>> if he makes more money at what he's doing, he can pay back more victim investors. i hope what he does for the rest of his life is clean, and he stays out of trouble, because if he ever steps over the line, i want him to know i'll be there to arrest him again. welcome to friday and "options action. here is what is coming up. >> i'm sorry, how much carter worth explains why paper towels and other consumer staples are the best way to clean up after any inflation related mess then -- strike up the band professor khouw is parading right into macy's. he'll explain why. plus -- know when to fold them tony zhang has a cautionary travel play that's getting a little too much for his blood right now.

it is time to risk less and make more "options action" starts right now. inflation, it is here and you probably first noticed it in the products you buy every day carter worth thinks that is also the exact group to look at if you want to slowly and steadily ride price increases higher. carter, what are you looking at? >> sure. so in the context of inflation, of course we've covered yields on the program many times together we've looked at gold, we've looked at oil. but of the gick sectors as the term by standard and poor's, consumer staples have the ability to pass on price increases to the consumer. they shrink the box and give you the same amount. they have a lot of tricks so to speak. they never lower the prices. in any event, let's look at some charts and figure it out together five in total. the first is the etf, you could use to trade the s&p 500

consumer staples sector, the xlp, no judgments or annotations by me. next chart now this is what my eyes see is the lines, we've broken out, if you will, ever so slightly of this ascending wedge of sorts. third chart, and this is where it gets interesting. this is a two panel. the top is the exact same one-year chart of the xlp that we just looked at twice. but the bottom panel is relative performance to the spy so we knows staples are going up and there have been a bad performer relative to the market but they're starting to base and outperform the s&p and you could see that in double bottom that i've annotated there take this chart back further this is over the past two years. and what you see is during the pandemic plunge, of course staples sell off, but look at the bottom panel their relative performance is straight up of course, because they're defensive. but if you do the trend line on the bottom panel, we have now

broken above that down trend line in effect since the pandemic peak in relative performance. final chart. same two-panel again and this is a five-year chart of consumer staples on top, the sector, and relative performance to the s.p.y. on the bottom and you could see the severe under-performance in 2016 to 2018 and then when breaking above the down trend, staples started to outperform the s&p. we have the exact same setup here and i think it is a time to embrace this area of the market. xlp, close around 71, i think you could get 73, 74 out of it. >> thanks for the charts, carter mike, what is the trade? >> yeah, i think the trade that we want to take advantage of takes advantage of something in the options pricing that we're seeing right now right now if we take a look at three-month options, the price

of options is about the 27th percentile, if we're looking back over the last two years so their relatively cheap. in the 13%, 14% volatility range. in fairness, last year was a highly volatile year so if we look at an earlier period, two years ended february 19th of 2020, the pre-pandemic market high. what we'll see is the applied volatility over that two-year span was 13.3% that is approximately where it is now so the price of options is relatively cheap and this is a low volatility index that we're looking at here. so i'm looking out to september, giving myself a lot of time to expiration i was looking at the 71 strike call and you could buy that for about 2.15 and that is 3% of the xlp price at this point. and the nice thing about this is because it is a low implied volatility and we're not expecting implied volatility

to come in very much the decay on the options is very, very low and of course if we are concerned about what the market might do, i think this week has given us some evident that we might want to be concerned, number one, staples is probably a safer place to be. we couldn't see the same kind of draw downs and options are a better way to make a bullish bet if you're concerned to see a equity market pullback. >> tony, do you like this trade? do you like the xlp? >> i do like xlp quite a bit and i think the important chart here is the five-year chart that carter was showing you because xlp has performed for the last five years but as the market peaked back in february, that's when xlp started to outperform here we've seen that outperformance since. and i do think this is a time for xlp to start to shine and you have to consider the fact that staples generally speaking does well in the early stages of a higher rising interest rate environment which is where we are. so for those reasons i like being more defensive here and

using the staples sector if you look at mike's trade, it's a really great trade to use when a stock or etf is trading near its all-tim high where you want to take upside exposure and in this case unlimited exposure with an out right call option but with the relatively and muted implied volatility you're risking 3% of the value to take this bullish bet and i think it is a smart way to play for further upside. >> carter, how well have staples held up in times of market tumult? >> well, remember, this is the ultimate safety trade. for starters its yield is almost twice the s&p. but there was a phrase when i was coming -- called soap and cereal there were no health care stocks going back 150 years they didn't exist. you bit on the bullet and they cut your leg off we have biscuit and soap companies that are almost 200 years old.

this is the ultimate defense also in an environment where input costs are going up, you'd think they would get hurt, but they pass those on to the consumer i think it is a great area to be in. >> mike, obviously staples encompassed a lot of components and i'm wondering if you have your drudgers and dug in, which do you like best because some companies can pass on higher prices and some companies eat the costs. >> you're bringing up a great point because xlp incorporates a lot of stocks that do a lot of different things you have proctor and gamble and kimberly-clark in there and retailers like costco and walmart are in there as well and what is also interesting to me is that in addition to getting exposure to some things like that, this is sort of a grab bag in terms of an analyst view of the stocks sometimes it's not such a great idea to chase the stocks that everybody on wall street loves, but there's a lot of names in here that the street didn't love

so much. smuckers comes to mind clorox is another. so i think this is an interesting way to play that whole sector and basically to mute the risk that you might have if you choose any one of those. i do like costco and walmart but those are well loved stocks and that is a risk if you're chasing the things that everybody likes so much already. >> that is a good point. meantime, will higher inflation cause the travel rebate to come up snake eyes. tony is taking his chips off the table so to speak. tony, what are you looking at. >> i'm looking at mgm. there has been a lot of optimism and strength around casinos and sports betting companies, but i think this is the time to start looking at this. if we look at a six month chart and we have this rising trend line that mgm has been on for six months we've broke below that trend line we've retested that as resistance just today so i think the risk/reward ratio is great at these levels.

if we zoom into the chart itself, recently mgm broke out above a $32 resistance level but as the market was peaking, mgm continued to outperform the broader markets on the reopening optimism but that has pushed valuations to fairly extreme levels and it made sense when q4 levels were growing 31%, 34%, but as q1 revenues came in they decelerated down to 11% and we're seeing the online gambling stocks see a fair amount of multiple contraction, i think that you're potentially at -- due for a correction here on stocks like mgm. so the trade structure i'm looking to use is going out to july i'm buying an out of the money debit spread the stock has rallied today. i was looking at the 38 33 put spread here for investors trading this on monday, perhaps you want to move that up one dollar

but today i could buy this put spread for about $1.50 which is less than 4% of the stock's value and i'm targeting about a $33, $32 target to the down side which is the prior support here on mgm. >> carter, tony had a chart with a lot of lines on it and i was wondering what your take was on that >> excellent lines the lines are the lines. and when you start to break them, it has to be respected i think a couple of things about mgm, it's been such an outperformer over the last 12 months that's part of the issue, right? up almost 200% where wynn is up 60 and then there is some just in its totality, it is literally a gambling stock i mean the stock itself. it was a hundred back when the market itself peaked, in 2007 before the financial crisis, it hit a low of five. after the pandemic this will never come close to

recovering its losses associated with the financial crisis. yes, let's sell it. >> mike, what do you think >> i think the thing that is going on here also is that because the stock has had such a pronounced move, because it is very volatile space, the options premiums are elevated. i like the idea of using a debit put spread i don't like selling a whole lot of upside in things that have been on a tear too much because we've seen how that could turn out. this is a situation where you could make more than you could potentially lose and that is obviously one of the things that you want to have if you're going to make a directional bet like this if all you did was simply buy that at the money put, you're laying at a lot of premium and also lowering the break even price of your options trade. so this mitigates that decay and it raises the break even so the stock doesn't need to fall as far before you start to see profits. >> let's take a quick break. for everything "options action" check out our website,

optionsaction.cnbc.com meantime, here's what's coming up next. >> coming up -- professor khouw explains why macy's is still more than just oversized helium balloons plus, calling all "options actions" ans reach into your pocket grab your phone, and tweet us your question @optionsaction if it's nice, we'll answer it on air when "options action" returns.

see every delivery... every yikes... and even every awwwwwwww... wait, where was i? introducing self protection from xfinity. designed to put you in control. with real-time notifications and a week of uninterrupted recording. all powered by reliable, secure wifi from xfinity. gotta respect his determination. it's easy and affordable to get started. get self protection for $10 a month.

♪ ♪ ♪ ♪ ♪

welcome back to "options action." the mall is dead the giant helium balloons are popped but could there be a real miracle on 34th street professor claus, i mean khouw has your call to action. >> i'm looking at macy's because they happen to be reporting earnings next week and right now the options market is implying that this is a name that could move more than 10% just next week after they report earnings and there is a real sort of bifurcation in the market about the view on this stock because of course they do have some credit concerns, has a tremendous amount of debt yet the stock has held up pretty well so the street pretty much doesn't like it but yet the price has held up and that indicates in conjunction with a relatively high short interest that this whole situation of high debt, high leverage is maybe something to be taking advantage of if you think you

have an upside surprise coming out of earnings. one important point, when you have the equity volatile and there is a lot of debt on the balance sheet you'll find that options premiums are expensive and that is the case here. buying an at the money call to make a bullish bet is going to cost you a lot of money and buying that at the money call and then selling it out of the money call to help mitigate the cost doesn't do quite enough so actually to try to offset some of that premium, what i was looking to do was buy an in the money call i was looking at the july 16, 22 call spread today. the stock was trading around $18 and by buying that in the money call for about $16 and selling the 22 strike call, i was going to spend just under $2.10 to put that trade on. and you notice that essentially what is going on here is that the intrinsic premium that you have is approximately equivalent to the amount that you're spending for the spread.

so the standstill rate of decay is relatively low and the reason for that is in part because you have this high short interest and upcoming catalyst. but this is a situation where i think you could set yourself up where you have an asymmetric payoff if you happen to get it right. street doesn't like this name very much and yet the stock has held up. i'm interesting to see carter's point of view because i think that creates an interesting dynamic here. >> held off. that's putting it mildly it's up 60% just this year carter, what are the charts telling but this one >> sure. you know, you heard about the debt and the leverage. before we look at the charts, buffett in his 1979 annual report wrote turn arounds seldom turn we know what happened to wool worths or kmart. but this is turning technically but let's look at the chart. one year chart, no judgments or annotations by me. second chart, this is what my

eye sees a well defined wedge forming tension and the implied move is going to be big. it is earnings related look at the next chart a two-year chart, same annotation and same drawing and same tension, the pennant or the wedge or whatever you want to call it. i've drawn the arrow, that is what we're thinking. two more charts. now here is the five-year chart. it is the same setup, same wedge. next chart, another way to draw the lines. that is a head and shoulders bottom final chart, bonus chart, sixth chart, and altogether we've broken above the down trend line and we have the head and shoulders an we have the wedge yet it is going to go down instead of up. that is the bet. we're betting up >> betting up and you layer in the short interest on this one tony, 14% short according to fact set so how do you like this trade? >> so this is a really tough one. because i don't love the fundamentals on this particular

stock but when you look at the stock as carter shows you, i think this stock needs to get above the $18 to $20 resistance level on the big move of 14% it couldn't get back above that that is challenging. but if you do see a breakout above the $20 level and perhaps earnings next week is the catalyst that drives that, i think you have an upside target of the $26, $27. so the upside is there but i think the probability is low looking at the fundamentals. they do have about 40% of the sales now as digital which is a shift in the right direction but i do feel it is perhaps a little too little too late here so for those reasons, because of assigning a relatively low probability of a breakout but if it does happen i think it will break fairly significantly i think that this is where i would use an out of the money call spread. mike is using an in the money call spread and i understand why he's doing that, to reduce the amount of break even price so it is relatively close to the

current price but i would prefer to risk less in this particular case because the in the money debit spread is risking almost 11% of the stock's price by buying an out of the money debit spread you could risk 5% to 6% and get a better risk for reward ratio on a low probability bet. >> we want to get to a news alert with retail. let's get to leslie picker for that >> hey, melissa that is right. this from from felipe lefon's hedge fund they're known in investing in tech but that positions in significant mall stocks, retail nails. and interestingly during the first quarter, despite the economy largely reopening, they dissolved stakes in some of those retail names gap, tjx, under armour urban outfitters, deckers, pared back stakes and others and it is kind of that opposite of the

reopening trade that we've been seeing thought it was noteworthy. wanted to bring that to you. within the tech world, they increased their stake in amazon but reduced the stake in facebook and reduced position in crowd strike and data dog as well as disney it is worth noting that these positions are as of march 31st and may have changed in the six weeks since, melissa. >> thank you leslie picker. all of this could be completely moot we don't know. but let's trade it as if it is current. mike khouw, what do you think of these moves? >> i think there is a lot going on since march 31st. but i guess it doesn't really surprise me all that much. the one thing i would point out and this is just sort of a general observation and as we look at the week that just passed and some things that make me uncomfortable in the marketplace is when we hit an all-time high and see volatility increase and because that is something that could be a signal that you'll have a market down draft.

i'm not sell in may and go away necessarily, but it is some cracks that i think we need to keep an eye on. >> all right up next, who would have guesses right after he put in a oil trade that a oil pipeline would get hacked there is a lesson to be learned from that experience we're back in two. 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. ♪♪

(announcer) carvana's had a lot of firsts. 100% online car buying. car vending machines. and now, putting you in control of your financing. at carvana, get personalized terms, browse for cars that fit your budget, then customize your down payment and monthly payment. and these aren't made-up numbers. it's what you'll really pay, right down to the penny. whether you're shopping or just looking. it only takes a few seconds, and it won't affect your credit score. finally! a totally different way to finance your ride. only from carvana. the new way to buy a car. 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 last week we laid out a way to strike big gains in the oil trade. >> we even have goldman sachs coming out with an $80 price target on oil and even 100 strike call options trading might indicate that the upside is where it is at. but, of course, when everybody is looking up, you might want to take a pause and wonder whether it's a little bit overexuberant. so i was looking at uso, if you have an equity trading account, get your exposure to oil and selling an upside call spread specifically looking at june 45, 48 call spread, expiring in june and collecting about $1.05 for that. >> right after that there was a major pipeline hack but oil

prices are right where mike left them so what are you doing now? >> absolutely nothing. that is what you want to do when you have a situation like this my thesis hasn't changed when you're short a credit spread, like we are here, time is on your side and we could sit and wait the only tike we look to change this is if we have a lot of profit or if our thesis changes. up next, 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. 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 ♪

♪♪

visit tdameritrade.com/learn ♪♪ ♪♪ welcome back we have a tweet, are we bullish on the gld gold etf after it has broken through some support and about a long with inflation and fears and with crypto taking a breather >> i think gld breaking out above the 166 resistance level is bullish i think you have upside targets of 182, 183. >> time for the final call carter braxton worth.

>> feeling bold, macy's, less bold, play the staples, xlp. >> tony? >> put verticals on mgm. >> mike? >> xlp calls and call spreads in macy's. >> "mad money" is up next. - [presenter] the following is a paid advertisement for plexaderm skincare. watch this, it's all 100% real. witness what happens to this woman's bags under her eyes in an actual time lapse in just minutes. nothing has been doctored or tampered with. the very real problem will disappear before your eyes and hers with a revolutionary topical formulation that works in just minutes and the effects will last for hours and hours. over one million people are successfully using this topical technique to visually reduce puffiness and bags. it works on sagging jowls, even fine lines and wrinkles on the face and forehead.