it is friday, you know what time it is, time for "options action", i'm melissa lee live from the nasdaq market site in new york time square, here's what's coming up. >> announcer: xlf'd, carter worth shows why it could only get worse for the financials as peak everything peaks. then, just do it or maybe don't do it tony saying swoosh is in to help you play through nike earnings plus, mike khouw takes his broken wing

and learns to fly again to ride amazon higher, time to risk less and make more. "options action" starts right now. >> well, as much of a sell off as we've had it's likely still all down from here think we're talking the overall market well, we're actually referring to the x lf specifically at this point it's almost all one in the same the chartmaster carter worth explains everything. carter, take it away >> everything, that's quite grand but let's try. so what we know is of course financials third-best performer over the past 12 months. we also know 11.5% is an important sector in the s&p. we also know the big banks are the transmission mechanism for the economy. and they're suffering. let's look at the xlf, the spiders for the sector, and try to divide the way forward. the first chart simply looks at the breaking trend taking place.

a very clear trend line since the october low. we have a clear breaking trend and the second chart, this is the same chart but now on a two--year basis, it's highlighting the key level, which is the level from which the pandemic took place and you can see the recovery, we have gotten way above that level. so now if you put the first chart and second chart together of the third chart calls into question could we possibly go back to the level from which we broke out, before the pre-pandemic highs before the plunge i think that's actually what's coming next chart, were we to go down, we're down 9% so far, simply to the december/january highs before the covid plunge we'd be talking about a 18% decline. and that's very, sort of reasonable, if you will, given the fact that many banks are already down 12 and 15,

regionals and so forth so the next chart, this in many ways is the most important what you have is this on the top, same chart we were just looking at, right, the two-year chart of the xlf, you can see the level highlights, the level of january/february before we plunge on the bottom is the relative performance to the s&p 500 there's the rub. the financials have never even recovered on a relative basis despite all of the gains in small banks and big banks and insurers, and never recorded on relative basis to pre-pandemic level and now we're flirting with breaking the minor uptrend that's been in effect since december they've only delivered effectively for five or six months and even that is now in question xlf, 66 stocks in total, top 5 almost 40% weight, sell it >> wow

mike, what is the trade here for the financials >> yeah, so, berkshire is the largest at 1.4 book is not overwhelmingly expensive and one could argue we have seen the money center banks making up jpmorgan, wells, citi and bank of america but right now the entire city is trading 1.7 times book this is pretty much the highest levels in ten years. valuation is only part of the story. what i'm actually thinking about was fourth quarter 2018. for anybody would doesn't remember, xlf dropped peak to trough on the taper tantrum by 23%, drop from xlf from $38.50 high we recently saw would get us to $29.50 so playing on the chart that's carter is talking about and also the fact we have precedent given what is causing this weakness, i think we can

look to september put on a put spread i was looking at september 35 put spread about $1.37 earlier today. 31s were about 37 cent net net i'm spending $1 for that $4 put spread to give a 3 to 1 pay off. we saw weakness in the market broadly but the financials were one of the areas that we did see considerable weakness, last time we had a taper tantrum, not saying we're going to get it again, this does have similar vibes it to it and is a way to hedge your portfolio if you have exposure to financials or to make bearish bet with limited amount of risk. >> tony, what do you make of this trade >> i find it quite difficult sometimes to push brand new shorts when an index like this is down 9% in just two days. but as carter showed you the index is up 65% since the election and has gone

uncorrected. with the flattening of the rate curve and revenues start to decline there is a thesis for this break in trend, as carter puts it, the question is how far? for me when i look at charts i see temporary support around $33 that's my primary target to the down side. mike's going further out to september. i do like the risk/reward ratio on this put spread looking for potential down side move of 3 to 1. he is only risking about 3% of the underlying etf's value to put on this bearish bet. i do think this is a smart way to play for potentially a sizable correction in financials >> carter, the xlf is a very broad sort of etf. you mentioned berkshire hathaway the biggest weight on their insurance company which sub sector looks the weakest in your view >> within financials it's regional racks meaning the circumstances james discusses

which is how much excess return they deliver and now the fact can'trepeat on march 18th thin about that, the market's gone a lot higher since then, regional banks have exhibited poor strength for weeks and weeks, there's a lot of beta there. interestingly tony's level 33 exactly where the 150 day moving average comes into play. >> let's move on to nike, company is gearing up for results next week. tony, what's the set up here >> nike had a great year last year but really has underwhemed for 2021 i expect a little bit more of that to come on earnings next week when we look at the chart itself, the stock is largely trading sideways for the left 8 to 9 months and breaking intermediate support levels of $130 more importantly relative to you the consumer discretion arsector

nienge is nike is breaking below strength levels doesn't bode well going into next week looking at the business itself, the multiple expansion we've seen nike exhibit in the past year has largely been from growth in the chinese market, there's a lot of risk there, especially in the current political climate, potential boycotts and trades at a rich multiple despite weak sales data is a risk going into earnings. when looking at earnings itself, the stock is implying a 5% move while historically over 8 quarters has moved about 5% so the market is implying what we've seen from history here but i want to take advantage of the skew that we currently see here in the term structure by trading a diagonal spread. going out to the june 25th weekly 123. august 130 put diagonal. spending $6.25 for the august 130 puts and selling the june 25 weekly

options, 123 puts against that for $1.24 net net here i'm paying $5 for this $7-wide diagonal spread, risking a little under 4% of the stock's value to place this bearish bet going into earnings next week. >> mike, what do you think of nike >> so, you know, it's interesting of course because just from an pr operating business standpoint nike has been knocking it out of the park a lot of the plans they made obviously in the online space, in terms of innovation, they've accelerated those plans. to tony's point at 33 times earnings give or take is not exceptionally cheap. i expect if we see a market pull back maybe this is another name that would be hit by that. of course really take a look at the trade. because this isn't a strok i'd be inclined to short going into

earnings based on how well they manage a business but risking 4% of the stock price, owning the longer dated option you're getting down side protection on whether or not it's earnings and potentially anything else that could be causing pressure on the market, and we are seeing that so i like the trade structure in particular as a way to make the bearish bi bet i do think the valuation is rich but maybe deservedly so. >> carter, what do you see in the nike chart >> sure, couple things, one, we know this stock has not participated all year, has been good for equities until the last week or two. nike peaked december 11-12 relative strength is important to the market and the sector but here's the real problem, puma is making new highs, so is adidas crocs with a new 52-week high this week. nike hasn't made a high since

september. >> this is a nike specific problem. tony, did you think it was nike-specific problem when you looked at the charts >> we're seeing some of the weakness in china not just with nike but also adidas as carter showed you there's a clear distinction between those two brands but seeing weakness across china not just in nike. >> don't forget to check out our website and sign up for our newsletter here's what's coming up next. >> coming up, if you played along last week carter charted a winner in adobe, now he and mike are back with a second similar set up and other illiterations, plus calling all "options action" fans, reach in your pocket, grab your phone and tweet us at "options action", if it's nice we'll answer it on air when "options action" returns

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♪ ♪ welcome back to "options action." last week carter and mike constructed a winner around adobe. >> essentially a key moment at a key former high, now make your bets, we think it will break out and exceed the former high. >> one way to make a bullish bet is to buy a longer dated september 540 call trading for a little over $28 when looking today, and look to sell elevated short dated premium. looking at june 550 calls just under $5 net net would lay $23.75 per share, about or just under $4.50 of the current stock

price. >> since then it broke to a new level. in case you missed it, carter has a new name with similar set up. >> if that's what's fun, let me just say this, a lot of clients and colleagues do both, funny miracles, and try to marry the two. my world is one thing and i want to keep it that way. what you will see now is the exact same drawings we saw for adobe but they're a different company, it's amazon take a look. do the set ups have to work? of course not. make our bets accordingly. we have amazon a strong, uncorrected move and then ten months, resting, consolidating, the break out. next chart, another way to draw the lines, exact same chart, just different annotations, call it ascending triangle, doesn't

matter there's tension here and tension stand also resolve next chart same time frame. just drawing the lines a different way. next chart drawing them yet a different way. all of these drawings are same as adobe does it have to break out? of course not. are there inflection points in the market, yes. this is one of them. take a look at the final chart this is a two-panel. again, just like adobe, on the top is the stock, in this case amazon not adobe on the bottom is relative performance to the s&p. so you're going sideways for ten months and the market is as ascending the line going down now moving above the down trend line good set up absolute interesting developmental action relative make your bets our is long. >> okay. similar set up mike so similar trade maybe for amazon, what do you think?

>> yeah, we can't do quite the exact same trade for amazon. one of the issues we have, firstly, it the stock in general has been range-bound for a time. but this is a stock that's really been growing into what historic ally people thought was a high valuation, if you maintain that growth it isn't really you will remember for a long time people used to price amazon on price to ebitda basis and the reason was, rather than looking at net income because the company was reinvesting so much into their business and into their own growth, you can see if you take a look at a long-term chart of its price ebitda that it is at a historical low. actually the company is trading 36 times year 2022 earnings with better than 40% revenue growth in last 12 months we'll see something like full year eps growth just under 70% or so. this is obviously a company that has indeed grown well into its valuation. but the problem using a trade

like the one in adobe is because the share price is just under $3500 where it closed today so will the options be expensive. so we're trying to identify a trade structure to make a bullish bet without an enormous outlay of premium. it won't be cheap because it's not a cheap stock but maybe we can make it cheaper. i'm looking at august 3650, 3850, 3950 broken wing call butterfly. buy the 3650 calls selling two of the 3850s and buying one of the 1950s. when i look at it the total outlay would be $31.40 a share $3,140 to put the whole trade on to get exposure to 100 shares worth. that's less than a single share of amazon stock. that doesn't mean necessarily that the risk is comparable to owning a single share of stock but is a way to reduce options to reduce the outlay to make a

bullish bet. peak profits would be achieved if you hit $38.50 short strike reason you use broken wing call butterfly instead of symmetrical one if it goes beyond that short strike will you see levels beyond that, not as much as at the $38.50 but you will see profits, unlike a straight symmetrical call fly you're trying to thread the needle to find that straight this is a less bullish bet and take advantage of the options that are elevated one of the reasons we're selling two of those 3850s. >> so a broken wing call butterfly is definitely a trade we don't talk about often. tony, what do you make of this >> yeah, so this is a very, very creative way to reduce the cost of this particular trade for those not quite familiar with broken wing butterfly or call butterfly for that matter, a better way to think of it is,

think of it as two vertical spreads buying a 3650, 3850 call debit spread and selling 3850, 3950 call credit spread and collecting $13 to $14 on that call credit spread to the upside and use that premium to offset the cost of the call debit spread here's reducing the risk of his trade by 30% than buying the outright debit spread, very, very creative to reduce premium. amazon is not slowing down building 40% of fulfillment space in next couple years, they're delivering two-thirds of their own packages opposed to relying on fedex and ups and making acquisitions through mgm and aws, not slowing down any time soon. looking at carter's chart you see massive pattern about to break to the upside.

that target is $4300 to the upside i like this trade and think mike has taken a very smart way to reduce the premium on this options trade. >> all right coming up, time to answer your questions. we're taking your tweets next, stay with us 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. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪

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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 some of your tweets, first viewer asks would it be possible to get update on slv trade. do you give the trade more time or cut it and move on. carter, why don't you take this one. >> sure. we had a lot of back and forth with clients and others on slv talk about going the wrong way the idea was this was poised to move higher and indeed it was

poised to drop the question is what to do with something that's not working i give you what i've done. i -- i add to my position. that's probably not what you want to hear risk manager would say take measures, do something often i've said on this program first lost sb dshd -- my hunch what i've done stay. >> next viewer asked see anything on fdx worth watching. >> we did see quite a lot. they'll be reporting on the 24th we saw two times the average put volume today, implying an average move of a little under 5% but it's next week's expiration, 280 puts that were the most active today and the stock hasn't performed particularly well over the last couple weeks if those two things are any indication it would seem at least by today's blow that it

some people are taking measures and making bets that maybe next week's earnings aren't going to be that great. >> carter what's your guess according to the charts. >> transports in general peak before s&p and my thinking is fedex will move lower. >> okay. next viewer asking if ge announcing 8-1 reverse stock split on july 30 what happens to my 4 january 22 calls will i automatically be closed out. tony take this one. >> so your calls not be closed out. occ will adjust these options and you'll have the adjusted options in your portfolio, as far as adjustments on this specific option i don't know but you can find out on occ website. >> good tips there up next, we got the final call >> "options action" is sponsored by -- that's why td ameritrade designed a first-of-its-kind, personalized education center.

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final call time, carter? >> amazon, i like it long. financials, i like them short. >> tony? >> nike put diagonals. >> mike? >> amazon. >> all right, that does it for us. this is "mad money" starts now. hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to keep you from losing a lot of money my job is not just to entertain but educate and put days like this in context. call me or tweet me @jimcramer in the stock market and only in the stock