the upper end and the options prices being at the lower end, it seems to me that when you have a catalyst like this -- and this is not the only catalyst that could affect them by the way -- it might make sense to either make a bearish bet or at the very least look for inexpensive ways to evenly your financials exposure so i was just looking out to august

you could buy a $1 put spread, the 2827 put spread. it was essentially the at-the-money put spread. when i was looking at it earlier today you could have bought the 28 puts for $0.49, sold the lower for 23 net-net you are spending about $0.26. remember when we buy put spread we are looking to spend a quarter of the neighborhood in the strikes, in this case it is 28%. it is a nice 3-to-1 pay-off here that kicks in right here to me it is hard to understand why after a rally like this one, wouldn't at least consider a trade like this which is an inexpensive way to make a bearish bet. >> how does the rally look to you? >> if you think about it year-to-date, s&p is up 19.2, financials up 18.3 so adjusted for beta, they have a higher beta to market, they're actually pretty bad performers in general, if and as this rate environment continues, and that's the banks, principle aren't going anywhere.

>> yeah. >> look, i would say two things about banks. we have been in the environment where banks had so many headwinds in terms of yield curve compression that actually we probably faced the worst of that in the short term in my view i think we have seen obviously as the fed stepped in to ease some tension on where they're going with rates or add some stimulus to the market, you have seen some steepening of the yield curve. we just got through the c card events, jp moral an, and i was impressed these guys almost flunked the first round in terms of being more aggressive in terms of differ denied payout. jp morgan underperformed the group over the last couple of months if i was going to play xlf here i would be doing it on a spread with a jp morgan long and short against the xlf. either way i kind of like the banks here i think they've been much maligned with increased payouts, great valuations relative to their own history, and i think, you know, they underperformed the s&p by 2% in the last year. >> something you and i were talking about a show or two ago is the broker versus the bank. goldman was one of them. if you had to choose that

choice, would you rather do it >> there's so much i love right now. i love being on "oa" on a friday afternoon. i love the fact carter stole the mantle from you and threw a "would you rather" to me. >> i don't know what is going on. >> i think ultimately, if you would rather back, i would rather a blackstone rather than a money. if i i am looking at components of the xlf, i would like to break it down and say one of the private equity firms that actually in a lower rate environment is seeing more exits -- blackstone has been a new monster. >> hit a new high the other day this week. mike, i know you have until august for the trade, but in terms of the financials usually you have them sort of trickle out in a clump, but jp morgan usually goes out first, citigroup in the beginning as well how actively do you manage this? if you see the initial drop, are you inclined to take it off beforehand >> i think this is something you would look to monetize quickly because bear in mind you won't have to see it move very far before this spread is in the money. it has to go from 28 to 27 that

you have basically captured the width of the spread. if it gets below 27 you will see that the spread is going pretty much to the full potential value, then the risk/reward relationship changes dramatically i would ask people to consider the following. do you think there's a chance xlf could drop, you know, say 1.5%, 2% between now and august expiration the probability of that seems good to me that it could go down 5%, that also seems like a good chance between now and august expiration bearing in mind, that's more than four weeks away so, know, we always get to see a little volatility. we will have earnings, that's when volatility tends to emerge. on the valuation front i would leave you with this one last thought as well, which is that low rates obviously would encourage people to borrow but they still need to go out and do it it is one of the things we have seen in rally estate mortgages, is when real estate home prices are very high sometimes you are still not getting the origination you hoped to simply because it is preventing new buyers from entering the marketplace even with low rates. >> good points there from financial fever to stocks

left out in the cold, check out some of the dow stocks deep in the dumpster, walgreens, 3m, caterpillar, boeing, united health, all down double digits from the 52-week highs as the dow touched a record this month. the chart mabser says there's one name that could play catch-up carter, head over to the plasma. >> maybe there are retiles, macy's we will see let's focus on wba you can call it a health care stock, but what you can't call it is a laggard. the issue is does it play catch up i think there's a trade. here is 2004 to present. you have a divergence. in fact, walgreen's having peaked sometime ago, it is 40% below the 52-week high and missed vie verging not necessarily with the s&p but part of the story is the opportunity. let's zero down on the stock itself and see what we can get that sell off, what was it it is two things first of all, put in the numbers.

it is a 50% decline, 40% here is a zoom so you can see the number all right. that's a big sell-off. not only is it a 50% sell-off, it is right down to support. right. so it hit that line really quite nice, right. finding a level where in principle support comes into play, and the whole thesis here is having sold off 50%, down to a level where rebound potential is high, they'll play for a rebound. zero in a little more. now, here is the one-year chart again. down some 40% from the high, 85, we touched 50. it is this basing action that's important. first, we have just now broken on the downward trend line we just touched it let's get the zoom and you can see it we're now officially above the line, that's important where might it go? we closed at 5519 today. let's go a little more i think ultimately we will be close to filling the gap the line is at 59. it is 7%, 8%, plus or minus what i'm looking for, and i think

this basing, this die verging with the s&p and the fact it was a 50% sell down in support is the opportunity. walgreens on the long side. >> thanks, carter. why don't you come back to the desk carter was crafty because wba was his final trade on "fast money" tonight we will do things a little differently in an "options action" first, carter is going to also give us the trade on walgreens. >> and some form right here, too. it is nice. >> break it down, carter. >> sure. so putting on a risk reversal, basically stock closed at 55.19, and i would like to get long but a lower price. two ways to do that. one, wait for the lower price. that's not what we're going to do what we're going to do is we're going to buy the 57 1/2 calls and spend 1.80 we will try to get money back two ways we will sell the 52.5 puts unneed and take in 1.60 and sell the calls. no cost on the trade

we effectively get long here if you will, and worst case it is put to us at 52.50. >> mike khouw, be the arbiter of carter's trade >> okay. there's a lot of things i like about it there's one thing i'm not quite as crazy about. >> hope so. >> oh, no. >> let's start with the things i do like. first of all, carter is trying to target some fairly specific levels i think that's an intelligent way to try to construct options plays to begin with. selling a down side put, that's a high probability bet, we like that you are going to get along the stock with the lower price, we look that as well. buying the upside call, obviously if you sell a put, you know, you have capped profits. if you buy the upside call, you don't. that's a nice thing as well. the only thing i'm not so crazy about is selling the upper strike call for just $0.20 sometimes it can make sense if the options expiration is relatively close to where we are right now, but we're going all the way to october selling a call option for $0.20, i know why he is doing it. it makes it very neat, you are

just laying out no premium the fact is there's a lot that can happen between now and then, and if you wanted to have a trade you can monetize more easily i might leave that part out. it is only a $0.20 difference anyway i might stick with the risk reversal selling the down side put and buying the first upside call, leave out the rt shooing of the upper strike call though. i don't think you are getting that much for it. >> my view is on walgreens, if i could jump in the dumpster with carter, i actually like the trade because i think the reimbursement issue for retail pharma is well out there, very much in the price. i actually think there's some near term. i think there's more upside to the stock than down side, so i'll let the options guys take it from here the bottom line is this is a company counteracting march inpressure they have a massive cost cutting dynamic with the company, i like it. >> the last quarter bead the fundamentals sound, the chart looks good to mike's points, selling the upside, it was to create an even spread where there's no cost

out. >> right. >> but also going -- i don't think you can get past that because it is about 20% from here it is a low beta, slow-moving stock with issues. i don't think i'm going to risk that much by selling the 65s. >> all right for everything options action second out our website optionsaction.cnbc.com it is great for chilling at the beach or maybe just putting the kids to bed. here is what is coming up next. ♪ party people ♪ tag team music >> that's right, "options action" fans, get ready because there's about to be the ultimate tag team with mike khouw and dim see mother on soaring airline stock delta. you won't believe how high they see it going plus, calling all "options action" fans reach into your pocket, grab your phone and tweet us your question at @optionsactions.

if it is nice we'll answer on air when "options action" returns. "options action" is sponsored "options action" is sponsored by - ♪♪

live from the nasdaq market site. >> access. >> people talk about the presidency. >> power. >> you went through the wringer. >> influence. >> what's the economy look like from where you sit >> the most powerful business show on the planet, ""squawkbox"" 6:00 a.m. eastern on cnbc. this gentleman?

"squawkbox"" 6:00 a.m. eastern on cnbc. 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. 6:00 a.m. eastern on cnbc. welcome back to "options action". delta hitting a bit of turbulence today after a nearly 20% run this year, but with earnings next week tim and khouw think it could be clear skies ahead. you know what time it is ♪ tag team music in full effect ♪ >> that's right. time for a little "options action" tag team action. guys, take it away tim. >> kplntd. now, let's tag team it, michael. let's do this. look, the call here for me on delta is there's a couple of main things about -- this has now become the best of breed of all of the majors. first of all they just gave you their second quarter eq guidance

where basically they told you at the top end of the range they reaffirmed revenue per available seat miles will be at the top of expectations. it is something people are watching guess what is happening for the guys they're benefitting, that's right, benefitting from the max. i'm talking about obviously boeing's issues that had capacity issues and lowered the ability of some of the core competitors, especially united, to be able to meet some of the demand they picked that up and it is amazing how delta's management team seems to be avoiding some of the potholes in the industry of which there's always something for airlines these guys seem to be doing it to me it is a high conviction long i want to show you the chart on this thing, and the reason is that not only has it held the bottom end of a range if you look back over a year -- again, i am talking about these levels somewhere around 50. it has been a very nice, tight trade. yes, i think we could actually start to head that way because the fundamentals have become so interesting for a company that's probably as good -- well, as well-run as any of the majors but also has seen an investor

sentiment change if you asked investors -- in fact, there were a couple of sentiment polls in the sectors and delta seems to be the upside so, again, ten times 6.25 takes you to 60 and a half i thufrpg it is conservative ultimately i would like the see what mike has to say about that so let's bring him on in. >> so, yes i'm actually with you on delta the 737 max thing is obviously very interesting obviously we have lower fuel costs which generally has been a tail wind for the airlines obviously it represents one of their large r operating expenses, although it has rather conflicting issues sometimes because some of the older aircraft can sort of stay in the fleet and keep capacity up but one of the things i would point out is we have earnings coming up in delta the stock has made a decent move going, we just recently have seen a 7% pop in the stock, but it doesn't move that much around earnings which is kind of interesting to me when you consider the space we think of it as being a volatile one, but it is not a stock that's really moved very much we have actually only seen one out of the last eight quarters we saw one move where the stock

moved more than 4% i don't think we want to buy short dated options. the other thing i find interesting is the longer dated options are quite cheap. i think the way for us to make a play is to put on an upside calendar spread. i was looking specifically at the july/september '60 spread. i could sell the july '60s and buy the september for 1.65 net, net, i'm spending a dollar, less than 2% of the current stock price. the idea being that this earnings report likely will be somewhat muted even if it isn't and it rallies, it won't hurt us so much but the near-dated option will decay away then we get to own the september '60 call for a cheaper price. that's the idea. here we get the optionality with a little less premium spent and getting rid of the decay i think the airlines continue to look cheap they've done a better job operating and, of course, consolidation helped it a great deal look, there's not a lot of places in the market where you are getting single digit multiples, the airlines continue to be one of them.

some of the issues tim was pointing out, these things take a little while to resolve. whatever benefits they will get from that will probably last a little while. >> carter. >> several things are quite desirable, at least from my seat it is performance relative to other transports is particularly good crude behaving the way it is behaving is good for delta and the chart is ideal it is well-defined tops at a common level and the presumption is a breakout above the 60 level. i think you could get 63 to 65 out of it. >> you are in a couple of different airlines so delta stands out >> i'm on united and delta, but delta stands out again, if you are talking about a call spread even after september, we are going into a period where people are questioning global growth and airlines sometimes are basically traded first and people ask questions later. you could make an argument that delta trades at a recessionary economy level right here he that's the dynamic with the call spread. you are of the view it is going higher in the long run i think delta is relative to its pier, for first time in a long time, i don't think anybody is

close. >> no exposure to the max either it has to be interesting. >> it does have exposure to the max because it reduces capacity in the fleet over building capacity when times are good, it ends up being a problem in the long run. the thing i would add to tim's point about pricing in a recessionary system already is we will be long a call option. being long a call option is owning the stock with a protective put so we will get significant participate to the upside should it continue to rally if it does not, our risk is limited and it is limited to the premium we spent, which is $1 which is less than 2% of the stock price. it is not a great deal basically to get participation through september expiration delta may be soaring this year but not every transportation stock is on board with the rally, and khouw and carter say there's more pain for one name in particular we will tell you what has them

so nervous i'm talking to you out there, you have a question for the traders? send us a tweet and we'll do our best to answer it during the show lots more "options action" still ahead. ♪ "options action" is "options action" is sponsored by - ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free ac education to take your trading to the next level. only with td ameritrade. when you rest on a leesa hybrid mattress, bedtime is no longer simply the time you go to sleep. it's time to switch off and catch up. enjoy me time, and we time. 40 winks or 8 hours solid.

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hey! i'm bill slowsky jr., i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. 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 on one of our open trades a few weeks ago carter and mike made a bed that fedex would break down >> fedex is back at its christmas low. it has 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'll make a bet that this is the beginning of yet more trouble. >> i was looking at the july 170, 175 call spread i want to sell that call spread. >> well, that trade is in ship shape. fedex is down 4%

mike, how are you managing this? >> yes, so you do need management on this trade here because we sold that call spread just under $2. you could have bought it back on today's closing prices at $0.25, which means essentially all of the money we could make we have made however, assuming carter agrees we want to stay short fedex, what one could do is roll the trade further out in time after you cover the short bet we've already made. >> carter? >> right so obviously what we have, we have eaten most of it. now the question is to go on to something else or, as mike is saying, stick with this in a different form or fashion. i think we knew something must be wrong with fedex. even put out its numbers so we don't have earnings risk ahead of us and the stock just will not perform. >> i love the insults here, obvious but elemental is the way carter throws some shade on options. i love it. look, i think fedex has seen a lot of shade over the last couple of months the fact their full-year 20 guide is out there is an opportunity. i think there's an opportunity for lift in the stock. wsn ink there's a lot of bad ne iit. >> coming up, tweets and the

final call on. "options action" is "options action" is sponsored by -ports, 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. call for a strategy gut check with td ameritrade. ♪

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 time to take yourtweets. adrianne asks how far out you buy protective spy puts in both expiration and strike price. what do you tell adrien? >> i like the 30 delta puts which on spy would drans late to 2.90 selling it for a buck 50 cheapens it a bit. >> that was a lot. time for the final call. mike khouw, what do you say? >> yeah, i'm with tim and i like calendar spreads in delta. >> carter worth? >> if you want stock, walgreen boots on the long side if you want a stock, try gold. >> that's fairs double final trade on a final call, same stock. thanks for joining us, tim. >> it is a pleasure to be here i think in the airline some of the best trading stocks, delta

around 50 bucks and i think the upside is something worth playing to break out above 60. >> that does it for us here on "options action" catch us back here next friday at 5:30 eastern time don't go anywhere. "mad money" with jim cramer starts right now 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 other people want to make friends. i'm just trying to save you money. my job isn't just to entertain but to teach you call me at 1-800-743-cnbc. or tweet @jimcramer. every night i come out here for two big reasons. the first is obviously, i like the attention. but the second and more

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