happy friday, everybody. i'm melissa lee and it is time for a special edition of "options action" and we are joined -- mike khouw, carter worth and tony jang. apple rallying the stock is up now 14% over the last month, but the chart master isn't convinced that will continue so carter, what are the charts telling you? >> well, of course, look, this is a darling as is the case with most of the super cap names. but its behavior since january has been relative. let's look at a few charts what we know is this stock made a low back i

january of '18 of $140 and surged to 327 before collapsing with the market. didn't offer any defense, went down just as much as the market. hit a 212 low and closed this week at 283. if you look at the next chart, this is important. if you are defensive or considered defensive, more defensive than proctor, apple sells off 35%. offering no defensive qualities. and now having rebounded 35%, but you're not back to the high of course. that's the nature of percentage draw down and ricochets. final chart, this is a two-panel chart, and this really tells the tale what we see is apple on top, but its relative performance to the nasdaq 100 continues to stall. and by my work, that is its problem, and i think one is right to be skeptical going into the earnings print this coming week >> all right, carter, so we go to mike. what's your trade out of this?

>> yeah, so it's interesting as far as i'm concerned apple, this obviously is a company with a fortress balance sheet, and a lot of technology companies some would say are well-positioned during what is a weak environment it is a hardware company and used to trade at a hardwar company multiple which means it traded at a discount relative to the market right now it's trading over it 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 see any sort of rebound is that you can make up the gap in lost iphone sales and things like that. this is a stock that's trading 13.5% or so off its all-time highs. you wrap all of that into it and it is hard for me to be

optimistic i was short apple coming into today and added more bearish positions on it. and the one that i would recommend right here because implied volatility remains high would be a may 260, july 265 when i was looking at that midmarket, it was 9.75 less than $10, less than 3.5% of the current stock price. the idea is that the elevated implied volatility some of it is likely to come out after the report, and i don't need to remind anybody this name was downgraded by goldman sachs. it really didn't respond very much to that, i think it is actually held up pretty well all things considered but i have a feeling earnings might be the catalyst that gets other people to come around on this and recognize that maybe this isn't the place to be. >> tony, do you agree with the

forecasted direction of the stock, and how you to 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 i think apple is more susceptible to. i particularly like his trade. he has talked about diagonals over calendars and this is a prime example of using that specifically that he's using the may 260 strikes which are about 8% out of the money right now, which is about the implied move for may. risking 3.5% of the underlying stock price, taking a bearish view going all the way out to july for those reasons i quite like this specific trade. >> mike, any caveats apple could be whipsawed b some of the other earnings that come out ahead of it >> yeah, that's an excellent point. these stocks, apple in

particular and other large names, they themselves, they are the marriagest largely, right? they've become proxies for it. if we get to a risk off environment, a lot of these stocks are going to be playing with each other and likely to be highly correlated. one of the reasons we're looking out to july, at some point there's likely to be a divergence when people realize there are some stocks that are going to be winners, some that are going to be losers, and even if they hold up, they might be a little higher priced that's how i feel about apple. >> carter, you came on with a chart of the broader tech sector indicating that in the weeks after this week we could see some declines in the s&p 500 does that mean we're going to see the deepest declines in the tech sector itself or would you be looking for declines in other sectors? >> let's take this week for instance only one sector was up, and it's the sector that's the worst, energy

energy was also up last week materials, two weeks in a low down financials two weeks in a row, industrials. so i think if there is trouble, it would likely be heavier trouble here in paradise, so to speak, at the strong end of the market, these tech names, versus some of the beaten down financials and materials, which to some extent, that doesn't mean they have a good week next week if the market's down, a lot has already been take be out of them >> apple isn't the only company reporting results next week. we'll hear from microsoft. tony is betting on big things with microsoft's report. what are you looking for what's your trade? >> i'm looking at microsoft which is a different comparison to apple, because microsoft actually generates 50% of their revenue from their azure cloud business as opposed to a consumer business like apple as we continue shifting after covid-19, microsoft is one of the stocks that are going to benefit from that.

if we look at the chart, we can see it in the particular chart the chart is less than 10% away from its all-time highs. not only has it outperformed the market, it continues to outperform the technology sector this is the type of strong relative strength i'm looking for going into an earnings announcement if we look at the earnings itself, the stock historically doesn' move a whole lot on earnings, averaging about a 2% move. even though it's implying a 6% move going into the next earnings next week, but given the stock has run 32% over the last month, despite the fact that there are strong estimate revisions going into this earnings cycle, i think there will be limited upside for this particular stock the strategy i'm looking for, and the fact that i think there's limited upside on this particular stock is i'm going out to june 5th, the weekly options, and i'm selling the

172.5, 162.5 roughly $4 credit. i'm selling the june 172.5 for $9.40, and buying the 162.5 for $5.40. net/net, $4 credit on a $10 wide credit spread, so about 40% of the width. and this strategy has a break-even price of 168.5, which still gives me about a 3.5% move to the down side, which is more than almost double the average move that we've seen on earnings for microsoft over the last four quarters. >> what did you think of tony's levels and his charting. i have to ask the chart master about his charting >> no, please, we're all entitled to pull up a chart and render a judgment. what we do know is the things that are important that tony said is the relative performance, right this stock outperformed the market on the way down, dropping only 30%, versus the software

sub sector dropping 35% it's outperformed on the way back up and it's very close to its all-time high. it might just be in many ways if you will, the johnson and johnson of 1985. the most stable business, the utility, if you will this is certainly the place to belong and relative apple, most certainly so >> mike, what did you think of the trade? >> yeah, so i mean i have some things i certainly like about it there are some things that concern me about it as well. the things i do like, when you're getting 40% out of the money, that's pretty good math it's working for you when you're short verticals, even if you get the direction wrong and it runs through it, it's not like it's going to go straight to $10 in the meantime. those are things that i certainly like about it. things i am a little less

enthusiastic about it, this is a stock up over 40% year on year it's trading very close to, you know, high valuations for, you know, the past several years at about 30 times fundamentally, the story is very strong people talk about zoom, slack, amazon, companies that are benefitting, essentially, from this kind of a situation where people are working from home microsoft has those same things working for it, too, because teams incorporates features of zoom and i actually use the product. but the valuation concerns me a little bit if i was going to look to collect some premium, i might be selling upside call verticals instead if i could get the risk/reward. >> i completely agree, but i couldn't find the type of premium on those call spreads, which is why i'm choosing to go for these put spreads, especially with the strong relative strength. coming up, a retail reckoning. the coronavirus outbreak could

unleash a wave of bankruptcies in the retail space. tony says there's one name you really need to pay close attention to find out how he's playing it through options. later we taking your tweets. send us your questions @optionsaction we'll answer some of them on air. we're back right after this. "options action" is sponsored by think or swim by td ameritrade ♪ ♪

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xfinity. the future of awesome. ♪ ♪ ♪ ♪ ♪ welcome back to "options action." retail rebounding and surging into the green for the week. the entire retail sector is facing unprecedented pressure as the coronavirus continues to spread the outbreak could trigger a wave of bankruptcies let's get to courtney reagan with more on this story. courtney >> there were a number of retailers sort of on the brink well before coronavirus.

names you've been talking about like neiman marcus or jcpenney, but there are others that maybe 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 expenses and fixed costs remain even if the cash flow is zero or near zero. many have e-commerce operations that are still running, some, including dick's sporting goods and american eagle said online sales took off when stores were closed but three quarters of dick's sales are still in stores, about 70% for american eagle so it doesn't quite make up for the store's loss and every retailer is doing what they can to shore up liquidity and calculate how long they can keep going and also wondering if shoppers will come back when

stores begin to reopen and what shopping behavior could look like it could mean bankruptcies from retailers that were previously healthier and weren't considered in distress even 30 days ago more than one restructuring or bankruptcy expert i spoke to used the term tsunami to the number of bankruptcies that may be coming. federal court is open, bankruptcies could be filed now, but it start as 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. cow can't hold those sales if the stores are already closed. >> i'm curious obviously the department store in 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 tj maxx, i'm wondering

how those sorts of stores are faring and if they have the liquidity to withstand the closures >> so interesting that you bring up the off-price sector. they don't have a very big e-commerce presence or operation. and in fact, tjx has its e-commerce operation closed down they're very dependent on the in-store experience. on the flip side, they could benefit from all the inventory that is sitting in other stores and aging that these retailers are going to have to offload many people think there's going to be a treasure trove of merchandise to choose from, which could be good for the off-pricers. now tjx did tap its revolver i think those guys are in a bit better shape when it comes to this but at the same time, everybody's trying to look at the calendar and figure out how much it costs them to keep operating like this. a lot of things still unanswered >> if they could only make it to back to school, that could help. courtney reagan.

tony is taking a closer look at one of the more beaten up names in the retail space. tony, what's on your radar >> i want to take a look at macy's, even though i don't think this stock is going bankrupt some of the liquidity issues that courtney brings up is top of mind here macy's has cut their dividends and they have drawn down $1.5 billion of their credit revolver 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 the digital and online strategy like courtney said, like dollar general or best buy, versus stocks like macy's, that rely on same-store sales in order to generate their revenues. if we look at the chart, macy's reflects this. the stock is trading near the 52-week low, despite the retail sector rallyinging off those lows this type of weak relative strength is really concerning for a stock like this. now i will say, for stocks that

are low priced like this that have severely oversold territories and the fact that they're fairly volatile, trading options are tricky because the strike prices are very far apart from a percentage perspective. i had to get a little creative here i was going out to june, and i was looking at the $3, $4, $5 put butterfly here buying one contract, selling two contracts of the june $4 puts buying one of the june $5 put. this only costs 17 cents it is about 3.5% of the underlying stock price this is profitable if the stock is below $4.83, which is down from today's close, and it's profitable all the way down to $3.17. which is a 33% move to the down side this strategy is most profitable if the stock closes at $4 by

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 put butterfly. >> 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 strikes and premium, the stock itself has become an option on this company's balance sheet. the enterprise value is $8.3 billion or so only $1.5 billion in equity. what that means is if the stock drops 20%, that sounds like a huge amount, but actually, that's a really small amount, that $300 million move, basically the company is all debt if you're using a bearish or bullish, you can only use structures like this i think it's binary as it is

equity makes up such a small percentage of the total value of business >> carter, i feel like you have some pithy thing to say about macy's chart >> debt is a problem >> did you say death >> no, debt is a problem this stock is -- yeah, yeah, courtney made the point that we're in a situation that's been in trouble for a while this stock peaked in 2015. here we are closing at 5, and we're basically flirting with financial crisis low the stock didn't bottom in '09 it bottomed in the autumn of '08 and hit a bottom of 337. i think we're going there. this is the kind of thing that sometimes slips below the surface without a trace. >> tony, last word >> i will just say again, this type of weak relative strength

speaks to not only the weakness of physical stores like macy's, but department stores all together, and i'm trying to utilize options to have a cheap way to take a bearish view going into this type of event. >> up next, you asked, we answered the traders are taking your tweets you can twee us @optionsaction. we'll be right back. ♪ ♪ ♪ ♪ ♪ ♪ ♪ many of life's moments in thare being put on hold. are staying at home, ♪ at carvana, we understand that, for some, getting a car just can't wait.

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welcome back to "options action," it is time to take your tweets our first viewer asks, would now be a good time to make 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 first thing i would point out. the second thing is if you're selling a put spread on the vix you're basically betting that it's going to remain elevated or perhaps that is going to go higher even if the market trends higher, after you've had a really sharp spike like the one we've had, the vix can come in even as the market comes in. so i probably would avoid that structure for now. >> our next question is for tony tony was mildly bullish on caesar's entertainment can the same bullish sentiment be applied to las vegas sands? so, tony, what do you say?

>> las vegas sands reported earnings yesterday, actually had better than expected reports, but the stock came down about 5% today. now las vegas sands has a lot of exposure to asia, which i think makes it better than caesar's entertainment. caesars is outperforming now my preference here is opposed to using that three-leg strategy for caesars, i'm more inclined to sell a put spread for june, i saw you could sell the $43/40 credit put spread, collecting more than a third of the width here 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 to buy the may 85 put what's your take on disney >> well, i mean, buying the put of course is if you're bearish the thing we know about disney, it took a real beating, down almost 48%

only thing worse, of course, airlines some energy stocks and of course the cruise ships, of which disney is involved here's the thing it is such a big name, and the relative performance off the low is a good thing. it bottomed before the market. and while obviously, it's been slumpish i think if the earnings are okay, you get a pop. if there is some surprise, you could get a pop. my inclination is to be long >> we thank our viewers for all the fine 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

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step-by-step options trading support from td ameritrade time now for the final call. cart are, braxton worth? >> apple, everyone loves it, i'm a seller 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 >> we of course be back here next friday at 5:30 with another show don't go anywhere. have a great weekend "mad money" starts right now (male announcer) up next, how would you like to get

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