you're focused on the folks that are bringing in the dollars. but you also gotta develop and incubate that next group. you have to give them a path that's attainable, because otherwise they're gonna stay hungry or they're gonna leave. it's friday and it's time for options action here's what's coming up. >> in the market with still more questions than answers, carter continues his offensive, defensive series with another health care haven that just hit a 52-week high then, tony is looking at a homebuilder that could be a discounted catch-up to a larger macro rotation finally not everything that bounces back is worth holding onto mike is hedging one specific sector that's traveling out of

step with its own history. it's time to risk less to make more options action starts right now. >> let's get right to it despite the market's winning week investors are still facing many large unknown and continuing its offensive, defensive team just like unh last week. he's continuing to favor the health care sector for best bets what was next here >> we're looking at a name in particular participate in market up side but has some down side protections, so just as united health care but first i want to look at sector charts, the health care sector relative to the markets. we're looking at the sector's relative performance depicted in one line that looks totally random. now, that line -- remember where that line is drawn

that's late november look at the next chart now that lie is the trend line that's been in effect for the past 15, 18 years. so we're looking at the relative performance line of health care to the s&p, and has bounced off that trend line to the penny repeatedly let's look at the next chart this is the all data chart going back to the beginning of the s&p sectors as we know them now to 1989 every single time the relative performance line has come down to this trend line it has bounced and bounced again in the november four months ago and it's been out-performance ever since. now lilly, final chart what we have is a strong stock that just now is moving out of a range it's been mired in for six months and we could say, well, aren't we chasing this?

here's the thing, well, lilly has underperformed the health care sector going back to the sector in 1989 so you have a marking in that's underperformed its sector long-term that's outperforming right now. that's a good setup later. >> all right, carter mike, what's a trade here? >> yeah, so i mean there's several things i like about lily and things that worry me a little bit let's start with the things i like first of all what's going on with the drug side which is the business they're in, they have some very promising stuff going on in the diabetes area and in fact some drugs being released midyear, this year and that's obviously a huge market segment. delaying the filing of their alzheimer's drugs but also have another drug a lot of these things represent

some potential growth in the future and that's obviously positive the thing is a lot of that is also priced in the company is 32 times full year earnings for 2022, just under 30 times 2023's $9.72 a share. and this one is trading at all-time highs i think there is some fundamental back story to the strengthen we're seeing right now in the price action. but in a way that we can take a bullish bet but mitigate the risk of a potential pull back i was looking at the may 290 calls. obviously a way to get into it if you were looking for a way to get in but considerably less than the $225 or so than what the stock was trading at at the end of close

>> what's your take on the trade and what's your take on lilly? >> from the chart's perspective i think you have the hallmarks of what is considered a great technical setup. when you look at the relative terms, not only is the sector outperforming the market, the stock is outperforming its sector, so you really have everything you're looking for from a technical perspective, but i share the concerns mike has. you have a revenue growth that's flat the next couple of years. and when you're trading at those 27 next time year's earnings these are some of the concerns i have from a valuations perspective, but that's exactly why using a debit spread that mike is using is the only way i think is worth trying to play this potential break out when you use a debit spread like this, it's one of the most capital efficient ways to take

exposure and by using a debit spread here where he's paying about 30% of the verticals with, he has a risk reward almost 2-1, almost better 2-1 if eli lilly does break out. >> carter, final word here on this trade >> right, valuation is always important, and yet valuation is not a timing tool. let's play the chart >> okay. from health care to home builders the xhb home builders etf on shaky foundation in the last few months but tony is laying uta trade on one name that could construct some gains tony, take it away >> yeah, exactly home builders have lagged behind but i think that's the opportunity here if we first take a look at a chart here which is the home builders etf relative to the market and industrial sector we see home builders has

outperformed both sense the pandemic by nearly double, but we really have seen home builders struggle here for the last six months or so. as we start to see a silent rotation into industrials over the past month or so i think this is an opportunity for home builders to pay a bit of catch-up, and there's quite a few different names or ways you could play this. it is by far the most liquid from an options perspective. and despite a strong year from both a profit and revenue growth perspective, we're back at that $80 level, so i think right now the timing is specifically great for a long exposure from a risk reward perspective and if you consider the housing market right now, there's certainly a sheer number of -- of risks that i currently see here whether you're talking about potential recession coming up, rising interest rates and even inflation, these are all head winds for this particular

industry but when you consider the valuations that dr horton is currently trading at, that's how i get comfortable take on the risk of this particular sector when i look at the trade structure here i'm using one similar to mike on eli lilly i'm spending about $4.72 for that may $85 call and collecting about $$11.17 for that call that's just about 4% of the underlying stock's value and give me, again, about a 2-1 risk reward ratio if we see it resume back towards its recent highs around $100 or so. >> mike, what's your take on this trade do you like home builders here >> yeah, first of all demand for housing remains quite high, and

the pace of anticipated rate hikes is relatively low and relatively slow. in fact, i would argue it is too low and too slow but if you're a borrower, i suppose, that's a good thing now, just in terms of the trade i want people to sort of think about this when you buy a debit call spread, and tony has chosen the same structure that i selected in lilly, this would be comparable if you already owned the stock, to owning a down side put at the 87 1/2 strike and selling the up side call, i mean the essentially a stock position when you consider where we are right now, i think that's a position that makes a lot of sense. options premiums aren't really cheap. we've had some very shaky ground recently and not to mention what

7.5% below the highs today but this is one of those areas where valuation i think does lend itself to potentially getting into the names so i like the structure and i do like the space >> so the man who says forget about valuation, look at the carts, carter. what do you see in the charts for dr horton, and does it stand out in any way versus other home builders >> not so much a couple of things, relative performance, relative strengths, it's very poor compared to consumer discretion in the sector that's core to the market we also know one year ago a 30-year fixed mortgage at 2.8. they're now at 4.5 my hunch is it doesn't have a lot of down side but it doesn't have a lot of up side. this sector, this area, this stock about where it belongs >> all right, for everything options action check out our website and sign-up for our

newsletter here's what's coming up next still to come, as professor often remind us, you buy insurance before the house burns down he's hedging one major sector that could seen see its recent bounce back extinguished plus calling all options action fans reach into your pocket, grab your phone and tweet us your question at options action if it's nice, we'll answer it on-air, when options action returns. thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪

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welcome back to options action, the slf financial etf has rebounded sharply during the last few weeks not quite an all clear for the space because there's a lot of nuance under the surface here. professor khouw is getting to it once again you buy insurance when you can, not when you have to mike, explain. >> yeah, i mean it does very little good if your neighbor comes to you when your house is burning down and says you might want to think about getting some insurance. of course when you're already in trouble you know that full well. the time to buy insurance, of course, is when things are looking pretty good. it's going to cost you less, and the protection it's going to afford you and significantly greater. now, i know that financials were basically one of the favorite

sectors for full year 2022, and in fact if you'd ask me six months ago probably would have been one of the things i had set. net of the big rally we've seen this week, i think we need to put things in perspective. first of all, rates are very low. and one of the things people talked about as a reason to buy financials, they were talking about expanding net interest margins as an example how financial could see greater profits if interest rates rose while that's true it doesn't necessarily correspond to higher share prices the other thing i would point out is that the pace of rate increases is looking incredibly modest especially when you consider our most recent inflation data is looking like 8%, and here we are hiking 25 basis points at a time, which i have to say is really probably a joke it just is not very effective, and that could potentially mean we're dealing with a

stagflationary environment where we have inflation essentially exceeding the face of economic probe. and one other quick point i'm going to make is when we think about rising rates we also need to talk multiples. the other thing we need to talk about is financial assets. when rates rise what happens to the value of a financial asset that is paying you fixed amounts of money over time the longer that period of time, the higher the duration, the worst it's going to be and the lower rates aren't where you start from none of those things really get talked about that much, but that is a potential area of weakness when we look at the space. i think when we take a look at the rally we saw this week, that's an opportunity to potentially hedge.

normally, when i'm looking at vertical spreads i'm looking to spend 25% on the foot spreads. and oftentimes you can get that. part of the reason this was a little bit more this was actually slightly in the money when i was looking at this today. still to pay off better 2-1 if we see further decline in the future after this nice bounce we've seen in the space. i think that's an opportunity to put a hedge on it, frankly >> carter, what's your take here >> well, i would characterize it simply as a rally to a difficult level, but let's look at a table or two and then one chart. so the sector, it's important to say this, right, financials it's the lifeblood of the system the big banks, the economy but it's 67 stocks in total, 4.6 trillion, and it's 11% of the s&p. but here's the thing, next slide, the biggest names and

berkshire is the biggest of all. 14 almost 15%, top five stocks at 40% when we make it down the sector we're often the case making a bet on just a handful of names but finally look at the chart. if there ever were a pair of twos this is one-year chart. that line drawn is the actual midpoint of all the trading over the past 12 months so we have a 52-week of $41.50 and we're right at the midpoint to take measures and look into insurance. >> tony, what are your thoughts on the sector? >> i think nuance is the right word here. because if you look at xlf it is a very broad etf with a huge number of subindustries within them and two are important to opponent out one is asset managers. you have declining asset prices going to put a fairly significant limit in terms of the up side for these asset managers, but the big banks, not

only is interest rates what we should be looking at but really the curve of the interest rates. and we see a flattening rate curve. we have a spread between the 2 and 10 year, a spread between the 5 and 10 year. that's going to put down side pressure on net interest margin that mike was referring to so when you consider that, you know, i think the up side here for xlf is extremely limited and worst-case scenario you could see this heading significantly lower especially in the inflationary environment we're heading towards. so as you take a look at the put debit spread mike is looking at, what's quite interesting about xlf right now as he said because things are calm the implied volatility of xlf is quite low at 19% so he's actually able to buy in at the money strike price, the $39 strike price on xlf for a relatively cheap price and only spending about 30% of the vertical spread. normally when we look at these types of hedges we usually buy

an out of the money option to do so so by using an at the money option he has a higher delta he's getting better protection for a relatively cheap price with a 2-1 risk reward ratio if xlf does decline down. up next we're mowing into a trade that is near and dear to our hearts options actions back in 2.

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so we gave 'em thinkorswim® web. because platforms this innovative aren't just made for traders -they're made by them. thinkorswim® by td ameritrade welcome back to options action last week carter and mike laid out a way to play deere. >> the stock has been resting for a year it is exactly the same price as it was 12 months ago in fact march 18th of 2021 it was at $3.92, and here we are march 11, 2022 it is $3.89 and ready to break out. >> i was look at the april 420 calls. you could sell those for $5.70 you want to keep that expiration relatively near, you want to collect in general 1% of the current stock price. >> there isn't a lot of time left on this trade, but the

stock has already hit a new all-time high. that prompted one of you to ask i put on the deere buy right last week. with the stockmoving quickly higher is it time to rollout of the 430 calls to higher ground so, mike, how do you manage this one? >> yeah, that's a really good question so this is a situation where typically where you do a buy right your hope is that the stock rallies to that short strike in this case the stock is up more than 12% in a very short period of time, still not to the point we're short. the stock is up materially, i think we closed close to $1400 a share or something like that that call option which we sold for $5.70 was about ten as of the end of the day you could consider rolling that strike up if you choose. here's what's going on is as we approach that strike the up side of this trade as the diagram shows us is essentially capped if we roll that, we are going to

pay a small penalty in terms of paying $10 for that call, but we will give ourselves a little more up side usually, though, when i do that i like to extend the life of the trade so it's about the same length of time as what i put on originally to that case we're probably going out to month end, april or even possibly to may expiration. >> is there more up side to this strike, carter >> sure if the concept of the break out is the precondition is a long, sideways period. once you start to break out there's only a session one or twor, it usually is not contained to two, two, three sessions it's something that goes on for weeks or months. up next we have your tweets and final call ♪♪

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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. ♪♪ welcome back to options action we've got time for a tweet one viewer asks what's your take on metals mining

tony, you want to take that one? >> yeah, so my view is fairly simply i think the therationary forces driving these stocks higher is not over so i think my view is to remain long >> carter, how do the charts look on this >> well, the spider xme is up 50% in four weeks. i think it's where you want to be long but you want to be selling premium at calls written against it >> is that the way you'd approach it, mike? >> i mean, we do see -- when you start seeing these kinds of moves in commodities to the up side you'll start seeing increases in volatility. i think that probably makes some sense. also if you think the rally is starting to get exhausted that's a trade you might want to take a look at. >> time for the final call what do you say? >> health care generally eli lilly specifically on the long

side >> i also like debit spreads, call debit spreads in the case of lilly and put debit spreads in xlf >> that does it for us on options action be back here at 5:30 meantime don't go anywhere mad money with jim cramer starts right now. - [presenter] the following is a presentation sponsored by trusted luminess. - i have a lot of problem spots, redness, fine lines, dark spots. and now with the breeze, all that's changed. the breeze advanced foundation is amazing. it gives you skincare and makeup all in one. it's like a thin veil, but it has extraordinary coverage. at my age, all the other makeups made me look older. it was uneven, you'd have to layer them yourself. it never quite came out the way i wanted it to. the great thing about the breeze is it does your blending for you. i love the way the luminess smooths out my rough skin texture.