it's friday. it's time for options action when you hear crakraft, it likey brings to mind shelf stable pasta bathed in orange cheese. when carter hears the word kraft, he sees green if you need more than mac and cheese, tony is running to walmart. he'll help you load your cart with a little of that name, and finally, no way to make another food pun out of this one so we're going to give it to you straight bank dividends, what is going on there? it's time to risk less to make more and let's get right to it here

local economies continue to reopen across the nation and the consumer staples etf has risen more than 10% off march lows, but there might be only a handful of names within it that have all the ingredients for a continued run higher the chart master, carter worth, has been in the kitchen, tinkering with the secret sauce based on the one stock, carter, have you been crafting something for us >> exactly, how clever crafty and clever. before we look at a couple charts, this has been a disaster of a stock what we know is it peaked almost four years ago at basically $98, and bottomed this year at $20. you're talking about a 79% decline. it's not loved only two analysts consider it a buy, yet two people hold almost 50% of the stock, warren buffett, of course, and 3g global but anyway, a few charts so here is the first chart and what we see is that it has all the characteristics of a bottoming out formation. a bearish to bullish reversal.

you can see the 150-day moving average starting to flatten and rise the second chart is the same timeframe, but it's showing you another way. it's the trend line, meaning kraft heinz has broken above the down trendline, in effect, since it peaked back in february of 2017 at $98. the third chart, i wanted to zero in on the events of two years ago. what you see here is, of course, when the stock plunged, it hit an s.e.c. investigation, took a $15 billion charge there in february of 2019 you can see the drop, the stock plunging 48 to 35. it's been basing ever since. and then, the question is, can we move into that gap, to the upside so take a look at chart number four this is the same chart sort of up close and personal. and this is the opportunity. again, the stock drops on 135 million shares, trades 6 million on average, and now two years later is toying with the prospects of moving into that

gap. and so the final chart, the fifth chart shows you the importance of the current level. the stock continues to bump up against the $33.50, $34 level, and a breakout here would be in principle clear sailing all the way up to the mid to low 40s i think it's tremendous opportunity. noend linobody likes it. got a downgrade from moody's today. classic contrarian indicator we think this is real good >> tremendous opportunity, mike. what's the trade here? >> so this is interesting situation because as carter pointed out, there's not a lot of places in the market where we don't see at least some signs of, shall we say, irrational exuberance this is trading at 15 times less earnings and those are fairly stable earnings. it's not a growth stock, but it isn't priced like one either what's interesting to me is these are the types of buy and hold stocks people used to look to in the past and try to collect some dev depends

it's also the kind of stock where some fairy traditional investment strategies we like to use and options might have been appropriate. with all of the volatility lately, some of those investment strategies have been harder to identify, but i was taking a look at this today and noticed the implied volatility has gone up quite a lot, and yet the stock isn't overly expensive, so i think this is an interesting setup for a put right. a put right is a situation where you sell a downside put on a stock, collect the premium, if the stock stays here, you get to keep the premium if the stock goes higher, you collect the premium. and the worst case is the stock drops below the strike that you sold, and you end up buying the stock. you end up buying it at a discount you'll buy it at the strike, less the premium you collected because options premiums are higher now, the amount you're collecting is also higher. i was looking at the august 32 1/2 put when i was looking at this earlier today you could collect $1.90 for those. normally when i look at these types of strategies, i'm looking to collect in a normal market

condition, 1%. here, it's 6%. the downside risk is you would own it at $32.50, and you're still going to have that $1.90 you collected. this is not a stock you're looking to hit it out of the park and see 15%, 20% gains in a short time because it's not that kind of a growth story, but it's an unusual story where we can collect substantially more premium than we would have normally been able to ifthe markets weren't as disrupted as they have been >> we don't often talk about put rights tony, what do you make of this trade? >> as mike said, 1% is usually what we target on a put right. getting 6%, that's very attractive carter has found a phenomenal setup. you have this multi-year bottoming formation that's just about to break out and there's a lot of potential, but that's my concern, it's potential here because kraft hasn't seen any revenue growth since 2016. they have been working on this turnaround story since 2018. i would like to see the stock

break out, even by a couple bucks above the $33, $34 major triple top we have here. as carter said, a lot of upside into the low 40s, so even, i would like to be a little patient here, wait for that breakout, and perhaps buy some calls here that would be my preference. >> carter, your response >> well, that's right. so there's two types of technique, and waiting for a breakout is much safer we sometimes miss it because you breakout like a spotify is so big, that it's almost too late it's up 12%, 15% it would take a news catalyst to do that, but we want to put the trade on here and then in the event of a breakout, get even bigger one thing to note, also, is in their troubles they have cut the dividend, but now, they have also indicated that the dividend at reduced level is good they're earning the dividends. paying $1.60, earning about $2.50. a yield of almost 5% you think that also adds to the charm of this crafty and clever pick >> crafty. you got a pun of your own, carter mike, last word. you have a pun for us?

>> no puns i'll leave those to you and carter but i think this is really the idea here, that we're sort of splitting right down the middle of what tony was talking about, what carter is talking about selling a put is the sort of way you can bide your time you're going to get long the stock at a lower level if it does dip, and if it does start to break out, we can look to do something more aggressive on the upside >> let's stick with staples here, and tony is looking at a way to play another one of the biggest names in the consumer space. tony >> yeah, we have been talking about retailers for a while, but i actually think walmart here is very well, good stand out here in the retail space, in the short term and long term if we first look at the chart, when i looked at this earlier today, i actually didn't think the chart looks particularly strong and recently broke below that $120 support level, which is a major level for me, but when i started taking a look at the fundamentals, i think the current weakness that we see here is actually an attractive long opportunity here from a risk or reward perspective, if

we look at the walmart business, the e-commerce business is the one we want to focus on, where amazon dominates this entire space. their e-commerce business is almost seven times larger than walmart, but walmart has recently struggled with their e-commerce but has come to life in the last year they have been growing about 39% over the last year, and their e-commerce business versing half of that for amazon, only 20% if you look at the grocery business, this is where walmart dominates and amazon is trying to catch up. what we have seen is amazon, walmart has been investing heavily in their online grocery and their digital strategy for pickup, and this is really where walmart's physical stores outshine amazon, because most americans live within ten miles of a walmart store so they have seen almost a 200% month over month growth in their online grocery business. overall, i like walmart both on the short term and long term from their e-commerce prosspektds and especially

today, when apple announced they were shutting down stores and we saw a sell-opin the markets, walmart saw strength as a result of that. i really like this particular stock in the current weakness we're seeing the strategy that i'm using here is the same that mike used, and i'm concerned that people are going to say that i'm copying mike here, but the strategy i'm looking to use is a strategy that is very underutilized by many equity investors which is selling a cash secured put to acquire a stock you like at a particular discount. the strategy i'm looking here is to go out to july. i'm looking at the july 31st 118 puts i can collect about $2.83. now, as mike said, we usually target about a 1% discount on these cash secured puts to purchase the stock, but here, i'm collecting almost 3% here, and my break even price is about $115.17, which gives me the ability to purchase the stock at about 4% to 5% below the current price of the current stock price. >> mike, i will go to you.

so you can comment on whether or not you think tony is copying you, but i think it has to do about where the markets are, where the volatility is right now. >> i think that's right. we have a situation where it's another stable stock and another situation where options premiums are elevated it's another situation where the revenue situation for the company is relatively stable those are the kinds of setups we like for put rights. for anybody who thinks he's copying me, he definitely isn't. today was expiration no chance we were talking during the trading day today. we had a lot of other things to do i was pretty busy. i didn't know what he was going to come up with and he didn't know whawhat i was going to come up with, but i like the idea >> carter, how about you >> tony led with the comment, and he's right, of course, that the chart is poor. and so while sometimes the fundamentals can trump a bad chart, and it's not a horrific chart, what we do know is walmart's beta is literally a .5

versus staples at a .7 versus the market at 1. and for it to be underperforming like this, down 12% from its peak, it doesn't feel like it's going well or i don't think that's the worry, but i don't think it's going higher, either. feels like a dull duck here. >> tony, last word >> well, that's why i kind of like selling these puts to acquire the stock for the long term i agree with carter in the short run. i have concerns in the short run, but i'm looking to use walmart as long term investment against amazon and target. >> all right coming up next, with the fed's big bank stress test around the corner, there's a dislocation in dividends of some of the financial stocks mike will walk us through that and for everything options action, check out our website. file you're there, you can sign upor our newsletter. stay tuned it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard

before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪

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visit tdameritrade.com/learn ♪ welcome back to options action fed stress tests are fast approaching for the big banks and the financials suddenly find themselves in a potentially precarious position. they made about 70% less profit than in 2017, and that could spell bad news for dividends if you're looking to play the big banks right now, how do you do it? that sounds like the perfect question for professor koh take it away >> yeah, so this is an interesting situation. you know, a lot of times in markets like this, people might look to stocks that pay big dividends as maybe safe havens think this is a dangerous exercise when you see dividends get very, very large, though in percentage terms. we're certainly seeing that in some of the financials take a look at wells fargo, for example, this is a stock that

has about a 7.4% dividend yield at the moment. that might seem appealing, but that usually tells you that there's a good chance that the dividends are at risk. if we take a look at what the options market is implying, we're seeing that as well. we're seeing that in many cases for the banks in particular, the high dividends that they're paying might actually be a little higher than what you're going to end up getting if there are some form of dividend cuts and smin cases that's what they're applying we have the stress test coming up so when you hear us talking about the implied dividend, we talk about that quite a lot, but you might be wondering how we come up with that. the way ewe do that is compare price of a stock to its synthetic equivalent in the options market what is that what we can do is replicate the performance of stock by buying a call and selling the same straight puck, the same expiration put here's an example. if i went out and bought the january 100 call, for example,

and sold the january 100 put on a stock, and i took the net debit or credit of that transaction and added it to the strike, that's the price of my synthetic stock and i can compare it to the actual stock the principle difference between the synthetic stock i created with options and the real thing is that options don't pay dividends. it stock does. so generally what you're going to end up seeing is that as the implied dividend is falling, you're going to see that the price of stock relative to its synthetic equivalent will drop contrarily, when you start to see dividends go up or implied dividends rise, the price of stock is going to rise compared to its synthetic equivalent. so when we take a look at this for a number of stocks including stocks like jpmorgan, we can see there's maybe a 30% chance or so that at some point within the next year, we're going to see a dividend cut does that mean it's going to happen no, but it does mean some of the high dev depends may be at risk. a lot of people who just buy stocks will tell you the same thing. if you're looking at this space

thinking now is the time to get long, i would urge caution the thing is, if you own a basket of stocks like the s&p 500, you also own some financials, and maybe you're a little concerned about the fed stress test. maybe you're a little concerned about the troublesome looking dividends. you can hedge out that risk or make a bearish bet without getting unlimited risk to the upside i was looking at xlf specifically at 24 20-put spread you would spend about $1.15 to buy that put spread. i would point out that actually, xlf was below that, so it's slightly in the money. that's one of the reasons we're willing to pay a little more for that normally we're looking to spend 25% of the distance between strikes or less. the important takeaway is when you see exceptionally high dividends, they might be tempting don't fee fools to chasing those stocks because they usually mean unusually high risk. >> the new wrinkle today is the vice chair of supervision said

there's going to be an additional sensitivity analysis layered into the stress test to test for various scenarios in the economy because of the coronavirus pandemic so that's all go to be tested here so there's another layer of uncertainty in this whole mix. >> and at the end of the day, we have these great adages that are popular because often they're right, where there's smoke, there's fire don't fight the fed. one of them is if it's cheap, it belongs where it is. it's not cheap cheap is a four-letter word, meaning there's something wrong. i think this is where the hopes are that somehow the financial sector really never got above its '07 high the index never got about its '07 high on a relative basis, the bkx is below its '09 relative low the xlf has insurers in it, berkshire is the biggest holding, but even earlier, we were talking about price to

book that's what a value trap is. >> tony, your thoughts on mike's strategy >> so as far as a hedge because i think the downside risk clearly is skewed to the downside with respect to financials with the stress test. i think mike's trade makes a lot of sense as a way to hedge yourself the only thing i would potentially modify slightly on his strategy is that i might not sell the 20 strike, which is probably far away. that's almost 16% move to the downside i would look to move that up higher to the 21 strike, trade a slightly narrower vertical in that particular case, and just one comment on the implied dividends. while i think implied dividends is an extremely interesting use case how you can use dividends to predict what might happen in the future, i think one of the things is the information that's embedded in that option in my concern is that it's already also embedded in the stock price. i want to make sure investors don't necessarily use that as a reason to go out and short wells fargo. and there's a lot of imperial evidence for this as well that shows when the options are

implying a dividend cut, when the dividend cut actually takes place, the stock doesn't drop that much. >> those are good points, mike >> i think that's definitely true i was alluding to that when i was talking about high dividend yields by themselves, they suggest a lot of bad news has been bryced in already >> up next, we're making a return trip to two of our open trades lyft revving higher while ford stalls we'll tell you how our traders w.the merit osnas gh no turn on my tv and boom, it's got all my favorite shows right there. i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim.

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oh yeah, you going to place it? not until i'm sure. why don't you call td ameritrade for a strategy gut check? what's that? you run it by an expert, you talk about the risk and potential profit and loss. could've used that before i hired my interior decorator. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk.

♪ welcome back to options action time to take a look back at our open trades. a lot of car talk on the show recently let's begin with lyft. tony told traders to prepare for lyft-off >> i think the chart for lyft is fairly constructive. you have a breakout above $35 resistance it's come back to retest that as support, and this is really coupled with a relative strength constructive for the stock to continue moving higher i'm going out to the july 10th weekly options expiration, and i'm selling the 36.5, 31.5 put vertical and collecting about $3.20 for that 36.5 put, and i'm paying about $1.30 for that 31.5 put. >> well, lo and behold, rallying in the last week before falling into the red here. so tony, what do you plan to do with this trade now?

>> yeah, so the trade was working beautifully until apple announced today they were going to shut down some stores and the stock fell about almost 6% it is still trading just at that $35 level that i was referring to last week, and the trade itself is actually still flat. so my indication at this point is to hold it until next week. see if we break below $35. if we do, i would cut my losses and get out, but i'm still looking for a potensile bounce off the $35 level next week. >> from ride sharing to auto stocks, after a rough week for ford, mike put on a trade to help mitigate some losses. >> i think this is maybe one of the most picture perfect cases i have seen. if you bought the stock earlier this week, perhaps on monday, which was its high for the past month, obviously, you have taken some significant punishment since that time. so what can you do in the options market first of all, you want to look at stock recovery strategies one of the things you can use is a 1 by 2 call spread overlaid over your long stock position.

when i waw looking today, you could buy 1 july 7 call, and then you could sell two of the 8 strike calls against it for about 18 cents each. >> forward, reverse some of those losses but it was down today. mike, what do you do with this trade? >> phil lebeau was talking about it earlier this week it seems like there's a little bit of a rebound in light auto sales and light duty trucks and suvs i wasn't advocating people buy the stock but come up with a strategy for people who already had. if you put this trade on over the stock you already own and you're going to hang on to the stock, you hang on to the options trade as well. >> what do you think of hanging on to the stock, carter? what do you think in the charts? >> it's a bad chart. i wouldn't hang on to it >> time to take some tweets. should we get into beyond meat june calls mike, why don't you take that

one? >> rather than the stock, sure but of course, june expiration just came and went i'm assuming you're probably referring to july or august. if you're looking to make a bullish bet, i would rather do it with calls. it's a speculative enough place to be in the stock already >> tony, your thoughts on beyond >> i actually think beyond meat is one of those stocks that's quite underestimated, if you will similar to zoom, i think it's more of an environmental play. it's more than ethical play in terms of how people, how consumers are going to consume food products, and especially as we see all these documentaries of livestock and how livestock production works i actually quite like the stock. i think -- i prefer buying coal options going out to july or even august in this case as opposed to june. >> our next viewer asks if you own airline stocks, can covered calls alleviate some of the pain while waiting for them to come back, specifically on a stock like jetblue, which recently said they would be increasing

domestic routes. what do you say? >> first of all, covered calls is the same thing as selling puts would i be selling puts in the airlines right now no way no way >> pretty direct answer. time for the final call. carter, what do you say? >> kraft heinz i'm a big buyer. >> mike? >> selling puts in kraft heinz makes a lot of sense here. >> tony? >> i think walmart here is the best for the retailers i like the stock i'm going to go long by selling cash secured puts. >> that does it for us we'll see you back here next friday special edition of fast money is up next. ♪ ♪ ♪ ♪

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♪ ♪ hey, everything special hello to you "mad money" fans. jim is off we have a special edition of "fast money" for you we have hitting the five stories that impacted you most guy, tim and dan nathan. let's get right to it. the failure to relaunch. apple announcing it will reclose apple stores in florida and arizona and the carolinas. this comes as coronavirus cases spike in those areas, as well as texas and california