and you will be prosecuted, and you will go to jail. we will keep coming because the e rule of law requires that. we have to hold pepeople accountable. -- captionsns by vit -- it is friday many big energy names are not up why peloton is back in the race after several stumbles. finally what is signals and what you should do right now with us carter worth, mike and tony zang. oil prices have been increasing but associated energy names have not followed suit. the chart masters drilling down on what that means carter. >> that's right, melissa you have great move in the commodity. all commodities and then copper is giving back and oils continue

higher and the energy shares are not progressing. i think there's a message there and the message is that actually energy is not a great place to be doesn't mean they have to crash or come apart in a big way, but a time to anticipate frankly a big sideways, dull period rather than the bullish consensus there is on the street let's look at the one-month performance. you see it here on your screen oil versus xle what we know, of course, is those numbers tell a story the commodity is up 11%, 12% and the energy shares xle dominated by exxon chevron only at 5.6 look at the three-month performance. next slide oil up 20 and xle the internal stocks up only 10.4. what about if we just start the meter and start the story from

the day of the peak before covid. look at the next slide this is looking at the peak in the s&p before the covid sell-off february 19th, 2020. you're looking at oil was at $54 a barrel and it's at $74 a barrel now well, that's up 40%. the energy complex, the s&p sector is unchanged. so you have the commodity well above where it was before the pandemic and energy is essentially where it was that's not particularly encouraging. 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 basically about to be in july 1. so, all in energy delivered four months of our performance from november to march compared to the and nothing but pain before

that and hurt sibefore that and since. now fell back and now stuck at the level you see there. the betting is that xle and constituent stocks are going no where and profit from lack of volatility >> all right carter so, mike, what's the trade here? >> yeah, so, you know, carter actually referenced this with respect to xle he was talking about exxon, chevron and just those three make up 50% of the xle overall we 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 that 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 and their dlevels are above the target ratios that they previously articulated and can't afford to see an increase in their debt expense and 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 that is one of the overhangs that you're seeing among the integrated names, in particular. as carter pointed out, these represent a relatively large portion of the xle etf so, if you're playing for a range bound thesis what you're usually trying to do is sell some options and the structure we're going to talk about is iron condor. now, what is an iron condor. sounds complicated you're combining a short put

spread with a short spread when you do 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 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, 67 iron condor i was selling the put and then also selling the upside call spread similarly about $1.10 net net looking to collect $2.20 and maybe just a penny or two more on a $5 wide iron condor. the break evens are going to be below your short put strike, less the premium that you collected and above the short call strike. again, none of the premium you collected. essentially the break evens are down 8%. up 7%ish and if the stock simply stays approximately where it is right now, that's the amount

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 a combination of the put credit spread and the call credit spread combined. now, the general rule of thumb we typically have is you want to collect one-third of the vertical width on each side. he has a $5 vertical width on each side and collecting $2.20 that is 4% significantly higher premium that he's collecting on this one than what we would normally see. that screws the risk/reward ratio closer 1-1 typically than the 2-1. another thing i want to point out to investors new to the strategy what you want to do in managing this type of trade if the trade starts to collect half of the premium or half of the max profit on this, those are good times to potentially take

profits on an iron condor but if the stock starts to trade towards the upper of the call strike or the short strike one thing you can actually do is adjust the profitable side of the iron condor. and roll it into effectively what is an iron butterfly. 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. it is a great way to adjust the trade that is shifting one way or the other >> mike, comments on that suggestion >> yeah, i mean, i think that's an important thing that we really should point out. that is that when you do credit trades, when you're collecting options premiums, it isn't necessary to wait all the way to expiration to collect every last penny before you make adjustments or potentially close or take profits. the reason is as the remaining premium is diminished your risk/reward relationship changes

dramatically for example, if i sell a put for $5 and now 50 cents, the remaining 50 cents is the maximum profit from that point to expiration and the risk/reward may no longer be attracted. you should be ready to take profits or adjust when things are good let's switch gears and switching gears to peloton and more mileage left to go. tony, take it away >> peloton has had a challenging last six months between the tread recall recently and poised now for a breakout a lot of that is behind it if you look at the chart first of all the stock peaked in january about 170 and traded all the way down to $80 and formed the bear trend line which last month started to break out higher we confirmed that break out. this is the first instance or

suggestion that the stock is ready to rally from here if you draw the lines a different way. a completing of this bottom in formation from this $80 bottom this has a neckline of around $125 so, if you break out above that $125, you're really projecting all the way up to $140 this really reflects, you know, the underperformance that we've seen from this supply chain and the tread recall that is now behind it and the chart is reflecting what i believe is a better environment going forward. and if you look at the business itself, the recent international expansion that it's going through and the corporate wellness programs that it's launching is actually expanding the market when you couple it with the profitability that we're expecting from peloton here in 2021, i think that's a strong, fundamental case for this stock to trade higher the trade structure that i'm using reflects the fact that we completed this bottom formation and it hasn't broken out yet the timing on this can be a

little tricky. going out to the august 6th weekly expiration and i'm selling the 120 and 108 put spread here. even if the stock doesn't quite break out i'm still able to collect premium and when it does break out, that's when i'm likely going to take profit on this collecting 8.50 there on that august $1.20 put while paying $3.60 on that put and over 40% of the vertical width trying to skew the risk/reward in my favor while i wait for this breakout >> carter, do you agree with tony's chart analysis. >> those are great lines meaning the point of a chart is key levels and why those levels are key and do they matter and do they serve as a reference point for the prospects going forward. so, you have a stock that drops 50%. interestingly, this circumstance, and there's about

a 90% correlation with peloton, tesla and the solar stocks meaning great runps and big market beaters that all had great collapsers and all had massive rebounds and these formation typically imply higher prices >>ic mike, what did you make of tony's trade >> i like doing credit spreads particularly when you can collect as much the distance as he is here he was talking about that on the xle trade. this one sets up better, of course the put spread he is selling expires sooner and when we do credit trades, we like to favor nearer dated expirations if we can get them i can't really speak to the valuation conversation here because to me i would have always thought that peloton could faceadditional competition and i'm not convinced that their valuation

is one that we could necessarily get behind that said, this is a brand that people who bought their products historically that has provided longer term tailwinds for high growth and multiple stocks that you might see in other areas obviously, if you're a believer in the name, this is a trade structure that i like. still to come, skew. professor co explains why a short word could have a big impact on how you position your portfolio right now. our website and our newsletter which you could sign up for. we're back in two.

♪ ♪ ♪ ♪

♪ welcome back to "options actions" professor co now thinks it is a time to educate you on skew. mike, take it away >> so when we talk about skew, what we are really talking about is the relative price of 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. and i think we're kind of seeing that right now because oftentimes what you'll see is when skew is elevated, it reflects a heightened sense of anxiety by market participants why is that? they'll elevate the side of puts

against some kind of anticipated decline in market prices what's interesting about that, and right now we are seeing skew levels getting up to the kind of heights we were seeing basically at the height of the pandemic draw down. 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 cost of those put spreads might actually go down rather than up. because the at put levels are staying the same but the out of the money puts are staying at the same price if you're thinking of making a bullish bet, let's walk through a trade example that i saw today that i think is rather interesting. specifically i was looking at a

september and the september $4.10 puts were priced at $7.20. so i could sell those and collect the $7.20 and then use the proceeds of those puts to finance the purchase of the out of the money 446 strike calls. those were $2.40 each. notice i could actually buy three of those for every one down side put that i was selling. sow how does 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. so if the market declines 10%, i would lose about 6.1%. of course, if it stays above that level, i won't lose on those short puts kron on the 446 calls, those are about 4.5% out of the money. if the market rose 10%, i would make about 16.5% in terms of profits. so i have a very asymmetric payoff and that dynamic is created by

the fact that people are paying up to get the downside puts and not so much to get those out of the money calls. in a way we find we can get a call like payoff by doing this so this could be an interesting way to substitute a long exposure in the s&p for the equities that 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 breadth, issue, of late. specifically, major indices aren't making the high the s&p is making. i have a table here, maybe you can look at that 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 dow jones industrial average since may 10th they haven't made a high.

and the russell since march 15th 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 own particular averages, only at 49%. now there are only two instances in the past 15, 20 years where that has happened. you have the s&p making a new high and yet only 50% of the stocks are above their own 50 day one was in december of '99 and the other in june just before the financial debacle so food for thought. >> very interesting table, carter 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 measure whether it's cheap or expensive. but volatility is far more nuanced than that. i think mike's example shows you how he's able to collect so much premium. in this case leveraging 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 underlying volatility surface that you're actually trading when you're trading these options. definitely look into that. as far as carter's comments on the charts, that's why i think this strategy is suitable in this market environment. i've been talking about, the market breadth problem is something that's bee 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 type of 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 trade now that all the opinions are in plus, got a question out there, tweet us at options action, you might just get your answer on air. be back right after this 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. ♪♪

[drum beat and keyboard typing] ♪♪ ♪♪ ♪♪ [keyboard typing] ♪♪ [trumpet] [keyboard typing] ♪ i'd do anything ♪ [ dog stomach grumbling ] ♪ for you dear anything ♪ [ dog stomach grumbling ] follow me. hill's science diet perfection digestion is one of the many 'anythings' petsmart provides. ♪ anything for youuuu!! ♪

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. action." last week tony made a short run at nike ahead of earnings. >> when we look at the chart itself, the stock has largely been trading sideways in the last eight or nine months or so and break support levels around $130 but more importantly relative to its sector the consumer and discretionary sector nike is starting to break below some significant support levels here. 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 $6.25 for the august 130 puts and selling the june 25 weekly options for about $1.24.

net net here i'm paying about $5 >> on earnings, the stock spiked to a new high. tony, though, you say you can still continue down this path. how? >> yeah. so 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 123 puts and hold on to the august 130 puts and see if there is a significant down draft here through the next few months through the august expiration. >> up 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.

visit tdameritrade.com/learn ♪ (announcer) carvana's had a lot of firsts. 100% online car buying. visit tdameritrade.com/learn 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.

♪♪ ♪♪ ♪♪ welcome back to "options action." time to take your tweets our first viewer writes, i believe the dollar will continue to gain, i was looking at uup selling the jan $26 call and buying the jan 21st call for the cost of about a share. mike, what are your thoughts >> i like the fact that you're

looking out fairly far to purchase calls to make a bullish bet that's true whether it's uup or anything else however when you're using spread you want might want to look shorter dated. i might buy that 25 stock call and then possibly look for something near dated against it. >> our next viewer asks, i own virgin galactic shares and i'm thinking of writing a covered call any suggestions? current bid $16.22 thanks in advance. tony, take this one. >> i think this is a great time to consider selling covered calls. the challenge is finding stock prices that are high enough. the only expiration that i was able to find was going out to july i would go to that 105, even 115 strike to look at covered calls opportunities on a stock like virgin galactic that's this volatile >> carter, what do you make of the chart here after a 38% spike?

>> that's just it, a 38% spike, they don't happen out of nowhere. and how about this, the entire float turned over today. you're talking a volume of 260 million shares i think it goes higher >> all right quick final call, tony, what do you say? >> peloton higher. selling a quit credit spread >> mike, quick >> risk reversal the following is a presentation sponsored by trusted luminess. ♪ if i could turn back time. ♪ - do you want to turn back time 10, 20, even 30 years? ♪ if i could find a way. ♪ - i am 52 years old. i look better than i have ever looked. - want a seemingly erase years of visible aging ♪ you'd stay. ♪ so you can look years younger fast? now you can turn back time to look years younger fast instantly with the newest, best ever luminess with its acclaimed silk foundation.