produced back in the day. who would've guessed they'd still be building the mustang 50 years later? so as fun as those days were, the best days are still to come. >> legacy is still here. >> legacy is still here. [screams] it's friday before the fourth of july "options action" starts right now. here's what's coming up. >> with the vix new lows and the nasdaq 100 approaching a rarely seen inflection point, carter worth guides you through a window of opportunity. then, from windows to floors, charlie zang is looking to play an opportunity in a name we don't cover very often in a very specific sub sector of housing. finally we know you'll probably be on vacation next

week, so professor coe is getting you set now because the early bird gets the income it's time to risk less and make more the vix just hit new lows and now the nasdaq is behaving in a way that's only happened a handful of times in history. carter worth explains why that is important right now >> you bet, unusual circumstance indeed, which is to say you can go up two weeks in a row or three. the qqq or the knnasdaq 100 up seven weeks in a row we're going to look at what happens thereafter and why one can say it's not really statistics, it's just data mining the facts are the facts and we're going to look at them together the nasdaq 100 this is weekly bars and what we have now is an assent of seven consecutive weeks. if you look at the next slide or

table, you'll see just what exactly this is in the context of history, so this has happened 17 other times this is the 18th instance or circumstance where seven consecutive weekly advances. the nasdaq 100 goes back to february of 1985 if you were to take all rolling seven-week periods, you've got 1,894 of them. you divide that of course, it's an incident rate of less than 1% the real question is what has happened thereafter? interestingly, the market is up, albeit sort of in a slight way take a look at the next table. what we have here is looking out to week eight, next week week nine, week ten. the median and mean gain you can see in the table there, while not all that robust, it is up, and the odds of being up are substantially, well, above average next week and then it becomes 50/50 thereafter

so the issue here is is it right to maybe trim a little bit or sell some premium or take some measures or stay for a little bit more all of that is fair, final chart. here is the nasdaq 100 with its 100-day moving average it's balanced to the penny twice in the last six months we now have made slightly new highs as the mid cap and the russell have not. >> thank you for that, carter. mike, what do you do here? >> as carted pointed out, and as you just mentioned, the vix has hit a post-pandemic low. so we traded around 14.5 in the vix today. to put things in perspective, the 150-day moving average for the vix at the end of 2019 was over 15, right so that should just give us some context that we are now entering a level of market complacency, at least as it's implied by options premiums looking out 30

days on the s&p 500 that we haven't seen since well before the pandemic a and what's interesting to remember when you have a circumstance like this, that of course there is information contained in that. right now basically those markets are telling you we've been in a low volatility environment and that we should expect one, at least for the near term. if you have a market that you feel is beginning to get extended, if you are identifying the fact that options premium have declined, there are ways you can try to take advantage of that i think one of those ways, if you're invested, is to say maybe this tactically a decent time to contemplate putting on a hedge the hedge that i was looking at specifically referencing the nasdaq 100 and the qqqs that carter was talking about is the september 355, 350 put spread. the 355s were about 1089, the 330s were about 460.

net net, you're spending 5.90 for simplicity that's a little over 1.6% over the current level of the qqqs. you can use that whether you happen to hold qqqs or whether you hold the key constituents, and essentially you're going to be spending 1.6% to get protection down nearly 8% or so. i think that's one of the things that you can do. look, hedging all the time is expensive. if you had to pay 1.6% of your portfolio value every six months that would drag on your returns very heavily if you're doing it after you've seen all time highs and a two-month stretch of gains, maybe that's a better time to take a look at it. >> tony, what do you think >> the trades with these types of hedges, the trickiest thing is always the timing aspect of it mike last week spoke about the skew index, talking about the skew we're seeing from options prices that's certainly very elevated,

historical record highs we've seen that shows us while the potential pullbacks are relatively elevated it doesn't necessarily mean they're probable if you look at the vix and the vol q, both of those made a two-week low today if you look at the vix term structure, the three-month vix versus the front month vix the three-month vix is elevated at 19% that ratio of over 1.3% shows that the markets are further complacent you have a lot of evidence that there's a lot of complacency, and this, again, talks to the fact that there's a more elevated probability of a pullback but not necessarily a probable one, and that's what makes a put spread like this the right trade to make to potentially hedge. as mike said, he's only risking 1.6% of the ets value to put on this hedge what that means is that between now and september, if the markets continue to rise another 5, 10%, you're only taking out

about 1.6% out of that gain, so you're not giving up upside in exchange for this downside protection i think it's a great way to protect a portfolio against short-term volatility that could materialize over the next couple of months. >> two quick things i would add tho that he was talking about the term structure, that actually is a fairly common thing we see generally speaking you're going to find that the premium for options beyond labor day are going to be higher than those that run through the end of the summer september, a lot of people think of october as being a highly volatile month historically september is as well oftentimes is it because people are coming back from the beach, yoen what the reason is. seasonally we do tend to see more volatility in the september time frame than you do in july and august i think it's justifiable, and this also of course gives us some time on our hedge in the event that we continue to see the meltup that we have been

seeing. >> tony is also seeing a rare opportunity we rarely talk about and it's in plain sight right under your nose or maybe your feet tony, what is it >> yeah, so the stock that i want to take a look at here is mohawk, a stock that we usually don't think of much within the homebuilder, they're the maker of carpet and flooring if we look at the chart for mo mohawk, a long-term chart, you see that $175 represents a fairly significant support level that broke below that in about 2018 we finally got back above it here in march, and after breaking above it, we've come back to retest this level as support and bounced higher this is the opportunity that i see for substantially further upside, especially if you look at the long-term charts. if you zoom into the short-term charts here, recently we've seen about a 25% pullback in the past two months, and recently we just broke out above that bearish trend line i do think on the short-term

charts you have the timing for further upside here. and then when you look at the business itself, this is really where i think this is quite interesting. you know, you have a company that's growing revenues about 15% this year and it still trades at about 15 times er earnings which i think is relatively inexpensive considering the business -- this is a business that i think should be trading closer to 17 to 18 times earnings, somewhere around the $230 mark the trade structure i'm using reflects what i believe is a stock that's oversold but still fundamentally sound and relatively inexpensive is to go out to august and i'm buying the 195, 220 call debit spread here paying about $11.20 for that august 195 call option and collecting about $2.90 for that august 220 paying net net here about $8.30 which is about 4% of the underlying stock price betting that this will rally

back up to the recent highs around 230 or so >> carter, what do you make of the charts do you see that rally coming >> right, so what's interesting is where the stock stopped and pivoted just recently is right off the 150 day moving average, that's an important circumstance, which is to say if garp has a certain look, if you will, this is stock that's been prospering since the market low and it's had a pretty mean selloff. the decline at 23% is almost double the selloff of the move in homebuilders. so that's the opportunity, right? a stock that really sold off more than its peers, if you will, and now has bounced where it needed to, the 150 moving day average, and in principle has a lot of cyclicality just to put that in context, as a business this stock earned basically 850 in 2004, it earned 850 in 2020 meaning that's a lot of years with not a lot of earnings growth, none, but the

cyclicality means you can have a lot if things continue to progress. >> yeah, i mean, i think one of the important things to take a look at here is, you know, we are at sort of at a crucial point right now. are we in a market that is extended or are we going to continue to see what we have this is a stock that had a recent setback if you're thinking i want to press a bullish bet, i want to do so in a way that limits my risk, that's when you say maybe i'm going to purchase some call options. call options by themselves, trading at about 40% implied volatility is a little pricey. i mean, consider if the vix is 15, this is the equivalent of 40 it's considerably more expensive. that is the reason why tony is looking at a call spread in terms of the trade structure and why you'd be using options then simply going out and purchasing the stock or purchasing a call outright makes a lot of sense to me. >> don't forget we have a website, optionsaction.cnbc.com. first here's what's coming up

next. >> coming up, the professor prepares you for the next earnings semester with a special covered call to action. plus, calling all options action fans, reach into your pocket, grab your phone, and tweet us your ques question @optionsaction. if it's nice, we'll answer it on air when "options action" returns. >> announcer: "options action" is sponsored by think or swim by td ameritrade.

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action." we know you're probably not doing a ton of options trading this holiday week, but two weeks from now is very important, and the best time to prepare is of course now professor khouw explains in a special cover call to action mike, take it away. >> covered calls, we don't talk about them that often. it is actually one of the most common options investment strategy this is an investment strategy rather than trading strategy because what you're going to be doing is selling calls against stocks that you already own. why do people do this? it is essentially to did give themselves an additional source of yield, and that of course can certainly help as bond investors know your investment performance over the long time, and it can also help mute the volatility of your investment performance. and so this is a trade that you typically will do on stocks that you don't think have a massive amount of upside why is that? of course by selling the call, you are going to be foregoing some of that upside.

now, the two-week event that we're talking about of course are a slew of earnings from all of the big financials, goldman, citi, bank, jp morgan, all of these companies are going to begin reporting in a couple of weeks, and this does two things, but one of the more important ones is that it does tend to elevate options premiums in the near-term. so i was taking a look at citi bank and taking a look specifically at the august 6th, 75 strike call the stock was trading about 70 1/2 bucks today. you could have collected about $0.71 if you sold that when i was looking at it earlier today. that's more than 1% of the current stock price. those options expire 35 days from today again, collecting 1%, maybe that doesn't sound so great if you're collecting 1% every 35 days, that actually creates a material amount of yield, and you want to try to take advantage of situations where you have stocks that have had good runs where you think the upside might be a little bit

limited. this is an investment strategy, do this again and again, sometimes it might go through that short strike, sometimes it may not. >> carter you view financials in much the same way as you do energy from last week's show >> that's right. i mean, financials just -- the question is are you getting paid for the risk remember beta adjusted are risk adjusted to really not keep up with the market. it's a problem let's look at a few charts just to put that in context the first is excel f, we know this to be the sector etf. we've broken trend, albeit slightly look at the next chart, this is the exact same time frame and it's basically taking the xlf just before the pandemic hit, so we have a sector that has not recovered on a relative basis to where it was the bottom panel is relative performance to the s&p even as it's made new absolute highs, and then look at citi, the next

chart. i mean, this is sort of really kind of tragic i mean, now you've got a two panel but it's sitting on the top. citi's relative performance to xlf on the bottom, so the final chart, this really is three comparative lines. this tells the whole story citi bank is below where it was before the pandemic. financials as a sector are up 20%. the market's up 40 most big banks like jpmorgan, the kre, they're all well above where they were. what's wrong with citi something must be. >> calling citi tragic, tony, caught my attention. that's for sure, what do you make of mike's take on financials in this strategy? >> yeah, so this is one that i'm somewhat conflicted on when you look at the business itself, citigroup is one i really like. we're expecting about 11% eps growth this year after what has been a flat year last year it trades at a fairly steep discount to its peers. but if the technicals as carter

showed you, they're very poor. there's no way -- there's no other way to put it. you have that fail triple top at $80. that's concerning to me and the fact that it broke below the 100 day moving average is concerning that it's going to continue down to the 150 day moving average. most importantly is that relative chart to the financial sector the underperformance here for this is the reason why i do think mike's strategy of selling a cover call here is the right strategy i think citigroup should be trading back towards 75 to 80. i do think the 75 strike price, which mike's chose is the right strike price that's about a 22 delta. usually when we sell cover calls, i like to go a little lower in terms of deltas because i tend to prioritize capital appreciation of the underlying stock over income, but in this particular case, i do think because of the poor technicals, it makes sense to be a little bit more tactical. choose a higher delta. it's going to collect a little bit more income. 1% of the stock's value in about

30 days or so, that's going to help offset some of that volatility it's going to provide a little bit of downside protection going into earnings. mike, last word. >> you still have about 8% upside in the stock if you do this anyway. i think tim addressed the important point about 30 minutes ago when he talked about the yield curve. if you take a look at the 10s right now, you'd like to see a steep yield kcurve. that's usually a tailwind for financials, we don't see it right now. up next, lost in the amazon? don't worry, your guides are still here with you. we'll explain right after this >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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." this weekend jeff bezos leefs his post at amazon two weeks ago mike and carter went onto a trek into the name. >> now we see of course it's starting to move above the down trend line good setup absolute, interesting development action relative, make your bets ours is long. >> i was looking at the august 3650, 3850, 3950 broken wing call butterfly this isn't a trade we talked a lot about. you'd be buying the 3650 calls selling two of the 3850s and

then buying one of the 3950s >> since then, mike, the stock is almost flat, maybe a little higher so what do you do? >> yeah, i mean, the stock obviously didn't break out at that moment at long last, but this continues to be a name that i like we have still a bit of time to go to expiration we are short options around the ones that we own, ask that's one of the reasons you want to have a spread like this so you get a decay offset we have it i'm going to stay with it. >> let's take some tweets here, our first viewer asks i own the ue january 25 call, was looking to sell the july 3rd call next week is this short dated? >> first of all, july 23rd is three weeks out, not next week, so i don't necessarily think that's too short but generally speaking i like to go about 35 to 40 days out short of data options you're just going to have to manage them more frequently >> mike, your two cents. >> a little bit of calendar

school education there yeah, no, i think that's right selling shorter data options is a trade i generally like i think we did have a bullish trade on the dollar. >> our next viewer asks las vegas sans or disney in the second half of 2021? carter, how do the charts look >> well, dinsney is what i'd cal a pair of twos, its stock going now nowhere. lvs would be the favorite of those two, but caesars even better. >> he pulled a third one out i don't know if that was a choice there, it wasn't. we'll allow it mike khouw, your thoughts. >> one thing i will say is that i think, you know, we don't really know what's shaking up with delta variant and all of that i like disney. i like disney plus i like their diversification of business las vegas sans had a long period of so that might be an

interesting one. >> i certainly think that you have a little bit more leverage from las vegas sans than you have some online betting thrown in there i do think that has in my opinion a little more upside than disney. >> mike, just going back to you in terms of how you might structure a trade here, what would you do seeing that vol volatility is so low and these are definitely reopening plays >> they certainly are, although i will point out that a name like las vegas sands isn't going to enjoy the kind of low options premiums that we see in spy options, in q options and things like that. so actually the trade that tony was talking about earlier in mohawk is the kind of trade that i would use if i was taking a look at las vegas sand a way to offset the fact that implied volatility in that name is a little bit higher. >> it is time now for the final call from the options pits, carter worth, what do you say? >> q's can expect a little bit more on the upside, but it's time to hedge. >> tony zang.

>> carpets and flooring with mohawk, i'm buying a call debit spread. >> mike khouw. >> hedge when you cannot when you have to. i like q put spreads and consider covered calls on stocks that you own. >> that does it for us, have a great july 4th weekend special edition of "fast money" is up next. >> announcer: "options action" is sponsored by think or swim on td ameritrade. 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 ♪

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