hey, there, it's friday at 5:30 pri 5:30 p.m it's time for "options action. >> has the market this week left you feeling like -- carter worth has drawn up some plans to help you get your footing back. and -- >> use the force, luke >> or, better yet, use a caller on the force dan nathan guides you through volatility on sales force earnings plus walmart, standing apart from a negative week in the retail

sector mike looks for the sequel to that movie next week it's time to risk less and make more the action begins now. >> let's get right to it it was the rate shock heard round the world. the ten-year rate falling below the two-year rate. the inversion seen as a recession indicator. the dow saw its worst day of the year, but carter says fear not it could spark a big breakout for one stock heading into earnings next week carter >> focus on home depot we know homebuilders as a group, the actual builders, have done nothing for three weeks, but that's called out performance compared to the market, and it's probably because of rates. by all accounts, it's because of rates. home depot, if earnings next week, i think you can draw the lines as follows you have selloffs.

this is a very precise selloff in terms of days down, 11%, and this is 9% what's really important about those two selloffs is that they both came to rest at this trend line and i'm going to make the bet that we're going to come to life again off that trend line. let's look at another series of numbers. the lows, the highs of three weeks ago, a $63 move. $21 down that's a ratio, a third. we've come down it again we're right down to this line. i think that all sets up for something quite constructive and then it's all about alpha. during the selloff, this 9%, 10% selloff, the stock has been going, of course, straight up relative to the s&p. i think it's a good place to be as a defensive name and to some extent as an offensive name. >> okay. come on over

mikey's going to give us the trade in the meantime. >> home depot, this is due only with lowe's. they are the better of the two companies. they have significantly overselled they have a mix on professional sales as well. one thing i would point out, trading roughly 20 times earnings, that is a reasonable multiple when you consider how this stock has grown eps over the last several years one other thing i would quickly point out, while the stock isn't immensely expensive, the stock options are. it's implying more than a 4% off ea earnings the most a stock has moved is 2.6% this is larger than anything we've seen over the last couple years. one of the reaps thsons that mie true might not just be to earnings, but we had significant

volatility i was looking at the september-january 210 spread, selling the september calls at 325. buying the januarys at 82567 in the short term you're hoping that home depot recovers to that 210 level. that's where the peak profits on a trade like this would be seen. if you don't think earnings would do it, consider this that's essentially where the stock was trading last week. why not just buy the stock i think this week gives us the answer to that i wouldn't want to run out and buy stocks at this point thinking that the worst is over because i don't think in the long run that it is yet. >> wow, everybody's kind of negative. >> no, actually, mike's trade leans bullish. >> the worst isn't over. >> short-dated options prices are very elevated. he wants to take advantage of that by selling some shorter

dated premium and using it to buy longer-dated premium mike would love this to go to 209.99 and end up with the longer-dated 210 call. we're going to talk about my cisco trade. this is a constructive trade but we've got to thread the needle 210 is an important level. >> that's exactly right. this is one of those situations where i was saying before, we have a couple things working in tandem when the market itself is getting significantly more volatile, you'll see the implied volatilities of the individual stocks is rising then you add to that the potential for an additional catalyst which could increase volatility even more, that's why you consider this. the option we're selling at 325 expires at a month from now. the one at 825 is into early 2020 there's a significant difference, but the $5

difference in price isn't as great. >> the setup that we've given back 10%, that ameliorates some of the risk. we're down to a level of support. it all sets up for what could be a very good trade. >> from home sales, to salesforce the software giant, the stock is down 9% in the last month as trader, trade turmoil takes its toll on tech can you say at that ten times? >> when they report next week, the options is a little more than the 4.5%. it's a high valuation name and a great secular story, but it's not that adversely feektsaffect what's going on with china the stock has stall the oued out

it has resistance between 160 and 170. it's outperforming the nasdaq. it's only up 5%. then you have peers like adobe up 27% work day up 20%. something's going on right here. one thing the company made a bid for tableau for $17 billion. that's more than the acquisitions this company has made to date so people are thinking, are they trying to jump start a little bit that growth. but that's one of the issues that some investors have right now. that chart right there, that's the five-year. i think it's really important to let carter speak to all of it. if you look at that intersection of the uptrends through late 2016 and then you look at where the recent support has been, it's sitting right on that level at 140 i think a guide down, and then you have the stock going lower, i do see overhead resistance at

160. here's the trade into the print. this is an important strategy i think for long holders this is a widely-held stock. a lot of our viewers really love the story here a caller strategy is something where you own a stock and you're into a potentially volatile event like earnings or a volatile period like we're in now, it makes sense sometimes to put a caller strategy on where you're protecting your stocks. you have gains to a certain point and losses protected below a certain point. here's the strategy that you might do if you are more worried about extreme upside than you are about extreme, excuse me, extreme down side than upside. when the stock was at 144 today you could look out to october expiration and buy the october 130-160 caller paying 70 cents for that you're selling one of the october 160 calls at $2. you're buying one of the october 130 puts for $2.70 that costs you 70 cents.

here's how this works out between now and october expiration if the stock goes up 160 you have gains in the stock up to that are you called away at 160 versus 100 shares of stock, if you were short one call you would be paired up now you have losses to the down side, down to that long put strike, down to 130, but you are protected below that again the structure costs 70 cents a premium. that is basically out the window no matter what happens this is an interesting strategy in volatile times in volatile events for positions you want to hang onto but you're worried about extreme down side. >> you hit the critical piece. whether you're talking about in the money call put spread or a caller like this you've created a situation where the risk and reward are essentially symmetric, however, we don't believe that the risk or the reward in the stock are sim et cete symmetric. i can see why you think 160

might be a near-time high. the low was 120. and we're obviously in a volatile market period when i'm sitting there thinking okay this isn't a coin toss if i buy the stock, but i can get a coin toss on the options market, that's the tradeoff you definitely want to make. >> the thing is, this is a darling. this was $5. and it's gone to 170 and this darling has stalled video was a darling. all of so-called baba tents, and it's all ruins on the floor. this has stalled it's rolled over its relative performance is terrible and has distinct patterns of distribution heavy draw downs in march, another in august. all of which suggests a great champion is faltering, is faltering. >> i want to make one last point. a lot of viewers out there, you use options to hedge positions, to define your risk. this lessens the outlay.

if you are hedging your portfolio or individual stocks that is a huge drag, you hear mike talk about this all the time on your performance i'm selling the call and using the proceeds to help buy a put for minimum premium outlay i think this is an important strategy investors should think about in periods like this you don't want to be buying puts all over the place in stocks you own. >> for everything options action check out our website. and while you're there, check out our newsletter here's what's coming up next get in, loser, we're going shopping >> a number of big retailers are on deck to report earnings next week plus, calling all "options action" fans reach into your pocket, not get your phone and tweet us. if it's nice, we'll offer it on air when "options action"

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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." check out the retail atf down amid a slough of disappointing retail results walmart surged after it reported results yesterday. mike khouw says there's one other name in the space that

doi -- >> walmart did catch me by surprise i'm taking a look at target, which, to my eye at least, the valuation looks much more attractive than walmart. we're talking about 15 times earnings versus 21, 22 times earnings, one thing we have to keep an eye on the price of options as well. like many other stocks, we have an above-average implied move, nearly 7%. that is probably a function of both how the stock has reported the last it's quarters where we have seen slightly higher volatility and how the market's behaving right now, and the other issue, in a, market markt like this how do we want valuation on a stock but the overall market may be making us nervous. you'll notice that target and walmart, you often will see that these two, the gap in their pe

ratios widens and then narrows you would see it widen if there was a reason why you might think that the income growth and target couldn't keep pace with walmart, but that isn't the case walmart has been making a move to food sales, i think target's trying to follow suit. seems like they're navigating the retail wreckage pretty well. we're going to take a look at october and how the stock has behaved in comparable ranges we can see we are back down here around the 70 level. and right up here, you know, maybe just shy of 90 so the trade i was looking at was the october 85-92.5 call spread this was pretty much close to at the money. this spread would cost about $2.50. that represents a third of the distance between the strikes that's a little bit more than we typically would look to spend on vertical spreads, but i think

it's justified in a market like this one this stock has actually moved fairly considerably on its own earnings a well. this is a way we can get upside exposure the stock is trading around $85. that's a relatively small percentage between now and october expiration you got a question for them? >> mike's a risky one. you know, he mentioned walmart here you know, these are two very different companies. we just talked about it earlier on the other show. walmart has more after staple with the grocery sales with target it feels like one of these department stores getting actually slayed. in this environment i would suspect that this one probably doesn't break out on just results that aren't anything other than spectacular >> i mean, it's often a coin toss we know that so we have great victories when we bet ahead of earnings and great defeats. the last quarter was a beat. and that usually suggests that

you get another beat you get beats or misses >> 27% year-to-date, darling stock. >> so, and we've set it up well in terms of the way to do it rather than just buying the stocks i think you're right to get long and do it through options. >> mike? >> you know, i mean, the points that dan are making, they're reasonable ones, but just remember this. target can follow the walmart market the online sales are also starting to make traction there. this is a smaller, more nimble company than walmart is. we are getting into a situation where a lot of the retail wreckage, if there are going to be winners, i think very likely, this and walmart could be the two that come out on top up next, it was a cisco inferno this week with shares falling more than 10%. we'll tell you how to trade that ka carnage. we're taking your tweets

if you're lucky, we might just take it on the air we're live at the nasdaq markets. much more after this ♪ ♪♪ ♪♪ ♪♪

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welcome back to "options action," time to look back at a couple of our open trades. dan said cisco could surge by september. >> i heard chuck robbins say how they shifted with some of the issues with tariffs. now we hear there's another 10% supposedly coming on september first. i think they've been given a little cover to possibly give conservative guidance. then we get to september first could you buy the august, next week expiration, september 55 call calendar. paying 65 cents for that >> well, you know by now, it took a pretty big hit off the earnings >> you know about that clip, listen, i got a lot of things right in that clip week over week they did take the mulligan they did guide down and the tariffs were pulled. the guidance was so bad that the stock went down too much

here's the important thing about the trade. this is what i got wrong the stock now is so far below the strikes we had chosen, the august-september 55 call trade i wanted to put something to work, and that's what i did. at the end of the day, stock's down 10%, and i risked 1% of the stock price. so to me, sometimes a lose is a win. >> isn't that the empitome of what we're trying to do here >> risk less, make more. >> last week, mike said, he broke down a protection play in the s&p 500 etf. >> we can see that obviously, right back here we're down around 2800. at the beginning of the year we were substantially lower what most people are probably concerned about, are we going to get a swoon where we might see a 10% decline, how do i give myself a little bit of presbyterian against th protection against that kind of event.

this is an october 275-270 put spread that's only $5 wide. >> the spy closed this crazy week about 1% cloeelower. what do you do >> you keep it on. spend about 80 cents in change, went up to $1.30 that's not why you bought it for. you have it so you have a handsome payoff. you need to keep that on >> okay. 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.

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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 we're back on "options action." time to take your tweets one options fan asks, what are your thoughts on tlt calls he bought some 148 strikes that

expire se expire se expire september 6 >> the tactical issue is do you have a little bit more to go, i would say trustructurally >> if you take a look, they have about a month to go. a month ago, tlt was $15 lower the question you want to ask yourself, if you'd gotten that kind of leverage, 10-1, there's no reason to take a long bet in tlt any other way. >> i'll just say this. if you're doing this now, you know, the tlt like mike said was 130 a month ago and now it's at 146 and you're buying the 148. you got to be a little patient here, rates aren't going to zero tomorrow if that's your thesis. i think tlt is really cheap. you guys have had a really great call a couple weeks ago, that's

cheap options in dollar terms and implied volatility times what happened this week was a good example reload on pull backs >> let's do this we've got time for the final call let's go with carter first >> sure, so home depot, walmart didn't work out so well, a better result with home depot. a sellout to report. >> be an interesting week, home depot and loews. >> i want to use calendar spreads for it the other thing, with the disaster protection trades, you don't take them off when you get a swoon like you had this week you don't get rid of your car insurance after you collect the one time on a dented door. you got to keep that insurance on >> that's your final trade >> that's it >> sales force is reporting.

you get a sense ofc what they'r feeling. i think it's a good opportunity to think about that. if you want to protect it, think about callers. >> that does it for us here on "options action. we'll be back next friday, 5:30 p.m. eastern. - [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,