so that they don't fall into the same trap. narrator: john bravata remains locked up in a federal prison in indiana. he's scheduled for release in may 2028. -- captions by vitac -- it is friday and time for options. here is what is coming up. >> when the pendulums and wings too far, why utilities could get stretch. >> then, in case you haven't heard yet, our new season starts next week with the financials. >> tommy things there is only one to speak up about. >> finally, look backs.

how you manage some of our recent trade suggestions depends entirely on how you are using them. it is time to risk less and make more. options actions start now. let's get to it. a closing week. we have been spending time on offenses/defenses positioning. some defense might be getting long in the tooth. so carter, what do the charts tell you? >> we focus on utilities. the curious thing is there are places that are sensitive. the homebuilder discussion we just had. so utilities and principle are less desirable, if you will in our rising rate environment.

yet, utilities are through the roof. let's look at a chart. the thought is to fade. so the market low on the 24th, you saw statistics, if you look at the six week return, you see utilities are leading the pack, healthcare coming in second, defensive rates and the snp are five. the point is, at this point the spread is getting a bit wide just as it is bit wide the other way. this is a comparative chart. you have xo you, the spider and etf up versus tlt and the itb, the homebuilders etf. let's look at some ratios. this is optically incredible. it is xl u. it is just a ratio.

you see the breakout. it's almost going up to the left. look at the next chart, a definitive break out. the equal and opposite moment of the pandemic plunge. then the final chart, and epic breakout. but it has happened. utilities have seen too far too fast. we are thinking you ferried this market. >> the charts speak for themselves. what is the trade-off? >> some other charts have gotten to extreme weather levels. if we look at etf and utilities select sector and valuations,

carter has often told us the valuations are not a good timing too. i'll admit that. we need some context year. no matter how you slice it, utilities are about as expensive as they have ever been. 22 year highs. free cash flow to debt, weather this is trailing are forward-looking, it doesn't matter. it is at all-time highs. from my perspective , if we are looking at cyclical stocks, they can be contrary indicators. these are not cyclical. they are steady eddie. so this does seem a little bit too far too fast. maybe even a lot too far too fast. i was looking at the 76-70. it cost $1.30 to put that

spread on. the constituent stocks are not high volatility. you will notice that you are actually collecting about one third of the premium of the money we are spending on 76 and collecting it on 70. the other thing is that it is from 70 that we broke out. to me, i think that is the level i would be targeting near- term and in this case, a little over two months and i think this is the way you probably want to play it. it's difficult to pick a top and we don't want to short something like this. you could bet against it and when a risk. >> overall i completely agree with this. we have added long exposure when it broke out at $72. looking at the trading range prior to that it projected $78.

we started taking profits earlier this week. that aligns well with fading this move. if you look at the constituents these are companies currently trading at the same type of extreme exhaustion moves. so it sets up well for this collapse or fade to move back. the options tend to be inexpensive for this but that is not happening here. typically, when i look at this volatility i would sell premium. looking at the debit spread the fact that he can collect the one third of the $76 put option premium and he has a risk reward ratio over 3.5 to 1 i

would take this spread. we tend to see the collapse happen quickly when we take these. you will get that from the structure. >> i wonder, are we entering reversion for some sectors that have done well since february 24? >> that is the irony of trading. when it is loved it can get ahead of itself. crude oil you can see that. it went from 90 to 130 and the thing is in freefall now. when it gets hot too far too fast or the reciprocal, too much of a plunge, you start to see reversion, just what you are implying. it is in all subsectors and all asset causes. >> okay. check out the bank earnings next week.

bank of america, city, they are all set to report. one could be money in the bank. which one? >> reporter: i have my eye on wells fargo going into bank earnings next week. if we look at the charts, the first one is the financial sector relative to the market. since february we have seen this make no progress. it is been range bound. right now we are at the bottom end of the range. from a timing perspective going into earnings, seems like an interesting time when we look at the major banks reporting next week, wells fargo seems to be the better performing one. then wells fargo relative to the sector over the timeframe we have seen them outperform the sector and pull back to a trendline. this is a good opportunity to look at wells fargo going into earnings. if you look at -- what's interesting for investors

asking about rising interest rates and why banks are struggling, we have to look at the spread between the 10 year and two year to have a better understanding. that represents the difference between lending and paying depositors. when we see an inversion, that means they have to generate from their interest market. lastly, look at it chart of wells fargo trading near the bottom part of the range. now, when we look at the earnings themselves, the market implies 5.7% versus average we have seen over the past 8/4 of 4.2%. it implies a sizable move. implied is high, 70%.

i would sell selling out to the main 13th weekly option selling 48-45 collecting $2.04 and paying about $1.04 for the 45 puts. net collecting one dollar and premium out of a three dollars credit spread. this is one third minimum that we see but it is a credit spread that is a fair amount already out of the money so i can accept the spread collecting only one third of the wind. >> what you think of this trade? >> well, it's interesting because i have not been bullish on financials. in fact, we put trades off and put the spread in xl f. that is because something tony was discussing, if you have a

flattening yield curve, that is not good. two things heard financials when you get that dynamic. one is the net interest market and the other is that you need something to have a margin on. what i'm looking at is when you start seeing recessionary pressures the loan growth is also going to decelerate. you're not really earning a marginal loans you don't make in the first place. not to mention the fact that all equities typically are going to perform badly if we have increasing rates and recessionary pressures of these things working together. selling put spreads like the one he is doing when premiums are elevated and doing so so it is out of the money often times that can be a winning strategy. with the strategy perspective i like it even if i haven't been enthusiastic about financials. >> okay. >> let's talk about the xl f. let's do an early look back. a

few weeks back mike laid out a bears trade. down 2.5% since then. >> when you put on spreads are just outright, the thing to remember is that once you start seeing the run through your long strikes then some of it is convicted. the option comes down. that doesn't mean i'm not bears. people should consider taking some of that money off the table and adjusting down. take some profits here but maintain that position. you can do that weather it is a hedge for other trades you have on even idiosyncratic like the bullish trade tony is proposing. it's really neutral he is producing. >> okay. check out our action. you can sign up for our newsletter

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welcome back to options actions. we have been talking about rates. a lot of bears activities as well. even if you are related this conversation there could be an opportunity here. take it away. >> yes. tlt is the atf tracking treasury bond markets has had one of its week it's times ever. it is right up there. the only other time we have seen declines as sharp as the one we saw since december in this, when first listed in 2002 was on a rebound we saw off the credit crisis in the spring of 2009. we are actually not that far off the decline we saw at that time. now the thing is, if you really

do believe rates will go higher and you have seen this is going down 19% and close to the biggest decrease over comparable times, you might wonder weather there is an opportunity to get in. you highlighted it. a lot of bearish activity even this week. institutional traders are buying 118. they go out to july and even november. there are some people making significant bearish bets. the thing is, this is a tough time to try to make those bets. the question we should ask ourselves is, if you are, the rate targets at 3 1/4, are in scope and things are in perspective that would put them back at the levels we saw in 2018, around 115, what can you

do now? premiums are pretty elevated. that is not surprising giving the move that we have seen. the other thing is that we may be closer to the end in the near-term of the move lower than we have been in a little while. it is probably going to make some sense to try to minimize how much you risk by making a bears parent and pick your levels. i am targeting the downside level that we saw in the fourth quarter and i was looking out to june at 120-1 by two point spread. i want to sell to downsides at my target in the event it continues lower. i'm also trying to put this on in a way to layout little or no premium. the idea is that if it actually stabilizes here or we get a rebound or if it is depressed, i'm not really risking anything. no harm no foul if the 20 years

does not decline or is it rebounds. that cost about $.30. we will see how prices are early next week. so tell so to downsides, collect on a premium that is offset on a higher strike put. >> connor? >> it's much the same as the utilities trade. there is a lot of correlation. i think we have two charts and how extreme this is. so first you see the ratio. this is tlt in reverse. the relative performance, i shares to utilities then you have a collapse of epic proportions to all-time lows one versus the other. the tlt itself, the second of

these charts is down to tran. this is the all data chart looking at tlt. we came down to the trend line with the 2018 event and levels that mike was siting. i think sequencing calls for a bounce and the long and will start to reflect some recessionary issues. those are around the corner. >> okay. so tony, you have the charts and trade. where do you stand? >> the expectations. my streak goes out to june. if you look at june the breakout on 132 and retest of that level certainly points us to 112 to 114, the low in 2018. looking at a spread like this it might look intimidating. break it down into 120 a debit

spread similar to the trade mike is using on xl and selling an additional one put against it to offset the cost of the debit spread getting that for free by adding the obligation of owning the stock at 114. the few things required to understand the strategy is the additional obligation to buy that at 114 and the strike prices. it's tricky to paint that on lower. he happened to pick 114 which aligns with the lows. also, the one standard deviation move for the june option. if tlt moves lower, that is the expected move. that is a great way to thread

the needle on price. the last thing that is important is that if tlt moves down to the target price, 114 quickly, there will be a paper loss on this. you must hold this to expiration to thread the needle on price and time. >> good point. more look backs are up next. off next riday for the holiday so we thought we would do a lot of housekeeping. we are talking tech and tans. don't go anywhere. more action after this. >>

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thinkorswim® by td ameritrade welcome back. time for another look back. a bearish way to play the triple queue. then dropping four%. that prompted a fan to tweet, do i sell this. it is all timing. i'm green but chances are rare that we are below 360 in the middle of the month of june. >> second, is this a hedge? you need to have keep hedges on as long as the portfolio is on. you don't need to sell it, you can adjust it. >> good options.

we are not done. up next, we have tony. that's up 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. ♪♪

as promised after look back, this is on the trade from last month. in the green and expires on the 22nd. what you do now? >> you get within the last three weeks of expiration. if you are above break even, take profits and move on. okay. final call. carter? >> put on a pair. long homebuilders and short on utilities. >> wells fargo going into earnings and sell a pert vertical spread. >> mike? >> if you are bearish on xl you need to put the put spread on and you should use ratios. >> that does it for us for

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