happy friday we've got an exciting show lined up for you all >> you've heard him say it consistently, rates to zero, precious metal to infinity carter worth has yet more directional data to put his money where his mouth is and tall is a size at starbucks. short is tony zang's call on the stop he'll show you how to order that in options speak finally, speaking of. >> i think this is an interesting setup. >> as al pacino said in the

movie "any given sunday," football is a game of inches options trading is similar in terms of measurements. we get the hard knocks pep talk. it's time to risk less and make more "options action" starts right now. ♪ let's get right to the three and five-year yield hitting fresh lows our chartmaster carter worth says the bond yield breakdown is only just getting started. carter, what are you looking at? >> it's a big old mess every year the consensus is that rates will go higher and doesn't seem to happen we started the year at 2% on the ten-year and here we are a couple of charts, 104. take a look at the yield chart this is ten-year yields, of course we know it's starting about

1.95 here we are at 64 basis points the march low is at 31 i think we're breaking down. we are moving below the lower side of the wedge. everything indicates lower yields from here the price itself, chart two, this is the bond trade in chicago. it is of course cyclical we are breaking out to the upside of this formation there's every indication there is more to come, buy bonds, yields galore. chart 304. this is the utf. it's the 20-plus year treasury bond etf's it's in identical formation to the treasury bond in chicago here too breaking out to the upside of the well-defined pattern, wedge, or whatever you want to call it higher

and then the fourth chart, i've pulled it back a bit you can see the context of the past four or five years. basically a period of equilibri equilibrium, a consolidation and now a reassertion of strength in the direction of the primary trend. >> thanks for that, carter mike, what's the trade here? >> there was an interesting situation because as carter was just mentioning, there has long been this sense that the bull market in bonds was going to come to an end, that eventually excessive borrowing was going to lead to higher rates of course, all of that presumes there isn't an inkre mecrementae for fixed income essentially the longer rates can be controlled for as long as that remains true. of course, we have an economic

backdrop that is otherwise going to be deflationary we wouldn't expect to see longer term rates necessarily go a whole lot higher anyway. so while i probably have been among those that thought rates were going to go higher if you look back about 24 months, i think this situation is quite different now. i think the way to say this is to make a bullish bet on tlt i was looking out to august. the 166-172 call spread, you could spend $3.75. that's a little bit more than i might otherwise normally spend on a vertical spread we usually are looking to spend about 25%. this is slightly over 30 this is a circumstance also where there is probably at least some level right around that 135 level, i think carter can speak to this. we got up to 172 in the tlt, the treasury etf there is going to be some level where you can expect rates to go

lower, but i don't anticipate negative that is essentially what creates that ceiling on where the tlt could go we've seen a little bit of volatility in tlt since march, but this is a way you can risk relatively little of the cost of, theof tlt to make a bullish bet. >> it's very hard to fight the fed and certainly very hard to argue against rates going to zero especially with equity markets being fairly skittish. the vix has been elevated above 30 for two weeks now telling us there's a lot of fear in the equity markets specifically what i like about mike's trade is that he's risking only 1% of the epf value to take this bullish bet my target on the upside are around 168-170 those line up very well with the strikes on his call vertical

here. >> carter, earlier this week you published on gold, you walked us through why you're so bullish on gold forced to choose, some would call it would you rather, gold or bond, which one are you more convicted on >> well, no one can beat gold, not even the federal reserve i will go with gold if would you rather is the question gold. >> mike, last word >> yeah. i wouldn't say would you rather because i'm long silver, i'm long gold and i would be short rates. this is a trade that you want to play as many ways as you can. >> meantime, let's check out shares of starbucks. they cooled off this week in a major way with a surge of coronavirus cases in some states quickly turning reopening hopes into reclosing fears tony says this could be the start of a venti sized break in the stock.

>> i think starbucks has a challenging environment ahead. if we look at the chart, the stock managed to break out above its $72 level back in april and has just completed a head and shoulders formation and just today broke down below that $72 neckline if you couple that with the recent numbers, those two things do not bode well especially as it breaks below the $72 level. i'm targeting starbucks to go down to about $65 and extended target to $57 at the downside. the company did provide guidance a couple of weeks ago and there's a cups of things that concern me first of all, 95% of stores are reopen the cost of operating those stores are going to be substantially higher given the current environment that we're in to keep their customers and employees safe i think it's going to be met with fairly tepid demand for their products, because if you think about it, we now have 30 million unemployed and for those of us that are lucky to be

gainfully employed, we're mostly working from home and they generate most of their sales from the morning commute and most of us are not commuting you couple that with the fact that they are also providing guidance they expect in q4 they're going to start seeing positive eps, i think that's optimistic and i'm concerned it's going to be revised lower in coming months for those reasons, i'm looking for starbucks to move substantially lower. the trade that i'm looking to use is to go out to august i'm looking to buy the 72.5-62.5 put vertical here. i'm spending about $4.80 for that 72.5 put, collecting about a $1 for the 62.5 put, spending about $3.27 risking about 4% of the underlying stock price to take this bearish bet that

starbucks could hit the downside by august. >> mike, your thoughts on tony's thesis and the trade >> i'm completely on board with his thesis we're thinking about this in a u.s. context one of the things we should be taking a look at too is what's going on internationally maybe in china we're getting to see things slow down now it's not the most material portion of their revenues just yet but that was an area of significant growth that's obviously troubling the structure is one that makes sense. why is that? because the stock has been relatively hard hit, implied volatility is higher so we want to mitigate some of that of course we do still have some downside using a put spread makes sense for a lot of these reasons you wouldn't want to short the stock. i think the structure is right, the trade is right >> carter, does that line up with your chart work >> sure. we discussed the chart

it's exactly right this is one of the worst patterns in the market we know the equity market peaked on february 19th starbucks peaked last summer in july it's not a safe haven. it's exactly the opposite. finally, of the marquee stocks that drive the consumer discretionary sector, starbucks relative performance to nike, mcdonald's, amazon, home depot, other big idiosyncratic peers, it's the worst single one. >> tony, last word. >> china right now is only accounting for less than 20% of their revenue and they've had to delay a lot of their store openings they have planned because of the coronavirus for all of these reasons, i'm not bullish on starbucks >> here's what's coming up next.

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♪ ♪ ♪ ♪ ♪ there has been some increased short-term retail participation in our markets

when i see that, it concerns me. it concerns me that people do not know the risks they're talking. these are sophisticated products that have risks that may not be apparent and you should be quite cautious in trading with leverage >> welcome back to kw that was sec chairman jay clayton testifying on the risks investors may be unknowingly taking by taking drerivatives like options you might be asking when should i trade options and how? mike, take it away. >> one of the things we often talk about on this is that options can be used to either risk less or make more i think sometimes there's a perception that people don't really understand how it is that you might risk less. there's a couple ways that you can. here's one of them for one thing, you can invest less capital to make a

directional investment if you're trying to be long a stock or short a stock, you can put less capital at risk if you want to do that. there's another thing you can do and that is depending on the trade structure, you can improve the probability that the trade will be profitable you can make it so it will have more than a 50-50 chance the one thing that's important for investors when they start to do this is just make sure that you size your trade promotely. i was going to compare three different ways to play an investment thesis in microsoft that compares two different options structures to actually going out and buying a stock microsoft is going to be reporting earnings on july 17th, about 21 days from today august expiration is about five weeks after that what are a couple different ways to play a bullish thesis you could buy 100 shares of microsoft stock. it was about $198 a share. you would be putting $19,800 to work to make that bullish thesis

investment the other thing you could do is you could sell a july 195 put for $10 because each put represents 100 shares, you would be collect iing $1,000 net of the premium you're only risking $18,500. you could also buy an august 195 210 call spread. that would cost about $500 to buy one contract representing 50 shares if you take a look at these three strategies and go back more than a decade's worth of earnings and assume you use trades like these every time you're going to do it. it turns out if you had bought the stock three weeks prior to earnings every earnings for the last 11 years and sold it five weeks later, you would have averaged about 3.7%but you would have had a worst case loss

of almost 11% in one instance. your best profit would have been close to 21. selling the put, you would have lost only 4% in the worst case you would have won 84% of the time, significantly better than the 68% of the time you would have won if you had done the stock side if you used the call spread, you would have averaged about 1.8% of the current stock price you would have won 64% of the time but your worst case loss would have only been 2.5% of the current stock price. all of these trades are making the same directional investment bet on microsoft, a bullish bet going into earnings but the options trades are risking less than the stock the tradeoff is you don't have quite as much upside that's the flexibility that options offer. you can risk less. you're just going to squeeze the balloon of risk and reward a little bit and you're going to sometimes give up some upside in

order to improve your odds and reduce your risk. >> tony, your thoughts >> i really think of options action as a platform for us to educate and advocate for the responsible use of options mike laid out some great examples of how you can utilize options to reduce risk and not add any risk to your portfolio for those of you that watch this show week after week, you might notice mike and i generally refer to the risk of every trade. we don't really talk about how much money we can make because we can't control the markets or how much money we make we can control how much risk we take options is a tool to control that risk. i want to create a bit of a counter point to mike's example. these are strategies that mike and i may trade in our accounts. but every investor has a different risk tolerance if you look at options, it runs a very wide spectrum

it's important to understand where you sit or where you prefer to sit on that spectrum mike created a few examples. perhaps other investors want to take on high amounts of risk maybe you like buying those really far out of the money calls and puts the one thing to remember is that when you're trading options, there's always a tradeoff between risk/reward and probability of profits somethi an extreme example is like buying a lottery ticket. a lottery ticket has very high risk/reward but very, very low probability of profit. there's nothing wrong with buying a lottery ticket. you just want to position correctly. whenever you're choosing ang optian option strategy, think about how well balanced are they if you're on one end of the extreme, make sure you size appropriately for that. >> we're spending so much time on this obviously because of the rise of the retail trader during

this pandemic. we talk about the activity on robinhood. on these platforms you can also get involved with options. do you have any advice for the new people out there >> my 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.

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♪ ♪ ♪ >> hi, everything. special hello to "mad money" fans gym is o jim is off but we will have a show for you tonight, let's get right to it story number one, a social revolt pressure mounding on facebook as big-money advertisers pulling outbreaki o out. breaking news is hershey, stop hate for profit. it is yanking ads today and the cincinnati