in terms of what you gave us, even if at times, i was like, i don't know where this guy's going with all this. i have to say, there's a method to the madness. . it's friday and it's time for options action i'm melissa lee live at the market site in times square. here's what's coming up. first up, taking cues from the qq cues. then did you know the term biotechnology was first coined in 1919? it's been a long time since then but now tony thinks time is right to lay out a long time play in the sector finally, this week's announcement of the tapping of

the strategic petroleum reserve has all sorts of theories flying, but the oil complex is just that, complex before you slide on that slick, professor khouw helps you nav fwat the nuances it's time to risk less to make more options action starts right now. let's get right to it. the nasdaq started off the second quarter on a more positive note than it ended that first one, but one trading session does not a quarter make. carter worth lays out his prospects for big tech what do you see? >> this is where all the innovation is. the nasdaq 100, all the growth, it's what dominates the s&p, and of course it was the winner on the way up, and it's been the loser on the way down. let's look at the charts so the first chart is just the standard two-year default, if you will, with the automated trend line the smoothing mechanism the

150-day average. the up trend and when it's not rising you're not in an up trend. a great ascent, a break in trend and a big one dropping in that high, peaking before the s&p, its low on march 14th and now a 17% ricochet but the ricochet is faltering, and where is it faltering to the penny at the 150-day average so second chart is a longer-term, but the same principle. and this is what is slightly different than the last two times when we broke trend. when we undercut and re-approached it, we went right through it and recovered and seeing the covid plunge and went right back through it but this time we're struggling at it, and that is a very big difference final chart for the qs, this is the entire 2009, 2022 bull

market it's a mathematically perfect 45-degree angle. we've now fallen back into the channel and now rallied. the problem is when you drop 22% and then you ricochet 17, the math leads you only halfway back we've retraced only half of our drop, and ultimately i don't think the drop is likely at an end. >> mike, you've got a bearish trade. what is it >> cites interesting you asked me on monday after apple had announced they were going to be reducing production of the iphone sc, which they were talking about lower than expected demand, whether i thought that was an opportunity to sell apple. i thought it was a data point, but i pointed out that we didn't see necessarily migration away from apple in terms of its market share this wasn't necessarily a situation that we should be

outselling apple and so to a lower margin dwois and later in the week and taiwan semi, which gets almost 26% of its revenues from apple also came out with disappointing news on that front and started talking specifically about slackening demand for smart phones in china, weaker than expected pc demand, continued pressure essentially in the supply chain on cost, which they eventually imagined would be passed onto consumers. now two data points and i've kind of changed my tune on this. the two biggest constituents of the nasdaq 100 in order are apple and microsoft. and collectively they represent about 22.5% of the index and if we start seeing basically broad global slackage of demand about smart phones and pcs and of course the potential to see the push through of increased cost through the supply chain

eventually to customers, who by the way we saw some data this week, might be spending about $5200 more on the average u.s. household year over year due to inflation alone these things start adding up. to me i think this is the time you're going to want to start reducing your disclosure that was about $10 so we'd be spending about a quarter of the distance between the strikes we site that a lot but maybe we can put some other numbers to it to give it some context. that means if it falls about 11% or so you're going to capture about 8% back in terms of the value you're going to get from this, so it's going to mitigate a pretty significant portion of a decline should you get one down around 10 to% 12% i'm not saying that's what's going to happen but as a hedge

or if you happen to think maybe we run out of room to the up side, i kind of feel like we have, this would be a way to play it. >> tony, your take >> yeah, so when you take a look at the qq cue, the rejection here earlier this week of the 370 is critical. we start adding to our short exposure in names like microsoft and apple earlier this week. especially you consider as an options trader this type of market condition allows you to not only use strategies like mike is laying out here with the put debit spread to buy some protection, you can also mitigate the risk of that even further by looking to sell some up side calls especially trading against that 150-day moving average from carter's charts you can get aggressive and use the preme frm from that to buy the put hedges as mike has laid out. if you look at the industries within the technology sector, pretty much across the board you look at semis, you look at computer hardware and software

firms, even pay firms like buy now save later, these are firms starting to rollover the fact mike is able to go all the way out to june giving him protection for 11% for under 3% of the value of a qq cue etf i think speaks to great timing for this particular trade. i would add some up side calls i would sell in addition to also bring in further the cost of that put edge. >> you mention this could be used as a hedge against a long position you cited apple specifically at the top. there's some concern surrounding apple jp morgan highlighted tonight when it took apple off the focus list how does it compare to putting on an apple specific hedge >> that's really an excellent

question now, apple and microsoft, too, to be frank. these are two names that aren't particularly high volatility names relative to some other technology stocks. so the options premiums in those specific names are not going to be quite as expensive. so if you're looking at higher flier type of names, netflix would be an example, tesla an example. this would be a better trade suited to you. if all you happen to have is apple, though, a very similar structure would make a good amount of sense. and it's not going to cost you much more really because those aren't particularly high in implied voltiatilities. >> the group now down 32% over the past year, but tony sees a long-term break out brewing in the biotech space. a lot of investors really want to hear this one, tony how are you playing it >> i think we've seen a lot of constructive here in biotech

the first one we see here is biotech xbi the etf has declined 50% over the last year or so we've completed what you would call an inverted head and shoulders and that's targeted to the up side. if we look at the lines slightly differently what you see is this down trend xbi has currently been in. what we've seen is we've broken above that down trend or that trend line, i that really signals the potential timing here for a constructive bottom here for -- for biotech. and then lastly if we look at biotech relative to the market, spy in this particular case, over the past year this is the under-performance. and what we've seen here is that the relative performance here has not continued to decline over the past two months as we've completed this bottoming formation and touched this trend line as carter would say to the penny. and this is the opportunity that i see as a potential break out here relative the market, and

we've already seen the absolute break out here to the up side. and this is really where the timing for me is critical for a move here in biotech but the tricky part here i think right now is the fact options implied volatility is quite expensive, so if you go out there and buy a call or call spread it's going to cost you quite a bit. and with a name like etf xbi you don't have a name catalyst necessarily on the huridesen with this particular trade i'm choosing to sell options instead going out to the may 13th. i'm selling the 92.5, 85.5 put vertical here. and this reduces my down side risk if xbi continues to move lower, and i'm collecting about 37% of the width and i want to lay out here this is just the start of a

longer-term bullish view here in biotech. if this trade continues to remain constructive and profitable, this is where i'm going to roll some of the profits from the short put spread into buying some call spreads as this trade, especially as xbi starts to break out and move higher. >> carter, what do you see in the charts >> i see exactlythat, meaning speak for me, tony or speak for yourself of course you don't need me to chart for you. that is exactly what's going on, exactly has tony has characterized it remember the x boopgi, of course, is pretty post equal weight what's started to happen is if you compare the xbi which is the spider etf versus the ibb, which is the i shares it's starting to outperform the ibb, so that, too, speaks to breadth in terms of number of stocks participating. it is the textbook beginning of what should be an important

bottom >> all right, so mike, carter given his blessing and how about you? >> i do, too when you're looking at strategies collecting premium, you're trying to benefit from decay these are investment strategies so don't think of this as a one and done trade once you've done this and start to see the momentum build, you're going to do more trades essentially to maintain your thesis and maintain that investment strategy. >> you can check out our website. and while you're there sign-up for our newsletter here's what's coming up next still to come, this week the president announced the largest ever tapping of the nation's strategic petroleum reserve. what that really means a former oil trader himself, he has a strategic plan for you to capit capitalize on it plus calling all options action

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♪ ♪ ♪ ♪ ♪ welcome back to options action this week president biden announced the largest ever release of oil from the

strategic reserve. >> this release of course was then added to later in the week we had canada, mexico, japan and south korea and obviously those european countries that have oil reserves as well saying, of course, they were going to be releasing from their strategic reserves additionally. now, it's i think important for us to think about what the implications are for the oil markets. when we talk about oil we usually think about it as a single price like $100 a barrel. but actually it matters. where's that oil being delivered, i when is it going to be delivered futur future prices for oil often differ marketedly from the spot price of oil what you're doing is significantly increasing near-term supply but assuming you're eventually going to replace those reserves over time, you increase longer-term demand what we have right now in the futures market is a serious case of backwardation, that is to say

the spot market for oil in the near-term futures are trading significantly higher than the longer dated futures what is interesting, too, when we think about energy companies, energy stocks tied to oil they are often even more closely correlated to the longer term price of oil than they are for the short term price and we saw that this week because what happened? the near dated prices for oil fell, longer dated prices rose and what happened to xle today it rose. >> so carter, what do the charts tell you >> right, let's look at the crude chart and then single out. crude itself what we know of course we have something of a blow off on the front contract in six sessions essentially we went from $90 a barrel to $130, 45% in six days. news related of course, ukraine. and then it collapsed back to essentially 99, 100, and we're sitting here my hunch is that we fall back

into this formation, the formission that preceded the blow off but let's talk about it, this is comparative chart all data halliburton versus the energy sector, up half as much, trailing considerably. and yet this is important it's starting to outperform let's look at a few here and now charts the first over the past three years. the down trend has clearly come and gone you can see no longer a down trend. next chart in an up trend. a little backing and filling is perfectly normal if you see where we are on the final chart this shows 150-day moving average, and i guess one more, where the overhead supply is so we've recovered to a level where there is sort of memory, people who bought poorly who are now just getting their money back so there's nothing wrong with backing and filling here, but for halliburton itself it's so

far below its highs. >> what's your trade on hal? >> so people who have watched this show for a length of time probably know i've liked halliburton for a long time. before the news before the releases came out earlier this week i actually paired my position i sold about 40% of it, and then i started writing some up side calls ens fw it and selling some down side puts against it, the idea being if it rallied considerably more, i'd be willing to sell it at the higher price. but if it starts to descend again because i am a long-term holder, i would start adding back some of my positions through those short puts if you don't happen to hold halliburton shares yourself how might you use options to get a position that looks a little bit like the one i hold? and what i was looking at was the may 35, 39, 42 call spread

risk reversal. when i was looking at this earlier today those may 39 calls cost about 2.5 and the 35 puts and calls could each be sold for a 1.25 you'd have participation from here up to that short call strike so you'd get probably 8% to the up side between now and may. and then of course if the stock does fall you'd actually put the stock at that lower strike price, but that, too, is going to represent a fairly good-sized discount, maybe 10% or so from where the stock was trading when i was taking a look at this. and that position is remarkably similar to the one i essentially legged into from my long stock position >> tony, do you like this trade structure? >> so this structure is interesting at a call spread risk reversal. you're basically buying an up side call spread, but normally

you have to pay 3% to 5% of the stock's value to do so here you're effectively getting that for free by selling that down side put. you're adding that obligation to get this call spread for free. now i like this type of trade stuckture, but i personally am not a buyer. i think you have some momentum here i would just buy the call spread i would personally not take on the risk of buying the stock at 35 by selling that down side put. up next we're taking a look back on a semistock trade from last week. if you missed your chance to cash in right after how should you play the chip maker now. do not go anywhere, more options action in two.

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it's headed for a break out. >> the closest i could find at the money call option was the 77.5 calls, i was look at those and then looking to sell the april 85 calls against it. >> stock made a big jump and then turned around so, mike, what do you do >> this is an interesting one. if you don't follow me or carter on twitter i encourage you to do so, because we actually sent out a tweet about this trade after we convened. the results seemed pretty good and the stock performed very well right away, obviously significantly outperforming the market but then it started to underperform the market and felt very heavy on thursday i was talking to carter about it and said it doesn't feel this is something where people are trying to buy this news. instead they're trying to use any kind of a bid they can find in the stock we still have bit of profits left in that calender spread and we recommended taking it off for the modest profits we had on thursday still that remains true on thursday, remains true today and remain true on monday as well.

i think we can sell this one and move on. up next your tweets and the final call the sleep number 360 smart bed is on sale now. why choose proven quality sleep from sleep number? because the sleep number 360 smart bed is really smart. it senses your movement, and automatically adjusts to help keep you both comfortable all night. it's also temperature balancing, so you stay cool. it's so smart, it knows exactly how long, how well and when you slept. sleep number takes care of the science. all you have to do is sleep. don't miss our weekend special. save 50% on the sleep number 360 limited edition smart bed.

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♪♪ welcome back to options action time to take your tweets our first tweet is for tony. is the thesis on last week's pep so call credit spread intact what do you say? >> one of the benefits of using charts is you know when you're wrong fairly quickly because time is still on my side i'm inclined to only close half of my position here and leave the other half because the fundamental thesis is still intact >> time now for the final call >> trim or hedge your cues and put some of it into money. >> tony? >> establishing a position in biotech, selling a put vertical spread >> mike khouw? >> cue put spreads to hedge risk >> that does it for us here on options action

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