mpany, and now we're off to the races. happy friday "options action" fans, i'm melissa lee here at cnbc global headquarters we have a big show lined up. here's what's ahead. >> the chartmaster sounding the alarm on the dollar. why carter worth is seeing trouble in the charts and how you can play it. plus nvidia jumping after announcing a 4 for 1 stock split. tony zhang says next week's result can send this semi-stock even higher. how he is positioning and later, mike khouw is going back to basics, why he's bulking up on costco calls ahead of earnings

he'll lay out the trade of it's time to risk less and make more. "options action" starts right now. >> let's get right to it we're gearing up for another big week of retail earnings big names like nordstrom and american eagle and chartmaster is here to kick us off >> well, we're going to look at costco, obviously this is as much as anything it's a grocery store but in line with last week's judgment about staples. it was a very defensive week, all of the cyclicals were down, all of the defensive sectors were up. we think costco pops on its earnings let's look at a few charts the first one, just to put the whole thing in context, this is a long-term chart that picks up the 2007 peak which you can see there and the bear market low of '09. you're talking about a stock that moves just 50% of its value.

then it's been a perfect, literally perfect 45 degree angle, straight up, a beautiful channel and has been a ten-bagger its low was $40. and essentially it's at $400 versus the s&p since the '09 low which has been a five-bagger this is the champion by any measure. the more immediate charts are more interesting let's look i have a few first, a one-year chart. no judgments or annotations by me what you do see is the plunge, ricochet, that drop essentially december 1st last year to march low of this year, right back to where we are now is very symmetrical. basically three months down, three months back up, down 20% back to where you started. now we approach that level with earnings look at the next chart you can draw the line this way,

which is to say it's an ascending wedge, it's a prospective break out candidate. next chart you can draw the chart this way call the head and shoulders bottom final chart, last two combined you have costco at 380 we're thinking it does break out on its earnings. looking for a low-beta kind of thing, 3 to 5% move. >> now i know the people at home may not be able to tell but carter is very excited about this trade by the language he used to describe all of the charts so mike, what is the trade >> yeah, so take a look at costco this is one of my holley index names. i'm a big fan of the company i think many people are. this is actually, as we look at retail companies, many of which got slayed last year, this is a situation where they actually had record earnings, full year 2020, record eps, last 12 months also very good full year this year, again,

looking good, top line growth in high single digits and expected to continue. i would say it's trading a little bit more than 35.5 earnings typically the range 26 to 24 with the average of 30 it is of course justifying that to some degree also we did see some volatility this week. i have obviously the same sentiments about the stock, i think, that carter does but the valuation is one of the reasons we can look at options as a way to play it he was looking for a relatively modest move 3 to 5%. that's interesting because the options market implies 3.2% which is exactly what the company has averaged in the past 8 quarters very often when looking at situation like earnings where we see elevated options premiums that's one reason to look to the trade i'm going to use today, not because of the elevated option trading because they aren't really, it actually has more to do with the fact that i

think the move is more likely to be a modest one. so i was looking at july 385 june 400 diagonal spread when i looked at that those july 385 would cost $10.30 and june 400 were $2.57 so approximately 25% of the premium i was spending on the longer dated option. that should take care of some of the decay coming out of the earnings again that will probably not be that big the another thing we seen this week, fairly considerable volatility and saw some last week, when you see that that's one of the reasons you might want to take a more cautious approach to your bullish bets, that combined with the valuation. i think this is a way to risk a relatively modest percentage of the current stock price to make the bet that costco will

continue its strong performance. >> tony what do you make of the trade? what do you make of costco itself >> yeah i agree pretty much all around especially if you look at the chart here what i really like is the relative performance of costco to its sector, xlp we've seen a fair amount of outperformance over the past month. that's the type of evidence i like to see going into an earnings event of potential break out above the 385, major resistance level for costco. on the fundamental side, the membership model for costco i think will be defensive in this inflationairy environment we're in, especially around grocery where they could defend their margins. the top and bottom line growth are very steady but valuations are tough to get around. there's risks from walmart plus launching and lower discount grocers so i like his trade, risking only 2% of the stock's value by using the diagonal spread that's the key to risk as little as possible to play for this potential upside. >> sort of separately, mike,

just looking how retailers have reported this week, a couple examples of good earnings and good forecast and stock not moving well, is that a concern for costco >> whenever you start to see consecutive earnings releases where the results are very strong but price action is very weak it makes you a little bit concerned. we have other reasons to be concerned we've been in a prolonged and strong market for quite some time. this is a great operating business, they actually unlike walmart in terms of bricks and mortar business still have room to grow but there are issues normally we really like to see online sales but they have relatively narrow margins which will price into the valuation, online, because it obviously has higher cost when you deliver door to door rather than

basically the warehouse model. that could put pressure on margins. so they could report good numbers in some areas but could give investors pause in others, so take a cautious approach if you're pressing bullish bets anywhere right now. >> shares of nvidia today rallying as they announce 4 for 1 stock split and tony is betting on bigger break out when the numbers hit the tape, lay it out for us. >> i took a bullish stance for nvidia last quarter and wasn't great on timing so i'm taking one more shot at this. we look at the chart here, i first want to look at the phil ex semidconductor index with a very significant run last year but we've seen a pause here since the beginning of the year. that's fairly healthy for continuation higher. and we started to see a little bit of outperformance of the semidconductor index earlier this week. if we look at the chart for nvidia, this is a stock that has been stuck between 500 and 590 for the last nine months what we're starting to see is

break outs on a absolute and relative basis above 590 level that's the key going into an earnings event when you look at the business itself, nvidia is firing on all cylinders, everything from the data center chips, graphic chips and auto space, nvidia starting to gain significant market share in those spaces. if you look at earnings announcement, the market is implying a 6% move but the stock historically doesn't move much, only about 3.8% average in the last eight quarters. i had the same concerns you originally talked about with other stocks this quarter, strong earnings, price doesn't necessarily jump significantly higher so with that i'm using a trade structure that accounts for that i'm going out to june and selling the 600. 560 put spread collecting $15.85 on this $40 wide credit spread i'm collecting almost 40% of the

width. this is a strategy that will be profitable as long as nvidia stays above 585, just below the support level i referred to by the june expiration date >> carter, what do you make of nvidia and the stocks? >> so, i think the key here is the set up, the sequencing, just consider these facts from the pandemic low to the september high of last year the stocks index went up 100%, nvidia went up 225 and then that's a six-month run. and then since then, tony referred to it, the last nine months after that huge month nvidia is dead flat whereas the stock has continued up 30. so it's arrested champion. in the corner stone rested champion's basket. after a great run like that, 220% in six months you're entitled to rest which it's done and it's usually the rest that

allows you to assert yourself again and break out. >> mike, your take >> yeah, i mean, one of the critical things from a fundamental perspective is when you see a company that's sort of been under performing its peers in recent history as this one has, is there a fundamental reason that might be the case or are their products falling out of favor, certainly not the case for nvidia which has had a number of important new releases many gpu's are impossible to come by so it's a nice and premium product. that's a good thing. that with many names this included valuation is a concern that's reflected a bit in the options market that's the good news because it's reflecting some of that concern. if there is skepticism going

into earnings that could mean it creates the catalyst that the news is good for it to actually go higher. the final thing is, just about the options trade, nice thing about doing a trade like this, three things could happen, it could go higher, sideways or lower. two of those in this case will be good. the stock falls very sharply risk long being long the stock and 40% of the distance between the strikes isn't the bad either >> for everything "options action" check out our website and while you're there sign up for our newsletter here's what's up. >> announcer: thoughts on the dollar, chartmaster sees trouble in the charts. in the charts. how you can break down for big bucks. plus tweet us your questions at options action if it's nice, we'll answer it on air. when "options action" returns.

in business, it's never just another day. it's the big sale, or the big presentation. the day where everything goes right. or the one where nothing does. with comcast business you get the network that can deliver gig speeds to the most businesses and advanced cybersecurity to protect every device on it— all backed by a dedicated team, 24/7. every day in business is a big day. we'll keep you ready for what's next. comcast business powering possibilities. ♪ ♪

♪ ♪ ♪ welcome back to "options action", check out the dollar index touching its lowest level since january 7th today and carter says a bigger break down could be in the works. carter, chart our course. >> let's take a look at three charts, the first u.s. dollar, the second, the instrument you can use to put on this trade so the first chart is the dxy. you're looking at a weekly chart going back to 2011 and you can see, right, from 75 to around 103. the dollar's been breaking down

over the past couple of years. but the key is, at the end of last year we broke the trend line it's a well-defined trend line in effect since the 2011 low and then we kicked back. right. we threw back and touched the under side of the line and failed to the penny at that line and now we're back at the lows of the beginning of the year hovering at the 90 level so here's the second way to look at it. the exact same chart number two but with the lines drawn differently. and so when you approach a prior low, we're at the lows of three years ago. and then you bounce off of them, but then you succumb and go back to those lows, that is something that is characterized as hovering ominously at well-defined intermediate lows and 52 week lows with the prospect of breaking looking at this uup, use this as your vehicle, currencies are low beta so you want to use options.

uup closed at 24.22. we think it breaks you can get 23 out of it dollar weakness has been the case more to come. >> so mike, what's the trade >> yeah, so, i mean, the fundamental story, a lot of people have heard this already, we have recently been seeing some signs of inflation, i think probably bigger signs of inflation than we've seen in a very long time i think the fed is well-known, at least fed-speak appears to be complacent and on top of that we have sort of fiscal policy initiatives that look over stimulative in that context with gdp growth as carter pointed out, they don't move that much uup doesn't move that much and consequencely options are not that expensive you need to give time for this

trade to play out. since we're near the bottom doesn't make sense to short it because there could be a risk off scenario to protect the dollar in the short term i was looking to september, 24, 23 put spread targeting through to the 23 target that carter was talking about. the 24 strike puts were 27 cents and 23 puts were 8 cents now in strict dollar terms those are cheaper options than we typically would think about buying or selling. the way you think of that option you're selling is in the context of the price of the one you're buying so it is actually mitigating a good amount of the premium and raises the break-even point of this trade even higher. i think we've had a lot of warnings about potential inflation, they haven't transpired over the course of many decades now just because people warn that skating on thin ice is a dangerous thing to do and you haven't yet doesn't mean it won't happen. >> yeah.

tony, what do you make of this trade? >> so whenever we look at the dollar i tend to look less at the charts and more at the macro themes when we look at the dollar index we have to understand, especially with uup, what you're investing in that's the dollar index which has a 58% weight to the euro dollar when i look at euro dollar it's bullish to the u.s. dollar, and two reasons, german bonds are yielding negative 66 basis points and u.s. dollar 16, that's 86 in favor of the u.s. dollar and the european economy is on a shakier recovery path so those reasons, i'm more bullish on the dollar, however, i will admit these are macro themes which are not particularly good from a timing perspective. if you look at charts you have

massive support level at risk of breaking below that so i like mike's trade, risking only 1% of the etf's value and can get paid 4 to 1 if it does break the support level. we break below 24 i think we'll quickly reach 23, the lower strike on that put vertica >> mike do you want to respond to tony's macro thesis >> yeah just with respect -- first of all, when i think of the euros, obviously it's got it's strongest constituent which is germany from a fiscal standpoint i don't view them to be in quite the rocky position that we are we've been creating a lot more spending, catching up on the gdp base to a lot of european countries but we don't have the tax base to support it an ready getting to precarious levels of debt to gdp and we are the reserve currency really it's a move away from

that could really be the tipping point. i don't know if that will necessarily happen this week, next month or whatever but we're certainly on be course to put that possibility at risk. >> all right up next, where's the magic in macy's knocking it out of the park in earnings and stock failed to hold gains trade update on macy's next. tweet us and you might get answers on air 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. ♪♪

(man) so when in doubt, just say, "let me talk to my manager." next, carvana's 100% online shopping experience. oh, man. carvana lets people buy a car-- get this-- from their couch. oh, how disruptive. no salesman there to help me pick out the car i need. how does anyone find a car on this site without someone like us checking in? she's a beauty, huh? oh, golly! (laughter) i can help you find the color you want. that sounds nice. let me talk to my manager. (vo) buy your next car 100% online. with carvana.

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 mike was gearing up for a miracle on 34th street >> right now the options market is implying this name could move more than 10% just next week after they report engineers. earnings there's a real bifurcation on the street for this. the stock has held up pretty well the street pretty much doesn't like it yet the price has held up that indicates in conjunction with relatively high short interest, the whole situation of high debt, high leverage is maybe something to be taken advantage of if you think you get an upside surprise out of earnings

looking at the july 16 22 call spread the stock was trading around $18 -- >> well, macy's delivered blow out results but couldn't hold initial gains. mike, what do you do with this now? >> it was trading around $18 right ahead of this and now $18.20 as of the close, therabouts look, we had a thesis, we're basically sideways on the trade right now. the catalyst we were looking for has come and gone. i still think some of the operational concerns a lot of people shared about this are real i was playing for earnings basically came out of a pair of twos in terms of price action my view is we close this one and look for better opportunities. >> yeah. up next, your tweets and the 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 to "options action." time to take your tweets our first viewer asks after an upgrade earlier in the week what

seems a move back on mgm trend line is the thesis from last week's trade still in tact thank. >> yeah, the these thesis is in tact but the trade is concerning because we have to find risk with an options trade i am holding on to this we lose 50% premium than i would cut this and move on to next premiu >> all right, carter, your quick take on this chart. >> nothing much changed in that sense, stay, stay and play >> ha ha, that's a good one. time now for the final call. carter what do you say >> yes, costco long. dollar, long >> tony zhang? >> break out on nvidia short of put spread. >> michael khouw. >> diagonal call spread in costco and september put spread in uup. >> that does it for "options action."

back here next friday 5:30 eastern. meantime "mad money" with jim cramer starts right now. have a great weekend - [announceg program is a paid advertisement for nuwave oxypure smart air purifier sponsored by nuwave llc, featuring deborah norville on award winning journalist and new york times bestselling author. - we are all living in strange and unsettling times. never in history has everyone on the planet been challenged by the same thing. covid-19 has changed the way we work, the way we interact and we're all still trying to figure out what it means for our future. amidst the uncertainty, all of us are trying to take care of our families as best as possible. i've lost track of how many masks i've made