>> happy friday, everybody i'm melissa lee and it is time for a special edition of options action and we are joined -- >> the stock is up 14% over the past month, but the stock master is not convinced that the run will continue. carter, what are the charts telling you? >>. >> well, of course, look. >> this is a darling along with the super cap name, but its behavior since january has been very poor relative and let's

take a look at a few charts. this stock made a low back in january 18th before collapsing with the market and didn't offer any defense and went down just as much as the market and hit a 212 low this week at 283 if you look at the next chart, this is important. if you are defensive or considered defensive, is it more defensive than proctor that's the exact same sell-off offering no defensive qualities and now having rebounded 35%, but you're not back to the high, of course, and that's the nature of percentage, drawdown and ricochets. the final chart. this is a two-panel chart and this does tell the tale. what we see is apple on top, but its relative performance to the nasdaq 100 continues to stall and by my work, one is skeptical

going into the print this coming week >> all right, carter we go to mike. what's your trade out of this? >> yeah. so it's interesting as far as i'm concerned. apple, you know, this obviously is a company with a fortress balance sheet and some would say well positioned all things considered for what is a very weak economic environment, but the thing is this is a hardware company and it used to trade at a hardware company multiple which meant that it traded at a discount in terms of valuation relative to the rest of the market because of that like a lot of other consumer electronics companies did. right now it's trading over 20 times, and i have a hard time believing not only that they would meet their guidance which i don't think anybody is expecting, but that the first thing that's going to happen when we start to see any form of a rebound that you can make up the gap in lost iphone sales and things like that of course, this is also a stock trading only 13.5% or so off of its all-time highs and you wrap

all of that into it and it's hard for me to be optimistic and i added more bearish positions on it and the one that i would recommend right here because implied volatility remains high is a july 265 put diagonal and you would sell the 260 puts by the july 265 puts. when i was looking at that mid-market it was $9.75 and i actually bought some myself and got it at 9.65 and less than 3.5% of the current stock price. the added implied volatility is a fufrpgs of two things and one that we see in the market and what we're expecting for earnings and some of that is likely to come out after they report and obviously, i don't need to remind anybody who is watching and a lot of people know this and this was already downgraded by goldman sachs earlier this week and it didn't respond very much to that, and it held up pretty well, all things considered and i have a feeling that earnings might get people to come around and

recognize that maybe this isn't the place to be. >> tony, do you agree with the forecasted direction of the stock and how do you like the trade? >> yeah. i think the stock right now is actually fairly priced, but i think the fact that mike is going out to july speaks to more of his longer term bearish view especially in consumer spending which apple is more susceptible to i particularly like his trade because mike as spoken about using diagonals over calendars for the last few weeks and this is a prime example of using that specifically that he's used the may 260 strike which is is 8% out of the money which is about the implied move that you see here for may risking 3.5% of the underlying stock price to take the bearish view going out to july for those reasons i quite like this specific trade. >> mike any caveats? apple could be whipsawed by the other earnings to come out ahead of it. >> yeah, no, that's an excellent

point. look, these stocks, apple in particular and many of the other larger names, they themselves are the market, and they've become proxies for it and if we get to a risk on environment or risk off environment, a lot of the stocks are likely to be highly correlated and the thing is one of the reason yes we're looking out to july is that at some point there's likely to be a divergence when people recognize that there are some stocks that are going to be winners and there are some that are going to be losers and there are some that if they'll hold up relatively well from a fundamental perspective might be overpriced and that's how i feel about apple. on the last half hour you came on with the chart of the broader tech sector indicating that in the week after this week we could see declines in the s&p 500. does that mean that we're going to see the deepest declines in the tech sector itself or would you be looking for those declines in other sectors?

>> and energy was up, and financials, two weeks in a row and industrial i think if there is trouble it would be heavier trouble here in paradise with the strong end of the markets versus some of the beaten down financials and materials which, to some extent while it doesn't mean they'll have a good week next week if the market's down, a lot has been taken out of them >> well, apple isn't the only tech giant reporting results next week. we'll also hear from headliners, alphabet and microsoft and tony is betting for big things and what are you looking for what's your trade? >>. >> i'm looking for microsoft which is a different comparison to apple and it generates 50% of the revenue from the azure cloud business as opposed to a consumer business like apple i think as we continue to shift working from home after

covid-19, i think microsoft is one of the stocks that are going to benefit from that, and if we look at the chart, the outlook actually -- we can see it in the particular chart the chart is less than 10% from its all-time highs and not only has it outperformed the market it continues to outperform the technology sector. this is the type of strong relative strength that i'm looking for going into an earnings announcement. if i look at the earnings itself, the stock historically doesn't move a whole lot on earnings, only averaging a 2% move over the last four quarters even though it's implying a 6% move into the earnings next week and given the fact that the stock has run over 32% over the last month, despite the fact that there are strongest mat revisions going into this earnings cycle, i think there will be limited upside here for this particular stock. the strategy i'm looking for, that we have strong elevated and implied volatility and there is

limited upside is that i'm going out to june 5th and i'm selling the 172.5, and the 162.5 put vertical here collecting roughly $4 credit. i'm selling the june 172.5 for about $9.40 and buying the $162.50 for about $5.40. net-net i'm collecting $4 credit on a $10 credit spread so 40% of the width and this strategy has a break even price of $168.50 which still gives me a 3.5% move to the down side which is more than almost double the average move that we've seen on earnings over the last four quarters of microsoft. >> what did you make of tony's levels and what did you think of this charting? i have to ask the chart master what he thought of his charting? >> we are all entitled to pull up a chart and render a judgement. what we do know is what's important is what tony said.

this stock outperformed the market on the way down, dropping only 30% versus the software sub sector dropping 35 and it's outperformed on the way back up and very close it just might be in many way, if you will, the johnson & johnson of 1985 and the most stable business around the utility, if you will this is certainly a place to be long and relative apple, most certainly so >> mike, what did you think of the trade? >> yeah. i have things that i certainly like about it and there are a couple of things that concern me, as well. >> the things i do like is what tony highlighted when you're getting 40% of the distance in terms of strikes on the put spread that's out of the money that's good math and working for you. when you're short verticals and even if you get the duration long because of the june expiration and it's not like it will go straight to $10 in the meantime and that's not the fair risk reward instantaneously so

those are things that i certainly like about it and things that i'm less enthusiastic about is this is a stock that's up over 30% year on year it's trading very close to high valuations for the past several years at 30 times. fundamentally the story is obviously very strong. people talk about zoom and slack where people are working from home and microsoft has those things, too, and it incorporates featureses of zoom and i actually use the product, but the valuation concerns me a little bit if i were to look to collect premium i would be selling upside call verticals if i could get the risk reward that tony has identified with the put spread. >> tony, last word >> i completely agree, but i couldn't find the type of premium on the call spreads which is why i'm choosing to go with the put spreads and especially with the strong

relative strength. >> all right a reckoning, the coronavirus outbreak could unleash a wave of bankruptcies in the retail space and tony says there's one name you need to pay close attention to and find out how he's playing it through options send us your qstns aueiond we'll answer some of them on air we are back right after this ♪ ♪ ♪

♪ ♪ ♪ ♪ ♪ welcome back to options action the entire sector is facing unprecedented pressure as the coronavirus continues to spread and the outbreak could trigger a wave of bankruptcies let's get to courtney reagan with more on the story. courtney >> hi, melissa there were a number of retailers

that were on the brink well before coronavirus names you've been talking about like a neiman-marcus or jc penney, but there are also others that were healthier, but could be pushing possible to a bankruptcy now most of the sales are still generated in physical stores and the business models just weren't built to sustain closures for this amount of time. you've got expenses and fixed costs that remain even if the cash flow in store is zero or near zero. many are still running including dick's sporting goods and american eagle said online sales took off when stores were closed, but three-quarters of dick's sporting goods total sales are still in stores about 70% for american eagle and it doesn't quite make up for the store's loss and every retailer right now is doing what they can to shore up liquidity, to calculate how much longer they can keep going under these

unprecedented conditions and also wondering if shoppers will come back to reopen and what shopping behavior will look like put together it could mean bank repo reports -- and more than know one restructuring or bankruptcy expert referred to a number of bankruptcies, and bankruptcies could be filed now, but it's not ideal and it starts a 180-day clock for reorganization and the main liquidity to pay back creditors is from those going out of business sales once the stores have been identified that will close you can't hold those steele sales if the stores are already closed. >> obviously, the department store and the mall-based retailers are probably going to have it the toughest, but in terms of the stores where the experience matters the most like a t.j. maxx or home goods, i'm

curious how they will fare and whether they have the liquidity to withstand the closures. >> so interesting that you bring up the off-price sector like the tj maxx or ross stores because they don't have a very big e-commerce presence or operation and tjx actually right now has its e-commerce operation closed down they're very dependent on the in-store experience. on the flipside, they could benefit from all of the inventory that is literally sitting in other stores and aging that these retailers are going to have to off load and they think there will be a treasure trove, and tjx did track its revolver and those guys are in a bit better when it comes to this and everybody is trying to look at the calendar and figure out how much it will cost them to operate like this a lot of things still unanswered. >> if they could only make it to back to school

thank you. >> courtney reagan taking a closer look at one of the beaten-up names on the radar space. what's on your radar >> so i want to take a look at macy's even though i don't think this stock is going bankrupt, but some of the liquidity issues that courtney brings up is top of mind here macy's has cut their dividends and they've drawn down 1.5 billion of their credit resolver in order to stay solvent here and i want to take a look at macy's because it speaks to the story of this bifurcation that we're currently seeing in the retail space between companies that have invested in a digital and online strategy like courtney said like dollar general or best buyers have us stocks like macy's that rely on same-store sales in order to generate their revenues so if we look at the chart, macy's reflects this the stock is trading near its 52-week low despite the sector rallying 32% off of those lows and in this type of weak, relative strength is concerning for a stock like this.

i will say for stocks that are low price like this, that have severely oversold territories and the fact that they're fairly volatile, trading options on the many times are very tricky because the strike prices are very far apart from a percentage perspective so i had to get creative here and i was going out to june and i was looking at the $3, $4, $5 put butterfly here because i was looking at selling one contract -- buying one contract with the june $3 puts and selling two one trakts of the $4 puts and one contract of the $5 put and net-net it cost 17 cent which is is 3.5% was underlying stock price this is profitable if the stock is below $4.83 which is down from today's close and it is profitable down to $3.17 which is a 33% move to the down side and this strategy is most

profitable if the stock closes at $4 by that june expiration, paying out 83 cents if the stock closes at $4 that's almost a 500% return on the 17-cent investment for this particular put butterfly. >> the numbers in terms of the return potential, mike, sound good what do you think of the trade >>. >> yeah. so i like the fact that he's not spending a lot of the distance between the stock and the premium and the stock itself has become an enterprise option and it is $8.3 billion or so and only $1.5 billion in equaty and what that means is if the stock drops 20% that sounds like a huge amount and actually that's a really small amount of the $300 move and it's a small amount of the overall enterprise and the whole company is basically all debt so if you're inclined to make a bearish bet or a bullish one you can look at structures like this because you think it's a binary

situation with the stock price the way it is because equity makes up such a small percentage of the total value in business. >> carter, i think you have some pithy thing to say about macy's chart. >> listen, here is the main thing. >> did you say death >> before covid -- >> debt. debt there is a problem this tock is -- yeah you made the point that we're in a situation that's been in trouble for a while. this stock peaked back in 2015 and it was $56 a share and here we are closing at five and we're basically flirting with a financial crisis low the stock didn't bottom in '09 it bottomed in '08 and i think we're going there and probably worse. this is the kind of thing that does sometimes slip below the surface without a trace. >> tony, last word

>>. >> yeah. we'll just say again, this type of weak relative strength, and macy's and also department stores altogether and i'm trying to utilize options to have a bearish view into this type of event. >> up next, you asked, we answer you can tweet us at options action we'll be right back. ♪ ♪ ♪ ♪ ♪ ♪ ♪

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>> welcome back to options action it is time to take your tweets would now be a good time to do a short put credit spread on the vix if ever. i like the if ever part. mike, why don't you take that question >> yeah. if ever, that's an interesting one, right because when you're trading options on the vix you're really trading options on the vix futures. that's the first thing i would point out. the second thing i would point out is if you're selling on the vix, you're betting that the vix will remain elevated or perhaps that it will go higher and the interesting thing is even if the market trends lower even though you've had a sharp spike, i probably would avoid that structure for now. >> all right our next question is for tony. tony was mildly bullish on cesar's entertainment with the three-legged option. can the same sentiment be applied to las vegas sands

tony, what do you say? >> so las vegas sands reported earnings yesterday actually had better than expected reports and the stock came down 5% today las vegas sands has a lot of exposure to asia which makes it better than cesar's entertainment and my preference is opposed to using the three-leg strategy for caesar's and i'm more inclined to sell a put credit spread here and i saw that you could sell that $43 and $40 credit spread collecting more than a third of the width here and that would be my play here as long as las vegas sands can hold that 40 to $42 support level. >> our final tweet is about disney with earnings, is it better just to buy the $85 may 15th put for $1 about the cost of one share >> carter, what's your take on disney well, if you're bearish and the thing we know about disney is it

took a real beating and down almost 48% and the only thing worse is airlines and energy stocks and of course, the cruise ships of which disney is involved here's the thing this is such a big name and its relative performance actually off the low is very, very good and it bottomed before the market on the 23rd of march and if the earnings are remotely or bad, there's some surprise that you possibly get a pop because it is so wrong now the inclination is to be long. >> our thanks to our viewers for those tweets up next, we have the final call. i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service.

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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 the final call carter braxton worth >> well, be contrarian sometimes. apple, everyone loves it disney, everyone hates it. i'm a buyer. >> tony? >>. >> i'm expecting further weakness in retail and buying a put butterfly on macy's. >> mike? ♪ >> i was short apple coming in today. i was shorter coming out ahead of earnings consumer electronics not the place to be at this time >> all right that does it for us here on options action and we will be here next friday at 5:30 p.m. eastern time with another great show don't go anywhere.

have a great weekend in the meantime, "mad money" 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 summer i promise to help you find it. "mad money kwds starts now >> hey, i'm cramer welcome to "mad money" i'm trying to make you some money. my job is to educate and teach you so call me or tweet me are we finally getting back to normal or at least a new normal? i mean, toda