good evening, everybody. i am brian sullivan. welcome to another special edition of "options action." with us are carter werth and tony zank and mike khouw is joining us from san francisco. a lot of people addressing concerns from clients big and strong, institutional, individual, hedge funds, you name it. for you at home, there's a lot of valuable, maybe hopefully some calming insight to be gleaned from the conversations because maybe you have a lot of concerns as the big institutional clients. let's start there. mike khouw, i want to start with a particularly salient

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

a lot of concentration risk. we saw a decent chunk of cash. when this all started happening they weren't deploying capital they're pretty well positioned one of the things investors need to do, you have a tendency to look at your daily p&l it's moving around there's a sense you need to move quickly. you actually 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 we've seen what's going on in the oil markets and we obviously have what's going on with the coronavirus, but that influences different companies differently and that should actually help us determine what we're going to do right now. some stocks have not sold off as much as they deserve to. others have been sold off much more severely probably than they need to. we need to sort of figure these things out and determine which we want to continue to hold, which we might want to get rid

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

severely punished. there was news when people say we think yields are bottoming and think of it as a yield trade, then they 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 we're seeing, 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. just looking at the xlu as an example, one of the things i was taking a look at you could sell the april 52 puts for $2.60. that's 5% of the strike price. that would be expiring in one month. you'd be collecting 5% in yield. xlu was up if you get it put to you, you'll be owning it for 49 bucks a share. you will be collecting a dividend yield of 4%

it might be ludicrous to be thinking i want to sell puts dividend yields are good those countser intuitive things are what you want to do. you want to do exactly what your intuition might tell you not to. >> good stuff, mike khouw. carter, how long have you been doing this >> it's interesting. i've been passing my 30 year anniversary. >> 30? >> you ever seen a week like this >> it's kind of the same and kind of different. >> what have you got to say about this one >> the periods of '08, plunging, recovery in fact, what's so remarkable about this day, a huge selloff and a ricochet friday, 28th of february, two weeks ago, we had a big reversal on that day. on the 2nd or 3rd of march tuesday or wednesday we were up 10%. so what we saw today in one day we saw in three. again, a sharp plunging wall and

recovered on the high and on the 3rd of martha tuesday we achieve a 10% ricochet we happened to receive a 10% ricochet in one day. what we were talking about on the show earlier, bear markets are characterized by sharp rallies. that's at this point all that one could say this is. in terms of what mike was saying and tony, the utilities are down the same amount as the s&p 500 now with a beta .7, that is an opportunity and that's exactly what you heard mike say. >> i find it interesting how long you've been around. i haven't been long enough -- i haven't been around long enough to be around for the dotcom crash, for the '87 crash, but this week as extreme as it was was not unexpected simply because if we look at the data from the last few years, we've been putting out research saying this is the new norm, right? we have longer and longer periods of extreme lower market volatility followed by extremely

fast and violent pull backs in the market the only difference is this time it's more violent. >> because of high frequency algos, passive investing, etfs, everything. >> there's lots of reasons we could start talking about and debating at the end of the day we've now pushed into a bear market and say what is the right strategy three prong approach what stocks and what sectors do we want to pay attention to. you guys brought up utilities. great sector quality stocks what option strategies should you utilize for this type of market i think might hit this on the nail selling put strategies is a right strategy this is for the stocks that you believe are going to rally these are stocks you want to own because when you sell a put you are obligated to buy the stock at that strike price and lastly, technical analysis timing the market and using statistics and giving us an understanding when is the right time to execute this i don't think on a day when you're up 10%.

i think you wait for a day maybe next week when you're down 3, 4%. >> you think that will happen? >> yes, i do. >> this is not the day >> not likely. 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 that eastern if it never goes lower, it's over if you look at all instances, there have been 12 in the history of the s&p going back to 1997 where you've had a 20% selloff, all-time high, the median time to recover the loss is more than 2 years so even if you don't go lower -- >> wow. >> -- you take a lot of time to recover the damage done. there are puts below 20. >> the median recovery time is -- >> 2 years. >> you go down 20%, you need 25%. people are psychologically, money is lost.

let's move and talk about apple if we can. i think we can as well wlets' mo let's move on to mike khouw on apple. people are looking for opportunity. let's give them opportunity. it's friday, let's do it. >> exactly what tony and carter were just talking about. when we are in a bear market and we technically went into one this week, there's plenty of reasons to think we're not going to recapture february's highs. a lot of people own apple. they're going to think to get long in the stock and buy more i'm going to discourage that today gave us the opportunity to recover. we have this bear market rally i was looking at the may 290, 310, one by two call spread. in this strategy you would buy the 290 calls and sell two of the 310s, you are going to collect a small credit to do that of $1.50.

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

particular space for a lot of stokes you own where you think it's going to recover but you want to get back to break even pretty sure it's not going to get back to that level these stock repair strategies are a great way to do that the stock repair strategy is very limited in terms of how you can use it it really only protects you -- i'm sorry, it doesn't provide you with any down side protection 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. other stocks, if you're down 50, 25%, these types of strategies will not work. the only thing i will say, mike, i do disagree with you on the strikes here i would use the at the money, i would buy the 275 and sell the 300s you've chosen different strikes but overall this is a great strategy on a stock. >> a lot of apple bulls. carter werth is saying, prove him wrong.

apple will get back to where it was quickly. >> that's not likely when you draw it down aggressively you leave money left above a lot of money was committed to apple and other stocks in december, january, february. new players entering a lot of people embracing the bull for a first time. you quickly draw down. you leave that money trapped above. the bounce of today, retracement level, 38.2% 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 tonight, carter werth thank you so much. remember, folks, i'm sure you have a lot of questions. let's be clear, these are historic times or decade long times. be sure to tweet us your questions b@opgs tions@optionsa. when the market is down you think everybody is going to buy gold but they're not.

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♪ ♪ ♪ ♪ ♪ welcome back to "options action." you think the selloff that we had earlier in the week, really

up and down all week long, would send a lot of investors like you running for gold for safety. actually, gold fell about 9% this week and that is gold's worst week since all the way back in 2011 carter says the charts are pointing to a bit of a rally he's over at the plasma to break it down. find us some opportunity, carter. >> yeah. gold got murdered, too when you have a get me out mentality, utilities, gold, safe haven things, treasuries had an aggressive selloff as well the question is is it still okay as a chart, as a premise i believe it is. here is the gld. gold dropped from over $1700 an ounce to $1500 an ounce. 11% decline. what we know is here is our drop again, pretty substantial. take a look at the charts this year you're well into support

support starts with higher tops. when support is not a floor, it's a mattress top. you can see this we are clearly in support and we have come down at least a little bit below but my hunch is that we are going to ultimately find relief here and bounce up. most importantly is this is why independent of the fact that it dropped 12%. what is it doing relative to the s&p? it's going up. not many areas of the market can claim this here in fact is gold coming straight down and here it is compared to all commodities whether it's coco, coffee, cotton, or oil, all of them combined, down, absolute straight up relative that's the kind of thing we want. >> tony, what do you think >> so i think what carter here has identified is the disconnect between gld and the safe haven

buy. now i do think that this disconnect is due to the extreme market volatility and liquidity issues that are brought up i do think that disconnect is temporary and i do see gold move higher i do think that is going to happen relatively slowly the trade call is a call diagonal i'm looking at the march june 150. i'm buying the march june 142 calls for $7.60 and selling the march 150 calls against that for about 95 cents net net paying about $6.65 the goal of this trade is to highlight a trade that was used last week but just half of it utilizing the bullish side of this particular trade where i'm buying up longer dated options because the buys are muted and the high volatility march options and selling the 150 call against it to bring the cost of my trade down as low as possible

i want to continuously sell these calls against it as the march calls roll off. >> even on days like this, tony, have you to find opportunity for options traders, mike khouw, i have to imagine as drama mean inducing kind of week this has been in the markets, this kind of volume, these kind of spreads, this kind of gamma, there's opportunity. >> yeah, there absolutely is you know what tony is trying to capture here and they were talking about it last week, i believe i was talking about it, too, is one of the things that happens is the implied volatility, that's the price of options the way options volatility traders typically think about it, goes up. but it tends to go up much more sharply against shorter dated options and maybe not quite as long in the longer dated ones. there's two dynamics going on. number one, owning optionality but you want to sell options that are seeing much elevated premiums how do you do that these diagonal spreads are doing

that if you make a directional spread and you own the longer dated option, you're basically getting the best of both the whole idea is you have some optionality and you are making your directional bet using the diagonal, the important thing unlike the straddle swap that we were talking about before, 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 up side you do exactly what tony was talking about. continue to sell those near dated options for as long as the premium looks attractive like it does now. >> it's worth doing. another record happened this week which is the gold-silver ratio. how many ounces of gold can you buy wi -- of silver can you buy with one ounce of gold. gold, while it's down, silver is down 26% from its peak

the gold-silver ratio at this high typically going forward, silver outperforms gold. >> these are generational. >> 19. >> i think when this week is over, this period is over we're going to have all of these new things, like -- >> records are made to be bro n broken. >> palladium, 32% down this week goes into cars not a good sign for car sales. that's a different show. up next, we're going to answer your questions. remember, continue to tweet us @optionsaction. we'll be back right after this ♪ ♪ ♪ ♪

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♪ ♪ ♪ ♪ all right. welcome back to "options action." it is time now to get your tweets 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'll 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 caller that has made good money roll up the price, longer date or take it

off? mike >> well, if you are going to roll it you will be taking it off in part. i would maintain some hedging in here i don't think all of the damage to equities has been done, especially after the big spike implied volatilities have gone up you would take your in the money put which is quite profitable and roll down and out on a put spread so you're basically taking advantage of the elevated premium going further out in time adjusting the puts below wherever the underlying stock is currently trading. 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 sell. the question is, what do you sell typically you want to do shorter dated options. but you can get a little bit more creative and turn them into butterflies and ratio spreads. >> what's a butterfly besides a

beautiful insect >> it's a three legged strategy allowing you to take advantage of the high implied volatility and target a very specific target. >> thank you appreciate that. the motte trade. coming up, your final call on a heck of a friday. this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. i see best-in-class platforms and education. i see award-winning service, 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) a live bookkeeper quickbooks for me.tomize (live bookkeeper) okay, you're all set up. (sensei) thanks!

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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 all right. time now for your final call carter kick us off. >> you want to continue to own gold relative performance is tremendous silver because it's so bad it's good. >> tony? >> i think gold reclaims its safe haven status. buy call diagonals. >> mike. we'll go to you out west you're three hours earlier than we are. >> sure. why not. xlu, which is the utilities etf, i'm starting to like them here i think they're a safety trade smarter than equities. i wouldn't put anymore money in

apple i would use a one by two call spread. >> apple is not going down any time soon? >> no chance no chance. >> needed your insight on a night like tonight thanks for watching, everybody we'll be back next money "mad" with jim, a big one, starts right now - [narrator] the following is a paid advertisement for the hoover smartwash. when your throw rugs need cleaning, you toss them in the washing machine, easy. if only you could do the same for your carpet. instead, here's what carpet cleaning looks like for many of us hauling around heavy, bulky rental machines. they're a hassle. and do you really want to bring someone else's dirt into your home? and then there's all the mixing, soaking, waiting forever for your carpet to dry. no wonder we sometimes give up and call in a pro, but that's a whole other level of pain. they're all over your house. you're left with a damp carpet and it costs a fortune.