is written in meli's checkbook. greed. he was a cocky, arrogant guy, and he wanted to live a certain lifestyle, and he did this to get the funds to live that lifestyle. -- captions by vitac -- welcome to friday and "options action" friday. i'm joined by carter worth the draw dropping 900 points the nasdaq closing out its worst monthly performance since october 2008 that was the great financial crisis the s&p posted its worst month se since the pandemic we still have another big week of results on tap. lots of consumer related names health care stocks are facing the mackerel head winds that faced the market this week carter, what are you seeing at

this point >> right, the pressure is on, right. very few things are immune i thought we'd look at today a stock we haven't done in quite sometime we're going to look at cvs of offense and defense, they sell goods all over the country it's defensive because it is in the health care sector it's upped performing its sector other areas of the market looks like it has downside marks in earnings it's dividing the stock by an aggregate. in this case the xlv, health care if the stock is rising, declining under performing what has it been doing it's been under performing all year this is cvs relative to xlv. look at the next iteration this is cvs versus xlp this is the consumer staples etf. many would consider this kind of

thing as well. walmart is a staple stock. here, too, look at the shocking under performance, straight down relevant look at some absolute charts here is the cvs chart in zand of itself you can see the parallel lines, it's a channel today we undercut the lower band that's never good, it's not a good set up relative to performers in your sector is especially poor. let's pull this back further this is a longer dated chart going back a decade. what's interesting is where the stall is occurring we almost got back to those highs of 2014 and now we're starting to roll so pull back a little further, here's the next chart. these are the double top i think it is. the all data chart going back even further this is back 20, 30 years. buy, sell, hold, earnings coming up, i'm a seller >> all right

carter made it very clear, mike. what's the trade >> you know, it's interesting. we just heard tim talk about walgreens boots respectively one of the things, cvs has inelastic demand alw as a reminder, do goods and prices fall for demand it does not. it seems the stock has inelastic demand when you look at it for a fundamental perspective it's cheap. 12 times earnings, probably going to grow eps. at least the street thinks it will, 10% year on year at the end of 2023. if you look at it from that perspective, you would think it's a buy yet it under per formed the s&p. this is a stock that moves 5% on earnings and interest. when i was looking at the june

95.85 put spread that's correct cost 2 1/2 bucks, 2.5% of the current stock price. it would be profitable if it made that 5% or so implied moved to the downside. i'm with carter here this market doesn't feel particularly good. and even though implied volatility in a couple places is slightly elevated and sometimes that's a suggestion you should either be selling premium and sometimes a suggestion you should be buying the market. if it closed above 30, that was a level i was looking for a week ago. i don't think this is the time to start looking for value opportunities. so i think a put spread is the way to go into earnings. >> tony, what's your take on the trade? >> yeah, so i agree. if you look at the chart itself, this is a zokstock that has lary consolidated above 100 since mid december today you've seen it break below that level is carter is referring to break below the channel. when you couple that with relative per normance to its sector, that gives you a good indication as to potentially what could happen on earnings.

then if you look at the fundamentals here, walgreens recently just reported based on -- a couple weeks ago what we saw lhere was covid related sector is half into this year and next year this carried these two stocks quite a bit the last couple years and these are stocks that haven't gone anywhere prior to the pandemic when you think about the softness with respect to covid related revenues, and the valuation mike was referring to, 12 times earnings while relatively inexpensive, it's in the middle of the range for this stock historically the low end for cvs is 7 times earnings you have quite a bit of room here from the downside per spective there is still potentially quite a bit of downside especially if you see softer guidance going into the second half of this year i think that's what we're going to see here from cvs

if you look at the trade shark, put/debit spread, he's choosing a debit spread that is out of the money. by doing so he's only risking 2.5% of the stock's value and only paying a quarter of the $10 width of the debit spread. that gives him a 3 to 1 risk/reward ratio if cvs gets back to $85, which is the break out level cvs broke out above before where it was referencing the very beginning the price target makes it a high risk, high payoff reward for earnings for cvs >> carter, how does walgreens stack up compared to the cvs chart? >> it looks terrible, i mean worse. >> worse >> yeah. >> wow even more clearly a sell, i guess. continuing our theme through volatility, it's best to let all

uncertainty get out of the way before you proceed such is the case with tony's defensive play before earnings tony, what else do you see in t-mobile >> yeah, given this week's volatility, i think there is a lot of interest, if you will, in finding some level of safety and by looking at a name like t-mobile which is general speaking a more defensive name, and the fact that it's reported earnings and the stock is down almost 7% here today, i think this is really an opportunity potentially take advantage of 1346 this weakness sell this volatility and potentially, again, find a little bit of safety in defense. so if we take a look at a chart hereof t-mobile, what you see here is an up channel. what we're seeing here is a trade down to the bottom of the channel, and i'm simply looking for a bounce higher. but i think what's more important than the chart here of t-mobile, the communications sector xlc what we're seeing is t-mobile is breaking out to new highs here

relative to its sector i think this is really explained by if you look at the fundamentals between t-mobile and the two major competitors, verizon and at&t, you're seeing t-mobile add roughly triple the number of subscribers each quarter relative to those two other names. and this is really what's driving the outperformance of this particular stock. it's why it trades at a higher valuation. because it has that higher growth number while maintaining profit margins that are equal, if not better than the other two competitors. so for those reasons i'm trying to take advantage of a name that currently has elevated implied volatility, but is also in a fairly orderly up trend. one of the ways i'm trying to take advantage of this is trading an iron condor, and i'm specifically choosing strike prices that gets me to basically the upper end of that channel while taking advantage of the elevated implied volatility here so i'm going out to the june 3rd expiration and i'm selling a

118, 124, 133, 139 iron condor here i'm collecting about $3.17 on a $6 wide iron condor. i'm collecting a little more than one half the width or total risk i'm taking on this particular trade and i've chosen my strike prices where the bottom two strikes are very close to the current price and the upper two strikes are near the top end of the channel. basically expecting that the stock bounces off this channel towards the top end, but stays within that particular channel and given the type of name that we're referring to, telecom name, a catalyst on the horizon, this is a safe way to take advantage of the volatility in the market >> mike, do you like this trade? >> you know, this isn't a market where i'm really interested in selling a lot of close strikes to what these stocks are doing this thing's moved ten bucks just within the last 36 hours,

and i think the lower strike that we're looking at here is already in the money it wouldn't take anything really for this thing to get below that 118 strike price now, the trade structure, i don't take issue with selling condors generally. the difference he's calling between the strikes is reasonable the stock can only be higher or it can be lower at expiration, and so that is one of the reasons why trades like this can make some sense. but in a market like this, the chance that it is considerably lower or higher is actually quite great. it's one of the reasons why it can be a little buit deceptive when you chase premium to sell, oftentimes those elevated premiums are justified >> tony quickly, do you want to address mike's concern you maybe don't need any catalyst for this stock to swing to those strike prices >> and he's right. today the stock is down 7% there's no particular catalyst other than the market.

that, again, is the reason why i'm taking this particular strategy we tend to find that after big out size moves in stocks like this, that's when we tend to see a period of relative calm. that's when i'm using the iron condor i'm using the relative short dated 1:30 days out. i'm holding onto this trade 15 or roughly half that amount of time so i'm really looking for a little bit of calm here the next couple weeks and i'll be probably taking this trade off >> still to come, when exxon buys back $2 billion in stock in one earnings period that should tell you something professor coe will explain that. check out our website "options action"@cnbc.com we will be back in two >> announcer: "options action" is sponsored by t.d. ameritrade. g right now. and thinkorswim® is right there with you. to help you become a smarter investor.

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welcome back to fast money in its earnings announcement this morning exxon slipped in it's on track to buy back $30 billion of stock through 2023 carter, what does that signal to you about the overall energy sector >> well, i mean if you think about it as an operating business, is that good or bad? usually i would say that's bad consider this, exxon and chevron, the two big ones, are going to give more cash to shareholders than they will invest in oil and gas production this year. 50 billion between stock buy backs and dividends versus 37 billion in cap dallas expenditure. i don't think that's a good business bundle, but i'm not an

energy man let's look at the charts we have a trend and a break in trend. no way around that one point, xle, the etf was up 50%. broke trend hard, rallied back and we hit our head at the underside of thatting line if 2003 look at the longer time chart, we saw the sequence, 2020 we had a break in trend. consolidate, went again. this is the second break in trend. i'm a seller, not a buyer. two long-term charts this is a weekly chart we got back to the highs of 2017 couldn't quite get above a week or two, now faltering. the final chart, draw the lines how you will, i would call this a pretty well defined double top. >> all right so, mike, what's the trade here on energy? >> yeah, you know, so this is interesting because if we take a look at the sector and if we're looking at xle, for example, which is the etf proxy when

looking at the energy sector, this is integrated oils. the two biggest constituents are half of it you can add in conoco which is integrated if you look at the companies, they seem cheap. i would consider that to be a positive if you compare the companies to their european counterparts like t total, they are getting better returns and have free cash flow. exxon's announcement they are doing massive share repurchases are an example of how they intend to deploy that free cash flow i think there is considerable pressure on the sector overall there is bad news in here. for example, everybody is aware of this. esg, activism and regulatory pressure, this is not the best environment for them overall even when they did start to make some money, we immediately have some people in washington coming out and suggesting that they're gouging and coming after them. this is after they had massive

losses the prior year. exxon in particular, they've reduced their investment in production, carter alluded to that and production is declining. you need to make some investment in your business f. you're not doing that, a good question would be why if you take a look at even the bull's up side price targets for the space, they are fair through model. if you're looking at exxon, i think the average analyst price target is 94 bulkz a share, the stock price was 86 that's from the on ptimist. i will add one other thing personally, i have pared back my positions in the space we have an inverted implied volatili volatility what that means is it is higher than longer ones i was loojing at selling 75 august puts. when i was looking at that, it was 2 and a quarter to collect on the mays.

pay 5 1/2 on the auggies that has a fairly wide band. when you put a straight calendar on, if the stock goes down very, very sharply, you can actually get the trade wrong. i think that would require a big move to the downside i'm not expecting that simply because oil prices still remain a little bit elevated. i think that creates the near term support after may expiration, you can have a longer date and put >> tony, what's your take? >> if you look at the energy sector relative to the s&p, it's been a full two months since it made no progress relative to the market that certainly is concerning and then if we go back all the way to 2008, which is the last time energy has outperform the overall market, since that time the last year and a half, this has been the longest and the biggest outperformance of energy relative to the markets.

so i'm not exactly sure that this two-month pause is necessarily the end to that outperformance here. you do have to consider the fact that, as carter is referring to, the two largest names, exxon and chevron, make up 43% of this etf. it's those two names in the driver seat. when you look at the companies, mike refers to the good and the bad. the good, i completely agree with him the bad, i don't think it's that bad. if you think about the under investment, that's really what drives a potential catalyst of lower supply that can drive oil prices significantly higher on some type of catalyst. so for those reasons i'm not as bearish here on energy stocks, at least at the moment but if you look at the trade structure that mike's using, the put vertical spread, the choice of strikes that he's using, the $75 strike which is effectively the at the money strike, means this is really a mutual play between now and the first expiration of may. it is a relatively short dated

play, three weeks out. it is a complete lie neutral play sorry. if energy stocks basically stay where this is, this strategy is possible he's able to collect half of the premium of the august $75 puts he's purchasing here he's collecting a fair amount of premium. and i would reevaluate whether i'm taking a bearish view here in three weeks' time or so in the meantime i think this is a great way to play this pause as carter is referring to in energy stocks. >> want to stick with the energy stocks you looked at a halbur ton trade. there is still time on this one. what do you do now, mike >> yeah, so, i tweeted out a little over a week ago that i started to reduce my own halbur ton position i was long the trade and had options on it. i cut half of that position two weeks ago. i actually closed out the last of it today.

and for those who have been watching the show or even seen us talking at various conferences over the years, i've had that on for a couple of years. i think it's in much the same way i'm hitting the pause button with the xle calendar. i think you can do the same in halbur ton as well >> we are primed and ready to look at one of tony's trades last week. more "options action" right after this

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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® by td ameritrade action." last week tony laid out a way to play amazon ahead of earnings. >> this is a chart that carter has spoken to quite a bit over the past few quarters. you have a stock that has outperformed the broader markets for a vast amount of time before over the past two years really going absolutely nowhere from an absolute basis but the most important thing for me is really those relative charts, the under performance relative to the market and its sector is telling for where it's going to trade i'm going out to the may expiration and i'm choosing the 2885, 2855 put vertical spending $11.80 for this vertical spread.

>> shares of amazon sinking 15% after yesterday's disappointing results. so that trade is well in the green. tony, what are you doing now >> yeah, so for a vertical spread like this where we're well below the lower strike price, you're trading on the max gain whether you took the exact strikes i used or adjusted lower based on monday's open, either way you are near the max gain and time to take profits and move on to the next trade. >> carter, just curious. and i asked you this during fast money. i'll ask for the oa viewers as well when does amazon become so bad it's good? >> there's both a magnitude and yo duration to that kind of concept, at least as i learned it we have to some extent magnitude. it's just fresh off a gap in drop it's never good to buy into the first day of a sort of dislocation, if you will we don't have prices covered

yet. we just had the facts, the earnings let it stand aside. >> all right up next, your tweets and the final call >> announcer: "options action" is sponsored by think or swim by t.d. ameritrade.

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that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. a viewer asks, followed mike into the qqq after friday's excellent show if we are in a solid decline, would you ever close one leg of the spread for potential profit knowing the risks? mike >> you can consider rolling down and out. straight down, or if it's gotten too steep, you can roll down or in >> final call time carter >> cvs acts poorly going into earnings if you're long take measures f. you're a short seller, re-hit it >> tony. >> play for a bounce here in t-mobile, selling in iron condor >> mike coe. >> put spreads in cvs going into

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