good evening i'm brian sullivan welcome to "options action." carter worth on set. mike ko is joining us from san francisco. all of our traders, of course, have been spending a lot of week -- a lot of time this week addressing clients big and small, and individual hedge funds, you name it for you at home, there is a lot of valuable and hopefully calming insight to be gleaned from these conversations because maybe you have a lot of the same concerns as the big institutional clients. so let's start there mike, i want to start with a salient experience you had this

morning, and maybe the lessons that can go to our viewers >> yeah. we were talking, my colleagues and i, with an investor and we spent about an hour on the phone and this is someone who has been managing a portfolio of stocks principally and essentially has lost faith in their ability to do that this week, and actually was actually coming to us and saying can you just take this over for me. i don't have any faith that i actually know what i'm doing anymore and we didn't actually have a good sense of what was in the portfolio and we began to go through it and what we saw was a list of names that probably looks like the ones that people are self-directed and typical accounts we saw names like microsoft, apple, cisco and abbott labs and a lot of, actually, pretty good companies in there not a lot of concentration risk. we actually saw a decent chunk

of cash because when all of this started to happen, they weren't deploying capital right away they're well-positioned, i think. one of the things investors need to do is you have a tendency, looking at the pnl, huge amounts right now, and there's a sense you need to move quickly actually, you probably need to take a step back and say let's develop a plan and start figuring out what we're going to do what is going on right now we see massive risk on and risk off. why is it happening? we know what we've seen what's going on in the oil markets and what's going on with the coronavirus. but that influences different companies differently. and that should help us determine what we're going to do right now. some stocks have not sold off as much as they deserve to, and others have sold off much more severely probably than they deserve to we need to sort of figure these out and determine what stocks we want to hold and which we want

to get rid of. we have time to do that. today, we got a bounce back. we can see this kind of volatility when you're getting unprecedented moves, when you're talking 8% or 9% a day then you need to be planning now over the weekend for what you will be doing next week and be on the balls of our feet. >> i'm going to say this, mike, whoever that client or clients you've been speaking to they're the most honest i've heard, literally. i don't know what to do. what was your advice did you feel we all need a psychologist to say, listen, take a step back and focus >> yeah, it was interesting. we actually were talking about a couple of things, sector things that could be done, and we were looking at a specific stock, as well on the sector front, one of th things that i think is interesting is that spaces that have traditionally been safe havens like utilities have actually been very severely

punished there was news that furthest that, when people are thinking yields are bottoming, thinking it as a yield trade, you want to get out of utilities i don't agree with that. this might be an opportunity where you can take advantage of the very high volatility that we're seeing of basically steep declines in the multiples of many of these stocks and also the fact that the yields for those things that actually pay them like utilities are going up quite sharply so, i mean, just looking at the xlu as an example, one of the things i was taking a look at. you can sell the april 52 puts today for $2.60. that's 5% of the strike price. that would be expiring in just one month so you'll be collecting 5% in yield xlu is well above this level when that happened if you get it put to you, you'll end up owning it at a price level of 49 bucks a share. you'll be collecting a yield on that, a dividend yield,of more than 4%. now, it might seem ludicrous to think i want to sell puts in an

environment like this, but whe things are hitting their lows and valuations are depressed and the dividend yields are good and probably supported, those counterintuitive types of things are probably what you want to do you want to do exactly what your intuition might tell you not to. >> good stuff, mike. thank you very much. carter, how long have you been doing this >> i just passed my 30th year anniversary in this >> have you ever seen a week like this? >> each time remarkably, it's kind of the same and kind of different. we've had epic plunges >> nothing was the same about this week. >> when you look at '08, in the plunging and the recovering, in fact, what was remarkable about this time, a huge sell-off and a ricochet on friday, the 28th of february two weeks ago we had a big reversal on that day and on the second or third of march, tuesday or wednesday, we were up 10%. so we literally, what we saw in one day we saw in three, and a sharp, plunging low on friday,

sitting here, recovered and on the high on the 3rd of march, that tuesday, we achieved a 10% ricochet we achieved a 10% ricochet in one day today and you all were talking about earlier, bear markets are characterized by sharp, countertrend rallies. that's all at this point that one could say this is. in terms of something that mike was addressing and tony, please jump in. the utilities are down the same amount as the s&p 500. with a bait of 0.7, that's exactly what you heard mike talk about. >> i think it's interesting that you guys ask how long you've been around. i haven't been around long enough to be around for the dotcom crash or the '87 crash, but this week, as extreme as i was, actually, for my purposes was not unexpected simply because if we look at the data from the last few years we've been putting out the researc saying this is the new norm, right? where we have longer and longer periods of extreme lower market volatility followed by extremely

fast and violent pullbacks in the market the only difference is it's more violent. >> because of high frequency and out goes passive investing, etfs, everything >> there are lots of reasons that we can start talking about and debating at the end of the day we've now pushed into a bear market and have to see what the right strategy is here three-prong approach what stocks and sectors do we want to pay attention to you guys brought up utilities, great sector to look at. as well as quality stocks. what option strategies should you utilize for this type of market mark hit this on the nail. where selling put strategies is the right strategy and this is a strategy only for the stocks that you believe that are going to rally these are stocks you want to own because when you get the put, you're obligated to buy the stock at the price and using statistics to give us an understanding as to when is the right time to execute these strategies, i don't think on a day like thooday, when we're up

almost 10%, is a day to sell a put. you wait for a day maybe next week when we're down 3%, 4%. >> do you think that will happen though >> yes, i do. >> this is not the day that everything is okay >> not likely, no, no, no. >> so again, we saw this two weeks ago. we had exactly a 10% recovery and at the time it was the low what we do know is even if it never goes lower and let's talk about that for a second and if it's over, if you look at all instances, there's been 12 in the history of the s&p 1927, you had a 20% plus sell-off from an all-time high the median time to recover the loss is more than two years. so even if you don't go lower, you take a lot of time just to recover the damage done and of course that's not allowing for the fact we could go plenty lower. >> the median recovery time is two years. go down 25%. 25% gain psychologically, money is lost

let's move and talk about apple, if we can, and i think we can, as well let's go to mike in fransan francisco, who has something on apple. people are looking for opportunity and let's give them an opportunity. it's friday. let's do it. >> exactly what tony and carte were talking about, when we are in a bear market and we went into one this week, and i think there's plenty of reasons to think we're not going to recapture february's highs again, but a lot of people own apple. they might think this is a good opportunity to get long in the stock and buy more of it i'll discourage that and suggest, instead, think about a stock recovery strategy. specifically today gave us the opportunity to do that because we got this bear market rally. i was looking specifically at the may 290, 310 one by two call spread in this strategy, you'd buy the 290 calls and sell two of the 310s and you'll collect a small credit to do that of a dollar and a half

you're not committing new capital to your position in apple. instead what's going to happen is you'll boost the returns that you're going to capture between the 290 strike call and the 310 call you sold. above that, your profits are essentially capped think about this if you did this, you're no worse off unless apple went above 330. guess what that's above the all-time high i think there's virtually no chance the stock will recapture its all-time high in the next two months here's a way you can collect money on the apple position if you're not selling the shares. get increased profits in the near upside and you're sacrificing virtually nothing because the chances that the stock gets above 330 in the next 60 days is very, very low. >> very low. >> all right, tony, what do you think about the apple trade? and also if it gets back to where it was it will take a while. >> think a lot of investors are stuck in this particular space

for a lot of stocks that you own where you think it will recover a little bit over the next couple of weeks and you want to get back to break even and you're pretty sure it will not get back to that level that you bought the stock at and the stock repair strategies are a great way to go about doing this and the stock repair strategy is limited in terms of how you can use it and it only protects you -- i'm sorry it doesn't provide you with any downside protection and it only works if you have a modest loss on that stock. in a stock like apple where you might be down 5% to 10% this is the right strategy to use. if you're down 50%, 25%. these strategies do not work the only thing i will say, mike, is i do disagree on the strikes i would use here i think i would use an at the money strike, buy the 275 and sell the 300s. you've chosen slightly different strikes than me, but overall, think this is a great strategy on a stock you're modestly down. >> a lot of apple bulls and hey, carter worth, prove him wrong. apple's going to get back to where it was quickly

>> yeah. that's not likely, right >> no? >> when you draw down aggressively you leave money trapped above and it's the nature of the quick sell-off lot of money was committed to apple and many stocks in december and january in february, 401(k) contributions and new players entering and a lot of people embracing the bull for the first time when you track this down, you leave the money tracked above. bounce today was a fibonacci level at 38.2% and it would be a herculean effort to get to the highs for this stock and basically all stocks >> making a lot of bulls on apple not so happy today carter worth. thank you very much. remember, folks, i'm sure you've got a lot of questions. these are, let's be clear, historic times, or at least decade-long times. be sure to tweet us your questions at options action and also, you think when the market melts down everybody will start buying gold, but they haven't been why not? we'll talk more about that coming up.

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." you'd think the sell-off we had earlier in the week was up and

down all week long would send investors like you running for gold for safety, but actually, gold fell about 9% this week and that is gold's worst week since all of the way back in 2011, but carter says the charts are pointing to maybe a bit of a rally ahead for gold he is over at the plasma to break it down. find us some opportunity, carter. >> gold got murdered, too. when you have a get me out mentality, utilities, gold, and safe haven thing, treasures, an aggressive sell-off as well and so the question is is it still okay as a chart? as a premise, i believe it is. let's take a look. so here is the gld and gold itself dropped from over 1700 an ounce to basically 1500 an ounce and an 11%, 12% decline. what we know is here is our drop again, pretty substantial and now take a look at the lines and we can do this here. you're well into support

support starts at prior tops from which you break out and support is not a plywood board and you can sink into and we are clearly in support and we have come down and we kind of closed a little bit below, but my hunch is that we are going to ultimately find relief here and bounce off this trend line now most importantly, of course, is this. and this is why independent of the fact that it dropped 12% as it's going straight down, what is it doing relative of the s&p? it is going straight up. pure alpha and not many areas of the market can claim this, and here, in fact, it's gold coming straight down and here it is compared to all commodities whether it's cocoa, cotton, coffee or oil, all of them combined down, absolute straight-up relative and that's kind of thing we want in an environment like this. >> i think what carter has identified is a disconnect between gld and the safe haven buying that we've been seeing during this market sell-off.

i do think this disconnect is due to the extreme market volatility and the liquidity issues that have been brought up, but i do think the disconnect is going to be temporary. i do see gold resume a move higher but i do think the move will happen relatively structure i w jui use is a call diagonal i'm looking at the march-june 150 call diagonal where i'm buying the june 150 calls for a 142 calls for $7.60 and i'm sell the march 150 call against that for 95 cents, net-net paying $6.65. the goal is to highlight the trade that the bottom used last week, but just half of it, utilizing the bullish side of this particular trade, where i'm buying the longer dated option because the implied voluatilitie to june are fairly muted, and taking advantage of th relatively high-up plied volatility for the march options and bringing my trade down and i want to continue to sell

against them as the march calls sell off. >> even these days you to find opportunity. for options traders i have to imagine as dramamine-inducing kind of a week as this has been in the markets, this kind of volume, these kind of spreads, this gamma, there's opportunity here >> there absolutely is what tony is trying to capture here, and we were talking about this last week, is one of the things that happen is the implied volatility, the price of options, the way options volatility traders typically think about it, goes up. it tends to go up much more sharply in the shorter dated options and maybe not quite as much in the longer dated ones. two dynamics going on. knowing that you want that in a high volatility environment, and

you also want the sell options with premiums. these diagonal spreads accomplish that and you own the longer dated option that hasn't seen its own implied volatility that much and you're getting the best of both and the whole idea is that you have some optionality and you get the opportunity to sell the elevated premium and still make the directional bet and using the diagonal and unlike the straddle slop that we were talking about before, is that these types of trades will tend to make profits no matter how high it goes you can't see a situation where it gets away from you on the upside you do exactly what tony was talking about. continue to sell the near-dated options for as long as they're attractive like right now. >> another record happened this week in the precious metals, the gold-silver ratio. how many ounces of silver can you buy with one ounce of gold and that peaked in february of 1991 today, we exceeded that high for the first time in basically a generation gold, while it's down 11, 12

silver is down 26% from its weak and the gold-silver ratio typically out this high, silver outperforms gold. >> generational change i think when this week is over, this period is over, we'll have all these new things >> records are made to be broken >> by the way, palladium, 32% down week this week. goes into cars not a good sign for car sales down road. that's a different show. up next, we're going to answer your questions. continue to tweet u us @optionsaction. we'll be back right after this ♪ >> announcer: "options action" sponsored by think or swim by td ameritrade ♪ ♪

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♪ ♪ ♪ ♪ all right. welcome back to "options action." it is time now to get your tweets and some of your questions on what was just an incredible and some might say completely insane week in the stock market let's go now to the first question mike, we're going to send it out to you out west, what is the best strategy to take if i have a put to hedge or a stock or a collar that has made good money? roll up in price, longer date or take it off?

mike >> okay. so if you're going to roll it you will be taking it off in part, but i would maintain some hedging in here. because i actually don't think all the damage to equities has been done, especially after the big spike we saw today implied volatilities have also gone up. you'll take your in the money put, which is profitable now, sell that, and roll down and out and put on a put spread. you're taking advantage of the elevated premium, going further out in time and adjusting the strikes below wherever the underlying stock is currently trading. >> our next fan asks, how can i reduce option prices besides using a call or a put spread tony, what other strategies should be utilized >> whenever you're trying to reduce the cost of an option what you have to do is you have to sell. the question is what do you want to sell? whether you turn it into a calendar and diagonal and you can get more creative and turn them into butterflies and ratio spreads, if you have a specific target >> what's a butterfly besides a beautiful insect

what does that mean? >> it's a three-legged strategy that allows you to target specific pricing, allowing you to take advantage of the high implied volatility, sell that, and be able to get a target price. >> i appreciate. i learned something. it's right up there with the moth trade your final call on a heck of a your final call on a heck of a friday >> announcer: "options sacks -- action" sponsored by think or swim with td ameritrade. and a trade desk full of experts, available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪ (sensei) beautiful. but support the leg! when i started cobra kai, the lack of control over my business made me a little intense.

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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 time now for your final call carter, kick us off. >> if you want to continue to own gold, relative performance is tremendous. silver, because it's, at this point, so bad, it's good >> all right tony >> i think gold reclaims its safe haven status. i call diagonals >> and that's mike mike, we'll go to you out west because you're three hours earlier than we are. >> sure, why not xlu which is the utilities etf i'm starting to like them here and i think they're a safety trade that will start to be safer than equities. i wouldn't put more money to work in apple. instead i might use a one by two

call spread on top of the stock you already own. >> it's not a record high any time soon, right, mike >> no chance >> guys, thank you very much really needed your insight intellect on a night like tonight. thanks for watching. we'll be back next friday. "mad" with jim, a big one, starts now - [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer, sponsored by nuwave. live well for less. we all love fried foods, (crunching) but yuck! (sizzling) that means scoops of grease, blobs of butter, or gallons of oil, just to fry. this adds up to a lot of unhealthy fat in your diet, year after year. stop! (slamming) now, you can cut out all the added fat, and still keep all the flavor with the new brio digital air fryer by nuwave, the world's first digital air fryer with flavor infusion technology. coming up next, you'll see how brio's compact design makes mountains of crispy wings