hey, there tim here stuck around for the big show here's what's coming up. ♪ up, up and away >> delta shares have been up, up and away this year and mike khouw and his co-pilot think the sky is clear for earnings next week they'll lay out the trade. plus the dow hit a new record this week, but there's a handful of it stocks sitting on the bench. >> the kid is an l 7 weenie. >> take a chill pill, smalls, because the chart master 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's 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 etf hitting a fresh 2019 high, now up 6%. but with earning season around the corner, let's get in the money and take it over to mike khouw in san francisco hey, mike. >> hi there, so financials are an interesting situation it's a great-performing sec tor so far this year when they hit those lows in december, a lot of groups were trading at cheap multiples oftentimes with the big banks they like to look at the tangible book.

but these stocks have moved quite sharply and are getting maybe towards the upper end of their valuation range. what's interesting too, to me, is we've seen implied volatility, the price of options drop considerably. queer' goi we're going to a period where they will be reporting soon. we're talking about berkshire hathaway, wells fargo, citi and so on. they have an implied volatility of 15% that's about as low as we have seen it. when we think about the valuation being at the upper end and options at the lower end, it seems to me, when you have a catalyst like this, it isn't the only catalyst that can affect them by the way, make a bearish bet or look for inexpensive ways to hedge your exposure you could buy a $1 put spread,

the 27, 28 put spread. could you have bought the 28 puts for about 49 cents. net, net, you're spending about 26 cents when we buy put spreads we're looking to spend somewhere in a quarter of the distance between the strikes. in this case, it's 25 cents. it kicks in, essentially, right here because xlf closed just above $28. it's hard to understand why a rally like this one wouldn't consider a trade like this, which is an inexpensive way to make a bearish bit >> how does this look to you >> year-to-date, s&p's up 19.2 adjusted for beta, they have a higher beta market, they're actually pretty bad performers in general, if the rate environment continues, the banks aren't going anywhere.

>> banks have had so many head winds that actually, we've probably faced the worst of that this this short term in my view. i think we've seen the fed step in to ease some tension as to where they're going with rates or add stimulus to the market. we just got through the c car events j.p. morgan. they almost flunked the first round trying to be more aggressive j.p. morgan has underperformed the group over the last couple months to me, this is the best of breed. if i was going to be playing xlf i'd probably doing it with a spread on the j.p. morgan long i kind of like the banks here. i think they've been much maligned, great valuations relative to their own history. they've underperformed the s&p by 2% in the last year >> we were talking about the brokers versus the banks if hundryou had to choose that

choice >> i love being on oa on a friday afternoon i love carter stole the mantle from you >> i know. >> and i'd love to answer that if i could, would you rather back, i'd rather a blackstone rather than a money, so if ima he looking at the components of the xlf i'd like to break it down in a lower rate environment, blackstone's been a monster. >> a new high the other day this week >> mike, i know you have until august for this trade, but in terms of the financials, usually you've got them trickle out in a clump, but j.p. morgan goes out first. citi goes out in the beginning as well. how actively do you manage this if you see that initial drop, are you inclined to take it off beforehand >> i think this is something you'd look to monetize pretty quickly. bear in mind, you're not going to have to see it spread very far. it's going to have to go from 28

to 27. if it gets below27 you're going to see the spread go very much to the full potential value. obviously, then the risk/reward relationship changes dramatically do you think that there is a chance that xlf could drop, you know, say 1.5%, 2% between now and august expiration, the probability seems very good to me that it could go down 5%, that also seems like a pretty good chance between now and august expiration bearing in mind, that's more than four weeks away we always get to see a little volatility and 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 that's one of the things we've seen in real estate mortgages. when real estate is high, you're still not getting the origination you would hope to because you're preventing new buyers from entering the market place even though you have low rates.

check out some of the dow stocks deep in the dumpster. walgreen's, 3m, all down double digits as the dow touched a record this week but the chart master says there is one name that could play catchup. >> this is a retailer. that's kind of the point that he was making macy's, we'll see, let's focus on wba you can call it a health care stock. what you can call it is a lagger the issue is does it play catch up here's 2004 to present you've got our divergence. walgreen's having peaked some time ago it's now right now 40% below its 52-week high, and this divergent not necessarily with the s&p but it's a part of the story, is the opportunity. let's zero down on the stock itself and see what we can get so that's selloff. what was it? it's two things. it is a 50% decline.

40%. here's the zoom so you can see the number right, that's a big selloff. not only is it a 50% selloff, it's right down to support so it hit that line really quite nice finding a level where in principle, support comes into play having sold off 50% down to a level where rebound potential is high they'll play for a rebound. zero in a little more. here is the one we're charting 85, we touch 50, but it's this basing action that's important first, we've just now broken above the down trend line. we've just touched it. let's get that zoom again and you can see it we are now officially above the line that's important where might this go? we close at 55.19 today. let ate go let's go a little more i think we're going to get close to filling this gap. this line is at 59, 7%, plus, minus what i'm looking for

i think this basing, the divergence with the s&p is the opportunity, walgreen's on the long side. >> thanks, car tare, why don't you come back over to the desk carter was very crafty tonight we're going to do things a little different in a "options action" first, carter is also going to give us the trade on walgreen's. break it down, carter. >> sure. so put on risk reversal. stockholders 55.19 and i would like to get long but a lower price. two ways to do that. one, wait till the lower price, that's not what we're going to do what we're going to do is buy the 57.5 calls and spend 1.8 we

effectively get long and it's put to us at 52.50. >> mike khouw, be the arbiter of carter's trade >> there's a lot of things i like about it. there's one thing i'm not quite as crazy about >> oh, no. >> let's start with the things i do like. first of all, carter's trying to target pretty specific levels. that's an intelligent way to construct options plays. selling a down sized put, that's a high probability we like that buying the upside call, if you sell a put 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 that upper straight call for 20 cents 689 sometimes that can make sense. we're going all the way out to october. selling a call option for 20 cents, i know why he's doing that it makes it very neat. but the fact is that there's a

lot that can happen between now and then and if you want to have a trade that you can monetize more easily, i might leave that part out, it's only a 20 cent difference anyway. i might stick with the risk reversal, buying the first upside call, leave out the shorting of the upper straight call i don't think you're getting that much worth. >> my view on walgreen's, if i could jump in this dumpster with carter, i like the trade, because i think the reimbersment issue for retail pharma is out there. and i think there's more upside to the stock than there is down side so i'll let the options guys take it from there bottom line, this is a company counter acting by procurement, optimization they have a massive cost-cutting dynamic with the company i like it. >> last quarter beat, so the fundamentals sound, the chart looks good to mike's point, selling the upside, it was to create an even spread, where there's no cost out. but also going, i don't think

you can get past that, that's about 20% from here, a low beta, slow moving stock with issues. i don't think i'm going to risk that much. >> for everything "options action" check out our website. stein up for our newsletter. it is great for when you're chilling by the pool, hanging at the beach or maybe you just want to put the kids to bed here's what's coming up next >> that's right, "options action"s fan, get ready. there's about to be the ultimate tag team with mike khouw and tim seymour 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 @option action. if it's nice, we'll answer it on air, when "options action"

returns. ♪ "options action" is sponsored by think or swim by 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 to "options action," delta hitting a bit of turbulence after a nearly 20% run this year. you know what time it is ♪ that's right time for a little "options action" tag team actions the guys take it away, tim

>> let's tag team it michael, the call here for me on delta is there's a couple main things about it, this has now become the best of breed for all the majors they gave you their second quarter eq guidance where they basically told you at the top end of the reins, for airlines, something people are watching, they're actually benefitting, that's right, benefitting from the max. and i'm talking about obviously, boeing's issues that's had capacity issues and lowered to meet the demand. it's amazing how delta's management team seems to be avoiding the potholes in the industry to me, this is very much a high conviction long and i wanted to show you the chart on this thing. the reason is not only has it held the bottom end of the range, i'm talking about these

level around 50. and yes, i actually think we could start to head up 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 you've seen an investor sentiment change. there's been a couple sentiment, you know, kind of polls in the sector, and delta seems to be the up side. ten times six and a quarter takes you to six and a half. i'd like to see what mike has to say about that let's bring him on in. >> so, yeah. i'm actually with you on delta and the 737 max thing is obviously very interesting we have lower fuel costs which generally has been a tail wind for the airlines it represents one of their larger operating expenses, although it has conflicting issues because some of the older aircraft can stay in the fleet and keep capacity up one of the things i would point out is we have earnings coming up in delta. we've seen a 7% pop in the

stock, but it doesn't move that much around earnings, which is interesting to me when you wh e consider the space we've only seen one. out of the last eight quarters, we've seen one move where the stock moved more than 4% the other thing i find interesting is the longer dated options are quite cheap. so i think the way for us to make a play here is to put on the upside callender spread. i was looking at the july 60 i can sell by 65 cents and buy september 60s for $1.65. i'm spending a dollar. the idea here being that this earnings report is likely also going to be somewhat muted, even if it isn't and it rallies, it's not going to hurt us so much then we get to own that september 60 call for a cheaper price. that's really the idea here. we get some of the optionality and getting rid of the decay i think the airlines continue to

look cheap they have obviously done a much better job operating and of course consolidation has helped that a great deal. there's not a lot of places in the market where you're getting single digits multiples, the airlines continue to be one of them these things take a little while to resolve whatever benefits they're going to get from that are probably going to last a little while >> it's performance relative to other transport is really good crude behaving the way it's behaving is good for delta and the chart is ideal well-defined tops. and i think you can get 63 to 65 >> you're in a couple different airlines delta stands out >> delta stands out on valuation. if you're talking about a call spread even after september, we're going into potentially a period where people are questioning global growth. and airlines are basically

traded first and people ask questions later. you know, it's the dynamic with the call spread. you're of the view it's going higher in the long run and delta, i think it is best of breed. i don't think there's anybody close. >> no exposure to the max either, plus, that's got to be a plus >> it does have exposure to the max. it reduces the number of aircraft in the fleet. >> oh, i see >> and the biggest issue consistently for the airlines has been capacity. overbuilding capacity when times are good and it becomes a problem later on and the one thing i would add to tim's point, basically about a pricing situation. being in a call option is like owning a stock with a protective put. what we're going to get is significant participation to the upside if it continues to rally. if it does not, our risk is limited, and it's limited to the premium we spent, which is one

dollar >> all right, delta may be soaring this year, but not every transportation stock is on board with the rally, and there is room for one name in particular. we'll tell you what has them so nervous, and hey, you out there, do you have a question we'll do our best to answer it during the show. we're live from times square in new york city. much more "options action" still ahead. (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! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level.

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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 on one of our open trades a few weeks ago, carter and mike made a bet that fedex would break down >> fedex is back at its christmas low. it's bounce add little bit, and i think that's obvious and elemental, but the question is, is it really going to carry much further? i make a bet no. this is the beginning of yet more trouble >> i was looking at the july 170-175 call spread. and i want to sell that call spread >> that trade is in shipshape. fedex is down 4% so mike, how are you managing

this >> yeah, so you do need some management on this trade here, because we sold that call spread for just under $2. you could have bought it back at 25 cents essentially all the money that we could make we have made however, assuming carter agrees that we want to stay short fedex, what one could do is roll this trait ode out further in te >> we've eaten most of what we had. now the question to go on to something else or as mike is saying, stick with this in a different form or fashion. something must be wrong with fedex. we don't have earning 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 i love it. i think fedex has seen a lot of shade. the fact that their full-year 20 guide is out there, i think there's an opportunity for a lift in the stock. i think there's a lot of bad news in it coming up, 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. ♪

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 your tweets adrian asks, how far out do you buy protective spy puts. what do you tell aid rap . >> i like 60-90 days selling the 270s cheapens it up a bit >> time for the final call mike, what do you say? >> i'm with tim, and i like calendar spreads in delta. >> you want a stock? walgreen's boost in the long side you want a stock, try gold >> the double trade final call on the same stock. thanks for joining us. >> it's apleasure to be on oa. i think the airlines are some of the best stocks out there. i think the upside is something

worth playing to break out above 60 >> that does it for us here on "options action," we hope you have a great holiday weekend catch us back here next friday at 5:30. don't go anywhere. mad money with jim cramer starts right now. - [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. is all the clutter in your kitchen starting to look like an old junkyard? sick of spending hours cooking, only to serve mediocre meals lacking in flavor? wish your family would spend less time whining and more time dining? well, now they can! with the new bravo xl, the world's first digital smart oven with flavor infusion technology. it's a breakthrough in culinary creations! coming up next, you'll see how bravo's compact design cooks large family meals in record time! how, with just a touch it can bake, roast, grill,