it's friday. welcome to the action tonight. we'll divest the divergence. why pentagon is back -- peloton is back in the race. mike coe and tony zang associated energy names have not quite followed suit. the chart master is drilling down on what that means. carter >> obviously a great move in the commodity, all commodities, and

yet copper has given back a lot. the grains are higher but energy shares are not progressing i think there is a message there and the message is energy is not a great place to be. it doesn't mean they have to crash or come by in another way, but there is a consensus on the street so just look at the one-month perfor performance. you see it here on your screen, oil versus xle what we know, of course, those numbers tell a story the commodity is up 11%, 12%, and the energy shares, xle, dominated by exxon and chevron but many others, only 5.6. look at the performance. up 20. stocks are only up 10.4.

what about if we started the story the day before the peak of covid. look at the next slide this is looking at the peak in xle before covid you're looking at oil at $47 a barrel the energy sector is unchanged so you've got the commodity well above where it was before the pandemic and yet energy is essentially where it was that's not particularly encouraging. and so take a look at a two-panel chart. the top here is xle, and the bottom is relative performance to the s&p what we know is relative performance peaked back in march, and here we are about to be july 1. energy delivered four months of our performance from november to march, and it's been nothing but a pain or a hurt before that and

since. finally an xle chart itself. it had a chance to break out, it did not and then fell back now i think we're stuck at the level that you see there xle and constituent stocks are going nowhere and profit from lack of volatility >> all right, carter so, mark, what's the trade here? >> so kacarter actually referend this with xle. he was talking exxon, chevron and conoco those entities make up nearly 50% of the xle overall i think we only need to look at one of those companies, the largest, exxon, to get some sense of where the fundamental trouble might lie here with their cash flow, dividends are one possibility, debt repayment is another, and investment, essentially, and depleting reserves is the final

choice these companies have to make unfortunately, even with oil at these levels, they can't actually satisfy all three of these. exxon is trying to maintain their dividend their debt levels are actually above the target ratios that they previously articulated, and they can't really afford to see some increase in their debt expense, and of course they are not replacing all of their reserves which, of course, if you don't do that, what that means is lower production in the future and i think that is one of the overhangs that you're seeing amongst the integrated names in particular as carter pointed out, this represented a relatively larger portion of the etf if you're paying for a range-bound thesis, usually what you're trying to do is sell some options. the structure we're going to talk about is in iron condor, specifically selling in iron condor what is an iron condor sounds complicated really what you're doing is you're combining a short put

spread with a call spread. when do you this, you're going to collect premium on both of these even if you get the trade wrong. of course, the stock can only be lower or it can be higher or in the same place it cannot be some combination of these. so specifically what i was looking at was the august, 48, 53, 57, 62 i was selling that call spread similarly it was about $1.10, s looking to collect $2.79 on a dollar condor. you would be above the short call strike. again, the net premium you collected. essentially the break evens are down 8%, up 7%-ish, and of course if the stock simply stays

approximately where it is right now, that would be the ideal circumstance >> tony, what do you make of this trade >> i think this is a really interesting use of an iron condor as mike said, an iron condor is a combination of the crude credit spread and the cost credit spread combined you want to collect about one-third of the vertical width on each side he has a $5 vertical width on each side, but he's collecting $2.20. that's actually 4% of the width so a higher premium he's collecting on this one than we would normally see that makes this specific iron condor closing to 1-1 than 2-1 that we typically see for this kind of structure. the other thing i want to put out to investors is what you might want to do to manage this type of trade, if the trade starts to collect half the premium or half of the max profit on this, those are good times of potentially taking

profits on an iron condor. but if the stock tries to sell upwards, one of the things that you can actually do is adjust the profitable side of the iron condor and roll it into effectively what is an iron butterfly. and as long as you keep the $5 width on the other side, you're able to collect more premium without having to commit more capital. so it's a great way to potentially adjust the trade that's starting to drift one way or the other >> mike, comments on that suggestion >> i think that's an important thing we really should point out, and that is when you do credit trades, when you're collecting options premiums, it isn't necessarily to wait all the way until expiration to collect every last penny of the options. the reason is as the penny is

diminished, it is less substantially. if i pay a dollar and there is a remaining 50%, the risk reward may no longer be attractive. so you should be ready to either take profits or adjust when things look good >> let's switch gears here, and this time the pun was intended switching gears to peloton and why the stay at home play might have more mileage to go. tony, take it away >> peloton has definitely had a challenging last six months between the supply chain issues that it's had and the tread recall recently, but i think it's poised potentially for a breakout now that a lot of that is behind it if we look at the chart first of all, the stock had peaked in january to about 170 and traded all the way down to $80. it formed a bears trend line which last month started to break out higher now weaver confirmed that breakout so this is the first suggestion that the stock is ready to rally

from here. but if you look at the chart or draw the lines a different way, you see an inverted head and shoulder, a completion of this bottom formation from this $80 bottom this has a neckline of around $125 if you break out above that 125, you're really projecting up to about $140 this really reflects the underperformance that we've seen from this supply chain and the tread recall that's behind it and the chart is reflecting what i believe is a better environment going guforward. if you look at the chart itself, the wellness that it's going through and the products it's launching actually breaks into their market, and when you look at what we're expecting from peloton in 2021, i believe that's a fundamental case for the stock to trade higher. so the trade chart i'm using reflects the fact that we have achieved this bottom formation but it hasn't broken out yet

the timing on this can be a little tricky. i'm going out to the august 6 weekly expiration and i'm selling the 120 and 108 put spread here. i'm still able to collect premium, and when it does break out, that's when i can take profit on this i'm collecting about $8.50 on that august 21 put while collecting only 20 cents on that 8 put. i'm trying to skew the risk reward in my favor while i wait for this breakout. >> carter, do you agree with tony's chart analysis? >> sure, those are great lines, meaning the point of annotating a chart is to show key levels and where those levels matter, and do they serve as a reference point for the prospects going forward. you have a stock that drops 50%. interestingly, this circumstance -- and there's about a 90% correlation with

peloton and tesla, with peloton and tesla and solar stocks like the etf 10 great run-ups, good market beaters that allowed great collapses, 50%, 60% in some cases, and they all have massive rebounds and these formulations typically mean higher prices >> so, mike, what did you make of toney's trade? >> i typically like when you can collect as much distance between the strikes as he's doing here in fact, he was talking about that on the xle trade. this one sets up a little better, because the put trade he's selling actually expires a little sooner. when we do put trades, we actually like to mirror data if we can get them. i can't speak to the domination conversation because to me i always thought peloton could potentially face additional competition, and i'm not sure

their valuation is one i would necessarily want to get behind that said, this is obviously a brand who people that have bought their products are excited about it that produces higher stocks than you might see in other areas if you are a believer in the name, this is a trade structure that i like. still it come, skew. professor ko explains why such a small word can affect your portfolio right now. and our newsletter which you can sign up for. we're back in two.

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welcome back to snoo"fast money. mike thinks it's time to educate on you skew. mike, take it away >> we talk about out of the money calls to out of the money actions to out of the money puts one of the things we will sometimes get in a situation like this sort of some antithetical or contradictory market setups. oftentimes what you'll see is when skew is elevated, it reflects a high sense of anxiety participants why is that? they'lly try for perfection levels we're seeing skew levels get up to the kind of heights we were seeing basically at the height of the pandemic drawdown

so out of the money puts are actually quite expensive relative to at the money options. this does a couple things. one of them would be if you're trying to buy put spreads, for example, to hedge your portfolio, interestingly, all else equal, the price of those put spreads might actually go down instead of up the at put levels are staying the same but the out of the money puts are staying at that price. this is also if you're thinking about another way to make a foolish bet. let's walk through a trade example i saw set up today that i thought looked rather interesting. i was looking at a ratio risk rev reverser i was looking at august and the price was 2.51

out of the money, four straight calls. those were $2.40 each. notice i could actually buy three of those for every one downside put that i was selling. how did this actually play out in the real world if s&p moves up or down i'm short a put that is about 3.9% out of the money. if the market declines 10%, i would lose about 1.4%. if it stays at that level, i would not lose those are about 4.5% out of the money. if the market rose 10%, i would make about 16.5% in terms of profits. i have a very a symmetric payoffs. in a way we find we can get a call like payoff by doing this this could be an interesting way to substitute a long exposure in

the s&p because of the equities we have because we get that nice asymmetry. >> carter, what's your take? >> one thing to consider, it's obviously being discussed. you can see in the media and there is a little bit of a b breadth, issue, of late. specifically the industries are not making as high as the s&p are making basically yesterday the s&p 500 is making a new all-time high. yet if you look at the s&p equal weight index, that hasn't made a high since may 10. or if you look at the transports, they haven't made a high so the issue is, is that the opportunity that the breadth improves, or is there some

question as to why is it just the super cap names and others that are keeping it? one step to consider, and i think it's worth it, the percentage of stocks in the s&p 500 that are above their averages, they're only at 49%. there is only two instances in the past 20 years where that's happened yes, a new high but only 50% of stocks were at or above. one was in 1959 and one before the financial debacle. tony, your last word on skew >> so i think this is a fantastic dive into volatility because i see a lot of the investors will use more generalized measures of volatility such as ib rank or ib percentile to meriwasure whethe it's cheap or expensive.

i think mike's example shows you how easy it is for these calls, in this case limiting the potential upside while limiting his downside for investors who use a volatile rank or percentile, this gives you more data to look into the volume surface that you're trading when you trade these options. as far as comments on the charts, that's why i think this strategy is suitable in this market environment it's something that's been existing for a few weeks now, but that could go on for a few more weeks or even a few months. during that time, as markets continue to melt up, if you will, this strategy allows you to take advantage of that while limiting your downside risk. coming up, one of the most discussed names this week, nike. what to do with last week's trades now that all the opinions are in if you have a question out there, tweet us.

you might just get your answer on air bein be back right after this weeken. 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. ♪♪

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 last week tony made a short run in nike earnings >> when we look at chart itself, the stock has been largely trading upwards the last eight or nine months or so and they've been breaking prices at $130 nike is already trying to break below some significant support levels here, and that poor relative strength does not bode well going into earnings next week going out to the june 25th weekly, 123, august 30-put diagonal here, spending about $36 and 133 outputs.

net here i'm paying about $5 >> the stock spiked to a new high tony, though, you say you can still continue down this path. how? >> this is a prime reason why we use options to place these options earnings bets. clearly this is one that did not work out, but one thing you can do is buy back those 132 puts and hang onto the august 130 puts and see if there is a significant downdraft in the next two months over the august expiration next we have 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.

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♪♪ visit tdameritrade.com/learn ♪♪ ♪♪ welcome back to options acti action time to take your tweets i believe the dollar will continue to gain, i was looking at uup selling the jan $26 call

and buying the jan 21st call >> i might buy that 25 stock call and then possibly look for something against it >> our next viewer asks, i own virgin galactic shares and i'm thinking of writing a covered call any suggestions? cb $16.22. thanks in advance. tony, take this one. >> i think this is a great time for covered calls. the challenge is finding stock prices that are high enough. the only explanation i found was going out to july. i would go to that 105, even 115 strike to look at covered calls opportunity on a stock like virgin dpa lacti -- galactic th

this volatile. >> what about a 30% spike? >> the entire float turned over. you're talking a volume of 260 million shares i think it goes higher >> quick for final call. tony, what do you say? >> my mission is simple, to make you money i'm here to level the playing field for all investors. there is always a bull market somewhere, and i promise to help you find it. "mad money" starts now >> hey, i'm cramer welcome to "mad money. and welcome to cramerica i'm just trying to make you a little money my job is not just to entertain you but to educate and teach you you so call pe or tweet me at jim cramer too hot or not too hot that i