no, that's beyond callous. that's culpability beyond any rational defense. if you would interview him in prison, i'm sure he'd say, "screw 'em. i was there for the money." happy friday, "options actions" fans. i'm scott wapner in for melissa lee. we start out, karat on a stick is gold heading higher than cash out. why morgan stanley might buck the bank trends. and one major play that suggests the rally is getting a little ricty good to have everybody here. gold losing a bit of its sign this year, down nearly 8%, but still trading at its highest

level since may of 2020. carter worth says now could be a golden opportunity to buy. carter, what are the charts telling you? a lot of people are talking about bitcoin instead of gold these days >> you betcha, they do love the bitcoin. but before we look at the charts, we know that gold basically had a 20% decline after being the single best asset, even including bitcoin on a proceeding two-year basis. and where it stopped is pretty interesting. let's look at the charts three bullion charts and three gold mining charts the first here, and i've put arrows right at those lows. three weeks ago, we got to $16.75 an ounce and rallied and revisited it a few days ago and it held. look at the next chart, same chart, same time frame so we have now two circumstances, we have broken above the down trend line in effect for the past four to five months and we have that double

bottom at 1675 the third gold chart, look at the trend line that's in effect for the past three years that little double bottom not randomly occurred right on trend. the first chart is the one-year chart. no judgments or annotations by me the second gdx chart, here we have the decline put 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. and we know this, because as operating businesses with leverage, you will have more bethat than the commodity. so, again, 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 and gdx is the thing to be long >> all right, so, mike, what's the trade? >> two quick points before we get to the options trade taking a look at gold first. think about it, this is one of the few risk assets that really hasn't taken charge along with everything else that sweechb markets at all-time highs. but gold certainly far from it that by itself presents an opportunity. and this is not just a unique attitude by me if you take a look at the commitment of traders reports, what you'll see is actually the net longs and the 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 are basically espousing at this point. something else i would point out, just take a look at the multiples. for the constituent stocks of

gdx. these things are trading at the lows that they haven't seen since 2013 we're looking at about 19 times trailing, but only 14 times forward earnings multiples for the index as a whole when you take a look at these two things, if you're looking at gdx, you have a little bit of a backstop from a valuation perspective. trade i was looking at was the june 34/39 call spread you could buy those for about $2.30, sell the 39s for about 60 cents. net net, you're laying out $1.70. bear in mind this is actually well in the money, because gdx was above 34 as of today's close. so why are we using a call spread in this case, even though the implied volatility of options on gdx isn't exceptionally high right now this is what i would have you think about. if you went out and bought the june 35 calls, those were trading for about $1.80 today. you would have a much higher break-even than this call spread

would have and gdx would need to extend beyond 40 for a long call to outperform that call spread. so this is a situation where we have a lower break-even and the area of outperformance is up quite a bit. the call spread is the right play and the gdx is a very good set-up >> that's what you think, of course tony is he right? do you like the trade? >> i quite like the trade. i do think that this trade is quite speculative in nature and fairly -- >> we'll try to get tony back. carter, what about you what do you think about the trade from mike? >> i'm all for it, of course, we collaborated on it but here's the thing, remember, the gdx is an etf and you have

about 50 gold miners in it, but the two big once are about 25% and i believe we've got newmont investment day coming up next week there'll be a lot of information there. either way, having dropped 33% versus gold down 20. and i was just starting to put in its footing, this is a very asymmetrical trade if you're wrong, it's probably going to muddle, but if you're right, it can fly. >> what i said at the outset -- >> yeah, go ahead. >> if you don't mind, i'm going to throw in here carter was pointing out that newmont will be presenting next week that's a material catalyst overall. why? it's the largest constituent of the index by far it constitutes more than 15% of gdx. if we get any kind of a material move in newmont, of course, just as a single constituent itself, it 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 along with the other banks. tony jang saying this stock might be ready for a breather. >> after almost a 55% move since the election, i do think it's time for perhaps some of these banks to take a bit of a pause, especially as interest rates also take a bit of a pause here. if we look at the chart here, the stock looks fairly strong. it recent broke out above its $77 resistance level, came back to hold that as support, but momentum is starting to slow down here. and more importantly, if you look at more insanely relatives of the financial sector, it's starting to lose that relative strength here on the last move higher here. when you see this type of slowdown on momentum and relative strength going into an earnings event, that's a concern for me so, when i'm looking at the earnings here, over the past two quarters, you've had some very

strong beats on both revenue and earnings yet the stock declined almost 10%, roughly two weeks post those events i'm looking at that similar template, especially with trading revenues not as strong this particular quarter. and if we look at the earnings -- if we look at the options, currently, it's implying about a 4.6% move, while the stock has only moved roughly on average of 2% over the past eight quarters. the options markets are implying a sizable move and the implied volatilities are actually quite evaluated. the trade structure i'm using as i'm going out to may and i'm selling the 80/85 call spread here, a credit spread, and i'm collecting about $3.10 and spendinspen i about $1.30, collecting about $1.80 in credit. that's about 38% of the width. this is a strategy that's going to be profitable, as long as morgan stanley doesn't run substantially higher from here on earnings. >> yeah.

all right, mike. how about it >> i like taking advantage of the fact that implied volatility is going into the catalyst we don't want to sell naked call options, because that carries unlimited risk and the other thing, of course, here with the market having just hit all-time highs, we have morgan stanley, which actually doesn't seem to be doing the same to me, that's some relative weakness i would want to keep an eye out for. but i will say, among the financials, morgan stanley is one of my favorites. as long as you continue to evaluated market prices, there are net beneficiaries when you see that going on. i still like the name, but i could see it taking a pause and that's essentially what this trade is, betting that it's going to pause here. >> what about you, carter? a lot of it has to do with rates, too, and where they go from here. >> sure, sure, but it's just so

extended you're talking about from the october low, morgan stanley is up 85% versus the s&p up 25. it's trading 40-plus percent that's only happened one or two other times in its history it's pretty hot and i think taking options approach is what's smart there's also this. and this is kind of tragic the stock is still below its peak from 2000 can you imagine that 20 years and you still haven't made any money in morgan stanley. >> wow wow, that puts it into perspective, to say the least. 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 really my concern here. and again, the template from the last couple of quarters, every tomb this stock has blown earnings out of the water, stocks down 10% and i'm expecting we're going to see a similar template here this next

week >> still to come, inside a multi-million dollar volatility play that signals at least one big market player thinks the rally is running a little too hot. and remember, for everything options action, check out our website and sign up for our newsletter we're back right after this. we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand-new way for you to sell your car. whether it's a year old or a few years old.

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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 khouw says this is exactly the right time to whip out your protection playbook. mike, what are you looking at today? >> so we're going to take a look at the vix and vix options and i think we need to get some key concepts out of the way. we often talk about the vix index, but when it comes to the tradeable instruments on the vix, that is vix futures and it's options on those futures. the first thing is, when we take a look at this, just remember that the vix index is just a calculation. the tradeable instruments are the futures. the second thing that i think it's important to remember and i think most people realize this, but it's good to go over it again is that the vix and s&p are anti-correlated. that typically means as one goes up, the other goes down. if you're making a bullish bet, you're probably betting the vix will fall. if you're making a bullish bet on the vix, you're probably

betting that the s&p is going to fall so if you're looking at a term structure chart, what's on your lower left is what the spot vix index is, when people talk about the vix indecember, the larger dated stuff is what you see on that term structure. right now, the trade we're going to be talking about is a big one we saw out in july one thing i want to quickly point out, when the term structure inverts, that is for example what we saw in march of 2020, that is the all-time high, those longer-dated futures will not typically go up as much as the spot vix index will. why is that an important thing to point out because the trade that we saw this week, it actually took place yesterday, was a purchase of 200,000 july 25 40 call spreads. so when that person is buying that, they're actually buying options on the july vix future because we understand how these futures behave, we're buying

something that closed around 23 today, but for it to go up to 40, spot vix would have to be substantially, substantially higher now, they were able to spend about $2.07 on those call spreads each, but times 200,000 and times the 100 multiplier, that represented an outlay of more than $40 million in premium. so we often talk about using puts as portfolio protection or put spreads as portfolio protection, but this is another way you can hedge your portfolio. if you're concerned about evaluated volatility, if you're concerned about market pullbacks. the thing to remember, though, is that it's going to behave a little bit differently than a put, but essentially, that's what you're getting and it seems like this is a very large bet, probably, to protect a very large portfolio. >> yeah. that was certainly a big talker. carter, what are the charts telling you? >> sure. i have two vix charts. the first and the important thing here is what happened this past week. you see that circle there, when

covid came to down, monday, the 24th, the s&p futures gapped down and the vix gapped up. we filled that gap it was the only unfilled gap in the history of the vix second chart in that vix is mean reverting and it often gaps. in fact, it's about 14% of the time going back to a date in 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 >> 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 downside or tail risk on a large equity portfolio now, 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 that as mike said, the july futures are fairly evaluated the july vix futures closed today at 23 spot 28, while the front month, the april futures closed at 18 spot 35 so the back month of julys are 25% higher than the front month. that's a high level of complacency that i currently see in the markets i think this trader is take advantage of the fact that buying options are fairly inexpensive here, trying to take advantage of, i think it's a smart, low-cost way, potentially to hedge a large institutional equity position. mike, you get the last word. on the vix >> one of the other ways we think about how expensive options are. vix is another way to think about it the implied volatility but an important consideration also is, with respect to how

volatile an index can be, how correlated the underlying stocks are. right now, the kblip implied correlation, how much stocks track together is really quite low. and essentially, what happens when you get sort of a risk-off scenario, everybody runs for the exit, correlation shoots up. and that also can lend some support to the options on those indices. so i think one of the reasons that we're starting to see that that people are recognizing right now we have considerable complacency and not all risks are behind us. i think this is kind of a good opportunity right now. market at all-time highs we're starting to see options premiums come in at long last. this is an opportunity for people to think about hedging their portfolios >> yeah, i hear you. up next, one of our traders' bet on a real estate rebound is about to pay off plus, you asked, we're answering. sending us your burning questions on twitter and you might just get your options 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. voila! maybe a couple throw pillows would help. get a strategy gut check from our trade desk. ♪♪

when traders tell us how to make thinkorswim even better, we listen. like jack. he wanted a streamlined version he could access anywhere, no download necessary. and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim web. because platforms this innovative, aren't just made for traders—they're made by them. thinkorswim trading. from td ameritrade. welcome back to "options action." time to take a look back at one

of our open trades two weeks ago, khow and carter bought some real estate. >> i think reits are headed back to their pre-pandemic level. that would be about an 8% move from here. and we like them long by virtue of what a broad representation they are >> i was looking at the june 91 calls. iyh were trading around 91.40. i could pay $3.10 to buy those calls. the important thing to think about is the extrinsic premium that i'm spending. that's the decay that that option is going to incur over time, which is about $2.70, or about 3% of the strike >> all right so far, so good. you've got about two months to go until expiration, mike. what are you doing now >> i think this is still probably a little bit in tact. we're not quite to our price objective, but i think these are now well in the money and there's an opportunity to roll them up and out. the next expiration now is to

september. you could look to the 94 calls we've seen a little bit of a problem here >> okay. carter >> well, what's happened, of course, is as rates have pulled in from 177, it was part of the judgment here, is that utilities reits would come to life but specifically, reits. the big towers, the big weighting have had a very substantial gain while they might be a little tired, other reits are also starting to join so stay with it. >> tony, your turn >> yeah, i think rolling it the smart thing to do, locking in a little bit of profit and still give yourself that upside or still maintain that upside and especially as the real estate market, the reits have been extremely strong. residential, the logistics companies, even the companies for cloud computing. so for those reasons, i think the fundamentals look very strong here for reits.

>> all right let's do some tweets, if we could. mike khouw, coming to you first. the trade you suggested on microsoft last month doing pretty well, but the short 250 call is underwater the short $210 put and long $230 call are doing well. would you close the whole thing now or roll the short options further out? >> i think what you want to do here is roll this whole trade. it basically hit our short-term price objective of $250, actually exceeded it a little bit. what we're looking to do is probably sell something like a $220 or $230 put, buy those longer-dated $250s, so essentially we're taking the whole trade and pushing it up and out. >> what about you -- what do you think, carter? >> well, i mean, if the phrase god-like could be used, microsoft is that distinct from the volatility we've seen on amazon or facebook, even apple microsoft has just been in a persistent and reliable uptrend. in many ways, it's the most

defensive of the super cat marquee names. just stay long, be long. >> our next viewer asks, first solar seems like a good infrastructure play and 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 these high data tech names. most of them have come almost 50% off of their highs i think right here, maybe a little bit more of a pullback 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 >> you bet, gold you can go dgld with bullion or gdx, the miners. >> tony? >> i'm looking for a pause here on the bank's rally. looking to sell a call credit spread from morgan stanley earnings >> all right

mikey? >> gdx call spreads and think about hedging your portfolio >> all right that does it for us here on "options action. we're back next friday, 5:30 p.m. eastern don't go anywhere. a bonus edition of "fast" starts right after this quick break have a great weekend, everybody. 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. 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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