♪♪ >> well, it's the first friday after the olympics and it is time for options action. back to you. tonight carter is calling an intermediate cap in commodities. but he and mike have a way to play catch up. and could help you keep your selves stocked through the consumer section contagion doest ammic markets are rising while oil is stalling. crude is not the only cud mawty that's found its near term

ceiling. carter, what do you see? >> before we get to charts it's important to think we really had a blow off this weekend collapsed. ukraine is a big wheat producer. oil a big sort of spike high and closed very poorly gold and other commodities as well. so the first chart, this is bloomberg commodity index. and it has iron ore and hogs, cotton, sugar and so forth, wheat. now, second chart. this is the exact same chart, but this is from the covid low, a perfect angle andlike a pin ball every time it hits the bottom it's fast and the top it's stale and final chart is the gsci

index. in this case it blew through the top of the channel and is now falling back we want to be fading this move if you're long list take profits, if you're a short seller sell short. >> all right, well, we've got mike on the fun because of technical issues with the camera what is the trade here >> the first thing i would say is that carter has made some phenomenal calls over the last several weeks and made calls in wheat, corn, silver and gold and oil. and all of those prove to be quite prescient. so i wouldn't be inclieped to bet against him. what we saw yesterday in crude oil was very close to one of the more bear signals you could see, and that was one of those situations where you see gas higher on the open and close

lower. it was higher than it fell below the prior close and then did recover to be slightly higher. but longer data crude futures actually did see that pattern. we saw the december crude future, for example, gap fire, trade to highs then fall about 9% and close lower day over day. and to me that definitely looks like something you want to fade. so, you know, one of the ways you could potentially play this if you're looking just to make a general move on commodities, the s&p commodity indexed trust. this was a different etf because it has about $2 billion worth of market cap it doesn't trade a whole lot of options, but i was taking a look at it and the options prices actually seem quite reason it's about a dime wide and a couple hundred up. so when you're looking at a situation like this where you want to put a trade on in something but it doesn't necessarily have a tremendous

amount of volume that's one of the things you want to do. observe the spread this is a situation i'm not expecting huge moves to the down side the termed structure of volatility, that is the price options are inverted i was looking at a down side put calender spread, specifically looking at selling the april 19 puts to collect about 40 cents for those and buying the much longer july 19 puts for about 85 cents. the total risk on this trade is 45 cents the idea is they'll achieve max profits. if this etf migrates down the spread which would be a decline of about 5% or a little bit more from today it was closing price. >> what do you think of this trade? >> yes as carter said gsg covers a wide

variety of commodities oil is quite exhaustive here to the up side. it's trading against that trend line there's probably a higher probability you see a decline here in oil, but i will say the biggest risk here is geopolitical on the oil front and could potentially see some higher prices if things start to escalate further but that's really why i think using a put spreader or using an options strategy like mike is using is the ideal strategy. now, when you have a put calender like this the tricky part is picking the strike prices it has a risk profile similar to selling but it has a limited risk so it has the benefit of that. however, when you think about which strike prices to choose you have to pinpoint where you think the etf will end by april. if you look what mike has chosen that's about a 25 delta. i think right now that 18, 19 strike is really where i would

choose to see that move here to the down side. and i think 19 is a pretty good strike price to choose as to a conservative estimate as to where the etf will trade down to by that april expiration, getting you to about 1.5 to 1 risk reward ratio. very good way in my opinion to play to a down side move in commodities. >> is the oil chart virtually the same >> well, if you see the difference between the actual bloomberg commodity index and the gsg etf, in the index, it's a function of the waiting. in the broad index oil is broad 16, gnat gas is 9. so energy 25 versus a 16% wait in the etf oil not good

well from commodities to retail consumer related names also facing increased head winds. like many of his cohorts tjx trying to bounce back a rough couple of months tony says this name could actually be on sale. tony, what are you doing >> yes, it's exactly right i think it is on sale. they recently just reported earnings, and if we look at the chart here especially the longer term chart this is a stock that broke out the $63 level back in november 2020 and it's been really range bound about 74 or so to the up side. but one of the things you can see if you look at the relative chart of tjx to its xrt sector we started to see some real out-performance here back in december last year, and continued into the strength into the market weakness we've seen for the last couple of weeks this is where i'm starting to

see opportunity for a bounce here off that support level it's now trading at with the relative performance we've seen to its sector if we look at the business itself it's now trading about 15 times next year's earnings given the current revenue growth we've seen over the past year or so, that's a significant discount to the 22 times which is the average we've seen over the last five years or so. so that's a significant discount as we talk about buying this at a sale or cheaper price. i think given the fact the amount of cash they generate and the fact they're able to return quite a bit of cash in the form of dividend and share repurchasing, this is an option opportunity to get into tjx at these levels so i'm going to use a simple strad structure by going out to april and buying the 6572.5 call spread here, collecting about 65 cents for that 72.5 call net net here i'm paying uabout

2.65 >> is it a stand out amongst its retail peers >> well, let's see, day to day it bounlsed beautifully. and yet on its earnings it collapsed 8, 9%, so the recovery is that the primary data point or the gap in its earnings look, there's so many bad ones in consumer. renta center earlier this week i just don't like the space. >> that's pretty definitive. mike, how about you? >> it's interesting. we've seen some pretty good operating results out of a number of the retailers and yet several of them are not behaving particularly well.

i think that's a bit troubling, but i think that also speaks a bit to the options structure that tony has selected if you went out and simply purchased the stock, obviously you face the risk of the stock declining precipitously. by using a call spread you're limiting that down side risk to just a fraction of the current stock price. i think that's actually the kind of strategy one wants to use at the time because i still believe we have trouble ahead not just in retail but generally. >> tony, last word >> yeah, i understand the risks, and that's part of why we're using an options street, but i do think tjx is a little different than other retailers it's a retailer that tends to do a little better. still to come claim jumping, commodities are such a big deal this week, so we're digging deeper into the sector and for all things options action check out our website, sign-up for our newsletter and

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♪ ♪ ♪ ♪ ♪ welcome back to options action last block carter highlighted what's broadly looking like an intermediate cap the space is comprised of so many disparate intermediate names some are playing catch up to the rest.

mike, which one? >> as you just pointed out we obviously saw a lot of weakness in commodities generally today but there was a rare bright spot and that was copper. copper actually closed higher on the day while many other commodities closed lower the other thing i would point out is that not an unreasonable valuation where it currently stands the street is looking for about 37% growth and substantial growth in terms of net income year on year so i think this is one of those situations where we can basically take a contrarian commodity view simply because it's a little bit more idiosyncratic. we obviously a lot of support for copper as well because we've got things like infrastructure going on i don't mind playing to the up side that said, this is a stock that has had a fairly good rally of late so i'm trying to find an options structure here which will allow me to play for some up side,

realize there's actually some fairly expensive options and try to mitigate my immediate down side exposure in the event that it does pull back after that rally we've seen and what i was looking at is a form of a calender spread. it's essentially a diagonal call spread risk reversal going out to may when i was looking at those earlier today those cost about $3.85, and then i was going to sell a nearer data strangle against it, specifically the march 41, 51 strangle. i'd be selling the march 41 puts, also selling the march 51 calls. put together i could collect nearly a dollar for those two options put together that mitigated the expense quite considerably now, consider what my exposure is between now and march 18th exploration. free port would have to fall

below that $41 put strike for me to have the stock put to me. that's a decline from where the stock was trading when i was looking at this earlier today. on the other side i have up side of about 10% if the stock should rally. and of course if this march comes and goes and the stock is between that, i could look either to sell some additional premium against it, or if i've seen some profits potentially roll my longer dated option. >> carter, i know earlier today you published a note saying ready to launch on this one, so what do you like about the chart? >> the charts are -- well, the setup is good. let's have a look. so the first i have here is a comparative chart, and what we're looking at is that i shares commodity etf gsg on a one year basis relative to copper it's up 1% on the index, copper is up 5. this has been a real laggard and i think that's the opportunity

let's talk about freeport, three charts in a row that are identical. the first of three this is a 60-minute bar chart and goes back about three months you see that head and shoulders bottom back in mid-january look at the next way to draw the lines. you can call this cup and hill, doesn't matter what you call it. look at the next lines, it toys with the prospects of breaking out. and you'll see that here in the third iteration. the question is the final chart is the longer term chart and this is the issue. the stock closed today at $46.34 its high on may 10th in that chart of 2021 was 2610, closed 20 cents above where we were in may. it has done nothing in year and that's the potential major break out candidate.

we have some news on starbucks. >> a third starbucks store in mesa, arizona has voted to form a union with starbucks workers united the vote was 25 in favor of unionizing, 3 against. this vote count was delayed by several days after a starbucks challenge and the company has another ten days to challenge these results, and then the union will be moved to certified. this marks the third store that has now voted to unionize in the last two months, out a total of four we're still awaiting the count of two more stores in the buffalo area as well now, there are many other stores and states awaiting a vote the union says now 103 stores and 26 states have so far petitioned the mlrb for a vote starbucks has said they'll handle these on a store by store basis when it comes to contract negotiations and a reminder the workers that did unionize can move to decertify the union in about a year if they are not happy with the results they're getting. melissa, back over to you.

>> kate, just quickly you hear this and assume that means higher wages, higher wage costs for starbucks. is that the case should we make that assumption >> well, and sfar bux remember has already been increasing wages. that's something they announced earlier this fall after the initial union push began, so i think that is something safe to assume they've built into their cost model here. as we mentioned starbucks store by store negotiation tactics means it'll take time to reach critical mass, but it is something to watch because it's definitely spreading quickly and many of these stores are seeking to unionize and this is quite a landslide for the union, 25 for, 3 against. >> what do you make of this news >> yeah, i mean the issue i have with starbucks and kate kind of put it to us here mentioning it's going to take some time to play out its valuation relative it's

trading a couple of terms older. this is a good performer and they do have historically good margins and i expect them to continue but i don't see a whole lot of up side in it right now, and i think the charts and we probably should hear from carter it hasn't performed very well at all in the midst of this news. >> carter, quick take on the chart here >> it hasn't performed and then there's the commodity issue, right? coffee is through the roof and that goes to margins >> up next, you've got a lot of big questions for this big trading week so we're going to answer your tweets don't go anywhere. much more options action right after this

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myself yesterday, and it's a great way to take a lower risk approach when playing for a bounce on fdx. >> our next viewer asks i'm looking for an options strategy relatively safe for passive income what strategy do you recommend mike >> well, thank you for the academic promotion i just received well, here's the thing you can generate income using options, you need to sell premium and if you're going to do that against stocks you own selling covered calls is a good stratanying. don't do that on high volatility stocks try to avoid big catalysts if you can. this is not a strategy for growth stocks but more of your steady holding, but also manage them carefully you see the stock starting to run through your short strike be sure to adjust up and out. all right, our next viewer is focused on the near term carter >> i'm looking at them all the time, every 6 seconds. but, anyway, here's the deal

that's a very specific time frame. the last six weeks have been a doozy. i would make the following odds that six weeks from now the odds of being up are 10%, 15% the odds of being down 25. >> really? tony, where would you put the odds >> so right now i do think we've put in an intermediate bottom on equities specifically 6 to 8 weeks out i agree with carter. i don't know the odds are higher in my camp but i certainly agree it's higher odds markets are lower than they are higher >> and mike, i'm assuming you think the same, odds are lower >> i alluded to that we've seen the geopolitical risks we face. we have the risks of what the fed may do if we get even worse inflation data than we've already seen, and we've gotten a good bounce here i think people can take advantage of that if you fail to

reduce beforehand. you have an opportunity to do so now. >> let's quickly get to this last one our last viewer is revisiting a past trade and along the 2023 50 calls and later exited around 53-50 and i'm thinking about getting back into those calls again as a stock replacement so, mike, what do you say? >> so certainly as a stock replacement i like options and the complexity they present, so i like it for that reason. also you talked about selling some up side calls against the longer dated ones you own. that's kind of longer form of a buy right or covered right kind of like what we were talking about in the response to the first tweet. as a way to generate some income or offset i like the strategy. >> all right, up next, final call ♪♪

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