far more than just money. >> people say that white-collar crime, the impact isn't as significant as violent crime, but in some circumstances, you know, the victims experience but in some circumstances, you know, the victims experience equally tragic outcomes. it is friday, you know what time it is time for options action. i'm melissa lee. we're live in new york city's times square here's what's coming up. xlf'd. carter shows us why it could only get worse for the financials as peek everything peaks. then just do it. or maybe not doing it. tony saying swoosh is in to play through nike earnings. plus, mike takes his broken wing and learns to fly again

to ride amazon higher. it's 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, we're actually referring to the xlfs specifically the chart master explains everything carter, take it away >> well, everything. that's quite grand but let's try. what we know, of course, financials third best performer for the past 12 months and we know that 11.5% it's an important sector in the s&p and the big banks and transmission mechanism for the economy. look at the xl the spyders and the first chart looks at the break in trend and very clear

line since the october low and we have a clear break in 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 got way above that level. so now if you put the first chart and the second chart together and the third chart, this then calls into question, could we possibly go back to the level from which we broke out back to the prepandemic highs before the plunge. i think that's actually what's coming so, next chart were we to go down we're count about 9% so far. simply to the january, february highs before the plunge and we're talking about 18% decline. and that's very sort of reasonable, if you will, given the fact that many banks are already down 12 and 150 15 regil

and so far and the next chart, this is the most important what you have on the top is the same chart we were just looking at the 12-year chart of the xl and you can see the january, february before we plunge and 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 and small banks and big banks and ins insurers they never recovered to their prepandemic level. you can see now we're flirting with the breaking uptrend since december they only delivered alpha for efebtively five, six months and even that is in question top five are almost 40% weight and berkshire leading the way. sell >> wow mike, what is the trade here for the financials

>> yeah, so, i mean, berkshire, as he just pointed out, the largest constituents at 1.4 times book and one could argue that we have seen the money center banks which make up the next four largest constituents and i'm talking about jpmorgan, wells, bank of america and this is pretty much the highest levels that we've seepn in ten years but valuation is only part of the story what i am thinking about the fourth quarter for 2018. for anybody who doesn't remember how that turned out. xlf dropped by about 23% a 23% drop in xlf from the $28.5 high that we recently saw could get us down to 29.5. playing on the charts that carter is talking about and we have some pres cancedent given

weakness the 35 were about $1.37 when i was looking at that earlier today. and 31 for 37 cents and spending a dollar for that quick spread and that gives me a 3-1 payoff we saw, obviously, some weakness in the market broadly but the financials were one of the areas we did see considerable weakness and i'm not saying we'll get that again but this does have some similar vibes to me if you ask me this is a way you can play to hedge your portfolios or 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 has gone uncorrected. and i think especially with the flattening of the rate curve and you starting to see trading

revenues 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 the charts, i see temporary support around that $33 level. that is my primary target to the down side but mike is going further out here going out to september. i do like the risk for reward ratio and looking for a potential downside move here of 3-1 and only risking 3% of the underlying etf value to put on this bearish bet i think this is a smart way to play for potentially a sizable correction here in financials. >> a broad sort of etf and you mention berkshire hathaway the biggest weight on their insurance companies, as well which subsector looks the weakest in your view >> well, within financial history relax. how much excessive return they deliver. and now the fact that on march

18th and i think about that. the market has gone a lot higher than that. poor relative strength for weeks and weeks and there's a lot of data there so, that would be and interestingly tony level is 33 of course, that is exactly the 150 average comes into play. let's move on to nike now. the company reports next week. tony, what is the set up here? >> yeah, nike had a great year last year but really has un underwhelmed here for 2021 and i expect a little bit more of that is to come here on earnings next week when we look at the chart itself the stock has largely been trading sideways for the last eight to nine months and break intermediate support levels and the consumer discretionary sector nike is already starting to break below support levels here and that poor relative

strength does not bode well going into earnings next week. if we look at the business itself, the multiple expansion we've seen nike exhibit over the past year is largely to the growth out of the chinese market and a lot of risk there in my opinion, especially in the current political climate and potential boycotts and trades at a rich multiple despite the weaker sales data. when we look at the earnings report itself, the stock currently is employing a 5% move here while historically over the last eight quarters it has moved about 5% the market is implying what we've seen from history here i want to take advantage of the skew that we currently see here in the term structure by trading a diagonal spread. i'm going out to the june 25th weakly august 130 put diagonal here spending about $6.25 for the august 130 puts and selling the june 25 weekly options 123

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

they were able to manage their business but risking 4% of the current stock price and owning the data option, you're really getting downside protection essentially on whether or not it's earnings and also potentially anything else that could be causing some pressure on the market we are seeing that i like the trade structure in particular as a way to make the bearish bet. i think the evaluation is a little rich but it may be dese deserve. >> this stock has not been a whole year and nike peaked on december 11th period, december 12th relative strength is important and it's important to the market it's an important sector here's the real problem. puma is making a new high and so is adidas and crocs new 52-week high and nike hasn't made a high since december relative strength is poor. >> wow, so this is a

nike-specific problem. tony, did you think this was a nike-specific problem when you took a look at the charts? >> some weakness not just with nike but also with adidas. as carter showed you a clear distinction here between those two brands but we're seeing weakness across china, not just in nike. >> don't forget to check out our website. while you're there 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 and now he and mike are back with a second similar setup and other illitil eliterations reach into your pocket, grab your phone and tweet us your at options actions. we'll have it on air when options actions returns.

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♪ ♪ ♪ ♪ welcome back to "options action" last week a winner around adobe. >> a key moment at a key former high and now you make your bets and think it will break out and exceed the former high >> one way to make a bullish bet is to buy a longer dated december 540 call and those were trading a little over $28 when i looked and look to sell the

dated premium and i was looking at the june 5:55 calls net net you would lay out $23.75 per share and that's about or just about 4.5% of the current stock price. >> since then, it's broken out to a new level but in case you miss that one, carter spotted a new name with a similar setup. carter. >> well, sort of that's what's fun. let me just say this a lot of clients and colleagues do both. they do fundamentals and try to marry the two. my world is just one thing and i want to keep it that way and so what you're going to see now is the exact same drawings that we saw for adobe but they're a different company. it's amazon. take a look. do the setups have to work of course not. but we make our bets accordingly. what do we have? amazon a strong, uncorrected move and

then ten months resting consolidating and set up for breakout next chart, another way to draw the line exact time frame and different chart and you can call them ascending triangle, it doesn't matter meaning there is tension here and tension standoff resolve next chart same time frame. just drawing the lines a different way. next chart, drawingthem a different way and all of these drawings were the 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 again, just like adobe, on the top is the stock in this case amazon not adobe and on the bottom relative performance to the s&p. so, if you're going sideways for ten months while the market is ascending, your relative aative strength line is going down. so, good set up absolute and

interesting developmental action relative and make your bets. ours is long >> hey, similar set up, mike so, a 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 that we have first thing i would just talk about the stock in general obviously, the stock range bound for a time but this is a stock that has really been growing into what i think historically people thought was a high valuation. if you maintain that growth, it isn't really for a long time people used to price amazon on a price to ebita 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 but you can see if you take a look at a long-term chart of its price to ebita, it is at a historical low right now the company is trading around 2022 earnings and that is better than 40% revenue growth over the

next 12months we'll see something like full eps growth just under 70% or so this is, obviously, a company that has grown well into its valuation. the problem like doing a trade like we did with adobe, so will the options also be expensive. so what we're trying to do is identify trade structure that will allow us to make a bullish bet without making a premium of course, it won't be cheap because it's not a cheap stock but maybe we can make it cheaper. i was looking at the august $36.50, $38.50 and $39.50 broken wing call butterfly. not a trade we talked a lot about. you'll be selling two of the 38.50s and then buying one of the 39.50s when i was looking at that earlier today, the total premium would be about $31.40 a share. $3,140 to put the whole trade on

to get exposure to 100 shares and that's less than a single share of amazon stock. that doesn't mean necessary that it is similar to opening a single stock and make a bullish bet. the peak profits would be achieved if you hit that $38.50 short stripe if the stock does, in fact, go beyond that short strike, you will see profits at any level beyond that. not as much as you would get at the $38.50 level but you'll see profits unlike using a symmetrical and this just gives us a less expensive way to make a bullish bet and take advantage of the fact that some of the options premiums and that's the reason we're selling the 38.50s. >> a broken wing call butterfly call is not something we talk

about. >> this is a way to reduce the cost of this particular trade. for those of you not familiar with a broken wing butterfly and think about it as a two vertical spreads. mike is buying a $36.50 call debit spread and then selling a 38.50, $39.50 call credit spread and collecting about 13, 14 bucks on the call to the upside and going to use that premium to offset the call of the debit spread here he's reducing the total trade by outright buying that debit spread great way to eare deuce the premium. as far as amazon goes. this is a company that shows no sign of slowing down and they're building out another 40% of fulfillment space here over the next couple years and they're delivering two-third of their own packages now as opposed to relying on fedex and u.p.s. and making acquisitions through

u.p.s. and aws is not slowing down any time soon you see this massive continuation pattern that is performing for the last nine or ten months and about to break to the outside. that target is about $4,300 to the upside i like this trade and mike has taken a smart way to reduce the premium on the options trade. time to answer your questions. we're taking your tweets next. stay with us sponsored by think or swim by td ameritradem mobile thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪

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welcome back to "options action." time to take some of your tweets would it be audible to get an update on sslv trade do you cut it and move on? carter, why don't you take this one. >> a lot of back and forth with clients and others on this talk about going the wrong way the idea was that this was poised to move higher and, indeed, it was poised to drop. the question is, ever thus, what to do with something that's not working.

i give you what i've done. i added to my position now, that's probably not what you want to hear the risk manager would say take measures and do something and often i have said here on this program, of course, my hunch what i've done myself is to stay >> right our next viewer asks see any action on fedex towards c earnings mike, anything worth watching? >> we did see quite a lot. people probably realize they're going to be reporting on the 24th we saw bout two times the average volume and applying about the average move of a little under 5% and next week's expiration and two 80 cuts that are the most active options today and the stock hasn't performed particularly well over the last couple weeks. if those two things are any indication we're seen by today's lows that some people are taking some measures and making some bets that maybe next week's

earnings are not going to be that great >> what are your guess, carter, according to the charts? >> transports in general peaked before the s&p and what i'm thinking is that fedex will move lower. here's one from our next viewer which asked ge announcing reverse stocks on split what happened to my january 22 calls. will i automatically be closed out? tony, why don't you take this one. >> your calls will not be closed out. the acc will adjust these options and adjusted options in your portfolio as far as what the adjustment will be, i don't know. but you can find out on the website. up next, we have the final call arching 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.

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♪♪ ♪♪ ♪♪ final call >> amazon i like it long

financials are from short. >> tony. >> nike put diagonals. >> mike. >> amazon. >> all right that does it for us. "bad money with jim cramer" starts right now (dramatic music) ♪ (stu) i really can see the difference. i can see this hair coming in. i have hair on my head. i can brush my hair now. within two months, i've gotten my hair back. it's just like a second chance on life. ♪ no hormones, no surgery. ♪