happy friday, "options action" fans, i'm scott in for melissa lee, on tonight's big show we start out karat on a stick is gold leading hire while cash out morgan stanley might buck the buck trend and -- good to have everybody here. let's get right to it. gold losing a bit of its shine this year down nearly 8% still trading at its highest

level since may 2020, chart master says gold could be a golden opportunity to buy. a lot of people are talking about bitcoin instead of gold these gdays >> you bet. they do love bitcoin we know gold has had a 20% decline after being the single best asset even including bitcoin on a preceding two-year basis where it stopped is interesting. let's look at the charts the first here i've put arrows right at the lows whether you call it a double bottom, doesn't matter what you call it. basically three weeks ago we got down to $16.75 an ounce and rallied and revisited a few days ago and it held. next chart, same time frame, we have two circumstances,we brok above the down trend line in effect for the past four or five months and have that double bottom again at 16.75.

the third gold chart this part is interesting look at the trend line in effect for the past three years that little double bottom, not randomly occurred right on trend. and so that kind of action is often the begin, nascent, young, but the beginning of more to come let's look at the gdx the vanek gold miner the first is one-year chart, no judgments or annotations by me. the second chart we have the decline in perspective gold miners lost 33% of their value from their peak last august to the lows of just a month ago. to put that in perspective gold bullion lost 20. miners down 33 gold down 20 final chart. same chart we are just now poking above that very well-defined channel that miners have been in since

the peak we think this is the beginning of more to come. gdx is the thing to be long. >> all right so mike, then, what's the trade? >> yeah, so, i just make two quick points before we get to the options trade. just taking a look at gold first. just think about it, this is one of the few risk assets that really hasn't taken charge with everything else in the market, all-time highs, risk assets all-time high, but gold far from it that presents an opportunity this is not just a unique attitude by me if you look at the commitment of trader reports you will see the net longs and commodity have been increasing quite considerably, it's actually at a six-week high right now. this is not a view that only carter and i ares pouzing at this point look at the multiples for the constituent stocks of gds. so the gold miners on a

valuation basis are trading at the lows they haven't seen since 2013 we're looking at about 19 times trailing only 14 times forward earnings multiples for the index as a whole if you look at gdx you have a little bit of a back stop from valuation perspective. so the trade i was looking at was the june 34, 39 call spread. you can buy those 34 calls for $2.30 sell 39 senators -- 39's -- keep in mind this is above the money. even th why use a call spread? though applied volatility is not high if you bought the june 35 calls trading at 1.80 today you'd have a much higher break than this call spread.

and gdx would need to extend beyond 40 for a long call to outperform that call spread. this is a situation you have a lower break even and area of outperformance by a naked call to the long side to actually up quite a bit. i think call spread is the right play and gdx is a very good set up. >> all right that's what you think, of course, tony, is he right? do you like the trade. >> i quite like the trade, it's quite nascent as he put it -- >> kacarter, we'll try to get tn back, what about you, what do you think of the trade >> sure. i'm all for it, of course, we collaborated on it here's the thing gdx is obviously an etf with 50 gold miners in it, two big ones are

about 25% and i believe we got n newmont investment day coming next week. there will be a lot of information there. either way, having dropped 33% versus gold at 20, just stabilizing its footing this is a very a-symmetrical trade you're wrong it's going to muddle if you're right it could fly. >> as i was saying at the outset -- scottie, if you don't mind, i'm going to throw in here, carter was pointing out newmont will present next week, that's a material catalyst for gdx and gold miners, why, because it's the largest constituent by far with more than 15% of gdx if we get any material move in newmont it will translate into movement for correlated stocks and single constituent itself represents a material part of this index and would drive it higher.

>> let's move from gold to green. morgan stanley reporting earnings next week with the other banks. tony saying the stock may see signs for a breather >> yeah, it's hard to bet against strong stock like morgan stanley but almost 55% move since the election, i think it's time for some banks to take a bit of a pause especially as interest rates take a bit of a pause. the stock recently broke above it's $77 resistance level and came back to hold it as support but momentum is slowing. more importantly if you look at morgan stanley relative to the financial sector it is moving relative strength on if, when you see this, it's a concern for me when i look at earnings in the past two quarters you had very strong beats on both revenue and

earnings yet the stock declined almost 10% roughly two weeks post event so looking at that especially with trading revenues potentially not as strong this particular quarter and if you look the options, currently it's implying 4.6% move while the stock has only moved roughly on average of 2% over the past 8 quarters so the options markets are implied sizable move and volatilities are quite elevated. the trade structure i'm using going out to may, i'm sailing the 8 -- i'm selling -- i'm spending $1.30 to buy 85 call option to control my risk collecting 1.80 in credit about 38% of the width this strategy will be profitable as long as morgan stanley doesn't run substantially higher from here on earnings.

>> all right, mike, how about it >> yeah, so definitely if you're looking at this, i like looking at implied volatility is elevated going into the catalyst, a good set up for selling options. of course we don't want to sell naked call options, it carries risk and the other thing with the market having just hit all-time highs we also have morgan stanley which doesn't seem to be doing the same to me that's relative weakness to keep an eye out for i will say among the financials morgan stanley is among my favorites and as long as you see elevated market prices they're a big asset manager and their net beneficiaries when you see that going on i still like the name but i could see it taking a pause, that's essentially what this trade is, betting that it is going to pause here. >> what about you carter, a lot has to do with rates too and where they go from here. >> sure, sure. but it's just so extended. that's the beauty of selling a

credit spreader. from october low morgan stanley up 85% verse the s&p up 25%. it's trading 40 plus above his moving day average only happened one or two other time in history so it's pretty hot and options approach is smart. this is tragic, the stock is still below its peek from 2000 imagine that, 20 years and you still haven't made any money in morgan stanley. >> wow that puts it into perspective to say the least all right, tony, we're back to you. >> well, when you look at this really from my perspective the trading revenue this particular quarter may not be as strong especially with equity volatility coming down that's my concern here again, the template from last couple quarters every time this stock has blown earnings outside of the water stocks down 10%, i expect you will see a similar

template next week. >> okay. inside multi million dollar volatility play that signals one big market player thinks the rally is running a little too hot. remember for everything "options action" check out our website and sign up for our neleerwstt back after this.

♪ ♪ ♪ ♪ ♪ we're back on "options action." what a market we are in, the volatility index at one-year lows the s&p all-time highs and crude oil nearly $60 a barrel mike says it's exactly the right time to whip out your protection

play book what are you looking at today >> we're going to look at the vix and vix options. i think we need to get key concepts out of the way. we often talk about the vix index when it comes to the tradeables that's vix futures and options on those futures, remember that, the vix index is a calculation and tradeables are the futures. second thing to remember, i think most realize this but good to go over again, that is, the vix and s&p are anti-correlated, typically means as one goes up, the other goes down if you bet bullish on s&p you bet vix will fall if you bet bullish on vix you are probably betting s&p is going to fall. if you take a quick look at the price of the futures you get what we call the term structure. if you are looking at a term structure chart what's on the lower left is the spot vix index, and longer dated stuff is what you

see on the term structure. right now the trade we're talking about is a big one we saw out in july. one thing i want to quickly point out is when the term structure inverts, example, what we saw in march 2020 that was the all-time high in spot vix those longer dated futures will not typically go up as much as the spot vix index will. why is that important to point out? because the trade we saw this week, it actually took place yesterday, was a purchase of 200,000. july 25 40 call spreads. when that person is buying it they're actually buying options on the july vix future now because we understand how these vix futures behave we are buying something that closed around 23 today. but for it to get up to 40 spot vix would have to be substantially higher now they were able to spend about $2.07 on those call spreads each times 200,000 and times 2900

multiplier represented outlay of more than $40 million in premium. so we often talk about using puts as portfolio protection or put spreads as portfolio protection this is another way to hedge your portfolio if you're concerned about volatility and market pull backs, it will behave a little bit different than a put but essentially that's what you're getting it seems like it's a very large bet probably to protect a very large portfolio. >> yeah it was certainly a big talker carter, what are the charts tell ugh? >> sure, i have tw telling you. >> sure, i have two vix charts important thing is what happened last week. when covid came to town monday february 24th s&p futures gapped down, rare, and vix gapped up. we filtered that gap -- filled that gap second chart you see the line i've drawn there.

in the vix is mean reverting, it often gaps, in fact it's about 14% of the time going back to 1992, but it almost always fills those gaps and in fact, this one that persisted, one of the longest on record from february 24th, has been filled. we're at a point where you're likely to get a pop in the vix >> ah, interesting tony, do you agree what do you make of the vix? >> yeah, so i think this is a very interesting highlight that retail traders can use to understand how institutional investors will hedge their down side or tail risk on a large equity portfolio what i think is interesting about this particular trade is the timing of it because mike referred to the vix term structure and one of the interesting things about the vix term structure right now is the july futures are fairly elevated the july vix futures closed at 23 spot 28 while april futures

18 spot 35 so the back month of july are 25% higher than the front month. that's a high level of complacency that i currently see in the market. so i think this trader is taking advantage of the fact that buying options are fairly inexpensive here i think it's a smart, low-cost way to potentially hedge a large institutional equity position. >> mike, you get the last word on the vix >> yeah, so, you know, one of the other ways we sometimes think of how expensive options are, vix is one wap to think about it, that's the applied volatility for various 30-day windows on spx options but an important consideration also is with respect to how volatile an index can be, how correlated the stocks are. right now, how much stocks track together is really quite low. essentially what happens when you get a risk off scenario,

everyone runs for the exit, correlation shoots up. that can lend some support to the options on those indices one of the reasons we're starting to see that is that people are recognizing right now we do have considerable complacency and not all risks are behind us. this is a good opportunity for people to think about hedging their portfolios >> yeah, i hear you. all right. up next, one of our traders bet on a real estate rebound about to pay off plus, you asked we're answering, send us your burning options questions on twitter on "options action" and you just might get your answer on the air we're back after this. i have an idea for a trade. 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.

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bought some real estate. >> i think basically reads are heading back to their pre-pandemic level and that would be about an 8% move from here we like them long by virtue of what a broad representation they are. >> i was looking at the june '91 calls. iyh was trading 91.40. these were 40 cents in the money. i could pay $3.10 to buy those calls of the important thing is the extrinsic premium y, that's the decay it will occur which is $2.70 or 3% of the strike. >> all right so far, so good. you got about two months 20 go until expiration mike, what are you doing now? >> yeah, i think this is still probably a little bit in tact. we're not to our price objective but they're well in the money and there's an opportunity to roll them up and out next expiration out is

september, could look to 94 calls and these are worth $4.20 we've seen a bit of a problem here. >> okay. carter >> well, what's happened of course as rates have pulled in from 1.77, it was part of the judgment here, is that utilities reads would come to life but specifically the big towers, which are the big waiting in the iyr have had a very substantial gain while they may be tired others are joining so stay with it. >> okay. tony, your turn. >> yeah, i think rolling it is the smart thing to do. lock in a little bit of profit and still give yourself that upside, still maintain that upside especially as real estate market reads have been extremely strong, residential, logistics companies, and cloud k350comput. for those reasons i think the fundamentals look very strong

here for reads. >> let's do tweets mike the trade you suggests on microsoft last month doing pretty well but the short 250 [ reading ] >> yeah, i think what you want to do is roll this whole trade it hit the price objective of $250, exceeded it a little bit so looking to sell 220 or 230 put buy longer dated at 250 and sell against, taking the whole trade and pushing it up and out. >> what about you, carter, what do you think >> well, i mean, if the phrase god-like could be used microsoft is that, as distinct from the volatility from amazon or facebook even apple. microsoft has just been a persistent and reliable up trend in many ways it's the most defensive of the super cap

marquee names. stay long. be long. >> okay. our next viewer asks, first solar, seems like a infrastructure play it is currently on a down trend what looks like a good support level to start setting up a trade? tony >> a lot of the solar stocks have come in, a lot of the high beta tech names most coming off 50% off their highs. i do think right here maybe a bit of a pull back are opportunities to look for the long term, especially if you're looking more than a year out in terms of investment. >> all right, it's that time, carter, do you have a final call for us if >> well, you bet gold you can do gold the bullion or g gdx the miners. >> tony? >> i'm looking for a pause on the banks rally, for morgan stanley earnings. >> mikey >> gdx call spreads.

think about hedging your portfolio. >> all right that does it for us on "options action." of course we're back next friday, 5:30 p.m. eastern. don't go anywhere though, a bonus edition of "fast" starts after this quick break have a great weekend, everybody. >> announcer: options action is sponsored by think or swim by td ameritrade oh. 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. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪

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♪♪ hey, "mad money" fans, jim is off tonight but you're in luck, we have a special edition of "fast money" for you "fast 5. here for the countdown, tim seymour, victoria fernandez and delano, thank you for being here let's get to it. the prime battle amazon workers in alabama voting against forming a union today but the fight far from over. tim, what do you m