it is friday and that means it's time for options action the markets capping off a comeback week today. the best week since november 2020 tech stocks, the big gainers, but the nasdaq is still sit l in bear market territory. so the big question to the desk, can we hold on to these gains? carter, what do you see in the charts >> i think the bounce has a bit more to go, but the most important thing is this. it is the bounce that keeps the bear alive we're up 9% this week, if we had gone down 9%, we'd be close to 30% down

that's the bounce that's negative, not positive >> oh. so mike, do you have that same interpretation that we would be better off to have a so-called like a flush in the market effectively? >> it would be nice to see a flush, you know, on some of the weaker days, more recently, we didn't see the kinds of big volumes that i would like to see. we didn't see that sort of k washout. i wish we had reached a bottom i'll say that. i'm in the process of launching a long only product. i'm not trying to talk the market down. i want it higher i like to watch it race through the end of the year much higher, but i don't think that's how it's going to go, unfortunately. i feel like there's some strength through the end of the day. we saw us close on the highs, i feel like that's a positive in the short-term, but as i look forward to next week, i'm probably going to be mputting more hedges on it. >> this is the week before

memorial day week. there's a positive bias to this week anyway, but how are you interpreting the bounce? >> when we look at the relationship between volatility and how the price action and equities have played out, i think we see a temporary bottom here over the past few days, but if you look at the s&p 500, the 42 level is the level i'm paying attention to next week if we can break above that, we have a chance of further upside, but i have a feeling we're going to start trading lower around that 4200 level. >> i want to play that out, carter because if we bounce above 4200, do we still need the flush down lower before we can move higher or do you say i feel better about this whole thing now? >> sure. just put this bounce in the context of the other two market peaked jan 4. market has a low in january and rallies about 9% makes a new low in february, march, and rallies 12% makes a new low in may and here's the third countertrend. as of now, that's all you can

call it and even at 4200, it's simply a countertrade. it's more time and more price that will be required in order to get something more enduring >> mike, amid this volatility, are you taking a look at things to nibble on have you >> yeah, actually. we have bought a couple of things first of all, we talked about a few of them on this show some of the retail names that were particularly hard hit picked up in some of those areas and some energy things that i had sold off i bought back shortly there after because a lot of those had a significant pullback names like halliburton and names we're going to be talking about in the b block in the national gas space, i think there's some opportunities there as well. the broad market still has a lot of areas that the valuations, while not as high as they were, remain very, very high and a lot of the pressures that we know are out there, i don't know why people are ignoring them now maybe it's memorial day

enthusiasm, but i think those concerns are going to come back to haunt us. >> the lure of barbecue is strong we've talked a lot about the remaining strength of consumer spending on discretionary items, but more importantly, the consumer staple sector starting to send out signals. carter, what do those signals tell us? >> right so a very defensive sector like this, low beta, relative to the market in recurring income streams, staples, at some point, you get overdone ie, the fear money going in there's too much look at these ratio charts the first simply a chart and when the line spikes, its staples outperforming the s&p. now you see that spike of late and compare that to the spike of the covid moment we're just as far above trend now relative as we were in covid. that's how fearful the market is or wanting to be defensive but that's starting to pull in

look at the same chart with arrows gone. so three instances and each one, mean reversion take a longer term chart this is now going back to '09 and it's this. the ratio gets overdone or underdone then it mean reverts every single time we've gotten this far above trend, relative line, we've mean reverted. it's underway and i think it's got more to go let's look at the spydr. that's where trim line drawn we break trend then rally right back to the underside of it and you can see where i've drawn the arrow. all right. instead of an actual trend line, let's view the automated it's the exact same. we brought it below it we've thrown back to it and this is where you're likely to hit your head. >> all right mike, so what's the trade here >> yeah, i mean, xlp, if we take

a look at the valuation here, right now, it's trading probably about 23 times earnings. now, going back ten years, the all-time high in terms of valuation for the sector on a weighted basis happened in mid 2016 it was trading around 24 times in fact, we hit right against that valuation when we hit the recent highs, which were the all-time highs for the consumer staples, then pulled back from that my take on this is that we are not going to see new highs and valuations for the sector or probably many others in the near term which means that under the best circumstances, the best would be that you return back to those levels which i think is exceedingly unlikely now, if we revert back instead to the mean valuation for staples, that's a 20% decline from here. i think people should bear that in mind. the nice thing when we're looking from an options perspective is that staples are low volatility it's often a flight to safety.

a flight to quality and one of the reasons is that these are typically low volatility stocks. what that also means though is that the options are relatively cheap. i was just looking out to september. the 74 strike puts cost about $2.90. one quick point about that, we had a strong close so in fact, those are probably cheaper as of the close. if we were above 75, you might consider choosing the 75 strike put. then of course if we begin to see weakness, you can look to roll or adjust or spread these and i think that's what i would be inclined to do. >> so, tony two questions for you. that is would you press staples here and what do you think of the trade's structure? >> yeah. so i definitely agree with fading staples here. if you look at that out performance carter was referring to, we've seen that since november of 2021, the peak of the market but in the context of the sector

relative to market, since the 2008 financial crisis, staples has been a long-term underperformer and i think that's what we're looking to play for here is further underperformance here for this specific sector. i do agree with mike on the valuations from the perspective is that we are near the upper bow of the range, but i'm not see if we're going to see as much downside. might allow us to play for it. my view is that i prefer to have time on my side and i prefer to sell something like a call spread where i'm able to collect premium on this particular fade. i do think staples could rally higher here towards that $76 level which we're starting to see more of going to today's close. but i'm not sure that i'm going to to, we're going to see staples trade 20% lower from here especially if markets go further south and staples catch a further bid because of the fed's nature here of the sector itself >> that was my question to carter basically because when you first laid out

this trade, i got a little sad for market bulls because if you're calling for a 20% decline in what is a defensive trade, i don't think you're also saying it's going to be part of a rotation into higher beta sectors. sounds like you're saying this is going to be a rotation out of the markets overall. >> that's just it. so the concept here is that one group after another, for instance, value, which is the so-called good area of growth, energy stocks, the only things holding up we know that u.s. steel, alcoa, down 30, 40% nucor, ford motor. staples are not immune from that independent of what the market does >> all right well, from staples to streaming, check out shares of netflix cratering nearly 68% this year tony says the bottom could be in for the beaten down name tony >> yeah, melissa

that's exactly right because this is a pretty pivotal moment here for netflix which has been a dominant player here in streaming but it's down 75% from its peak. this is a chart of the stock since its ipo. what you see here is that the stock is trading in a well defined channel and since the peak that we saw here of last year, it's traded now towards the bottom end of the channel. as carter would say, we've traded to the bottom end of the channel to the penny and we're starting to bounce zoom in to the last five years, what we have is a chart of netflix and we're bouncing off that roughly 170 level that's a 75% haircut we've seen on this particular stock the question is how far can it bounce the first resistance level on netflix is around the 240. that would be my first target here to the upside on this such extreme downside move we've seen here on the latest earnings report then if we look at the business itself, this is a company that

is focused entirely on user acquisition here over the past decade or so i think that as we sort of shift to see some of the slowdown in terms of growth for subscribers, this is something a company needs to start looking at, profitability as well as returning cash to shareholders given the fact it's trading between 15 and 16 times next year's earnings, this is a stock i'm comfortable looking at buying at this level the trade structure i want to use is one that allows me to purchase this stock at a slight discount here but also play for a bounce that's selling a put credit spread so i'm going out to july and i'm selling the 190, 170 put spread, collecting a little over $7 on this 20 widespread taking advantage of the relatively elevated implied volatilities we see here on netflix as it trades down to these lower levels and be able to collect some premium to

purchase this particular stock if it trades below 190 by the expiration date. >> carter, what's your outlook for netflix? >> well, let me first say i think tony's timing is excellent because i tried this about three weeks ago. so i like your play better than mine that was up at 212 it's 195 but here's the thing the concept is independent of the long chart and it is to the penny, at some point you've run your course. now, that's not to say that you can't run east man kodak, but in this instance, that's not the circumstance >> mike. >> we've seen outperformance since may 11th i think that's significant and also this company, believe it or not, is getting cheap and if we start to see positive cash flow, we are really seeing the bottom in the course of the last several weeks here and it's a buy. still to come, a nat gas play that's fueled up to play catch up with the sector and for everything options action, check out our website and sign up for our newsletter

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welcome back to options action take a look at the absolute tear that natural gats is on this year the resource trade has been a winner in this environment and stocks have reaped the benefits, but is it too late the get in on the action mike doesn't think so. he's here to help you put your resources to use for profit.

>> i think this is a situation where it is better late than never. obviously natural gas has had a huge run is company i'm looking at is interro resources. there are two things number one, what do we think about the future for natural gas prices and for that, we're going to be looking at natural gas futures and secondly, what do we think about the best names to play in the space. so the first thing i would point to is that while we look at natural gas prices, it's our inclination to look at the spot prices and of course the spot price is very high it should be said when you're looking at commodities like this, when the futures market inverts like this, we get into something called backwardation i think we have a chart of where it was and is. it has moved up, but still as we look at the forward curve, it's lower than the current market

prices now i want you to kind of remember this chart for just a second and the reason is that when we take a look at antero resources, it is essentially priced off that lower curve rather than where they are right now. so a price of about three and a half bucks or so on average looking out over the course of the next four or five year versus the forward price right now, which is averaging about four and a half. so even on that lower number, if you're looking at antero, you're looking at a free cash flow yield in the base case of about 20%, but at the current level, really it's going to be closer to 20% if you're getting a free cash flow yield of over 20%, that means that the free cash flow is going to pay the entire market capitalization, the entire value of the company in less than five years time add to that the fact that i think there are secular tail winds for natural gas more generally.

we're going to see bigger exports. natural gas is cheap relative to oil and we're going to see generation as we see things like a move to electric vehicles versus gas so on that basis, you would imagine the natural gas should actually be a, there's a better bull case to be made relative to oil. now antero, we're looking at this from an options perspective, has been a relatively volatile stock. so what i'm trying to do is take advantage of the fact options premiums are relatively elevated i was looking out to september at a call spread risk reversal what i was looking at doing, actually, july excuse me. the july 39 puts for $2. then selling the july 50 calls for $2 cl collecting about 30 cents. the real issue is we are chasing a stock that has already done exceptionally well so what we're looking to do is capture at least the near 10% plus upside from here over the course of the

next couple of months while giving ourselves a buffer if we see a pullback in the space. but i think this move in natural gas is not done. i think this move in antero resources is also not done it's a cheap stock that basically is being fueled by a fuel that is increasing in value and will continue to >> carter, how do you read these charts >> well, they're bullish and are going to get more bullish. let's look at nat gas first. what we know is that nat gas went out at just under $9 and it's nowhere near its all-time peak you can see it there but the stock itself the first chart is a simple log chart over a very short time frame. one year you can see that ar is just up and to the right north by northeast, steady as she goes and what's not to like. if we take it back on a longer term, this then would be a three-year chart and that breakout, what makes it not extend is you see those check

backs. it's checked back twice to the breakout level so a big move and a big correction or give back. that resets it then finally, sort ofthe all data chart and what you see is how symmetrical the 2018, 2019 plunge just to get back to those highs of 65 is some good eating from here >> tony, your thoughts >> so there's no doubt here that we're obviously chasing what is -- the call spread risk reversal in this case is a very creative way to play for this chasing this particular stock. you know, you're effectively getting a call spread, the 45, 50 call spread for july for free by selling the $39, $39 puts, which obvioligates you to buy a stock at 39. it's like placing a limit order at 39, setting aside cash to do

this the question is whether or not you're comfortable buying the stock at 39. that's the question that will determine whether or not this trade structure makes sense to > nt,e' h >>upex wreeading to twitter and answering your questions. more options action in two

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and kim. she wanted to execute 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 welcome back time to take your tweets the first is a double for tony what about the put spread on apple from last friday any change on it here's the other one what do we do with the tesla june debit put spreads you recommended. your thoughts here >> yeah, so both of these expire in june so time is not on our side we're really looking for the market to move significantly lower next week or the first half of next week. if that doesn't happen, it's

time to cut our losses and move on to the next trade >> mike, dave asks how does one determine if a particular options position is not liquid enough to get into for a 30 to 60-day trade also, what can one do to avoid getting taken for a ride by market makers? >> the first one, i think for most retail market participants, that will be enough liquidity. ten to 20 contracts. the important thing though is the price and that is something that you need to use limit orders to accomplish when you see wide spreads try to bid or offer in the middle and work your way down in there and give that order a little time to rest i think that's a way to take care of those issues >> up next, answering more of your questions and a final call.

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welcome back to options action time for more tweets thoughts on kweb carter, what do you think? >> it has all the makings of a bearish to bullish reversal. long and protracted decline. down 80% then what, it bottomed on march 13th, 14th the markets have gone much lower since then it's been exhibiting relative strength i think you do it. >> mike, your thoughts >> a lot of these names are cheap. i think china's going to start supporting their big stocks. we saw a lot of bullish activity in several of those stocks and kweb in particular >> this feels like a trade, tony, you might want to be in on >> very similar to the ark trade we put out two weeks ago looking forbottom fishing here in ark in kweb. >> all right time now for the final call. carter >> consumer staples. i'm a seller >> tony. >> time to be a buyer in netflix. selling put spread

>> and mike. >> i'm buying puts in xlt and i'm antero resources and i think call spread risk reversals are a good way to get in here. >> that does it for us we'll see you back here next friday have a great memorial day weekend, everybody do not a cnbc special, crypto night in america, starts right now. \s tonight on this cnbc special hour of counters crypto night in america," the s&p ending a seven-week slide, both having their best week since november of 2020. the nasdaq also climbing 1,000 points just this week. crypto, on the other hand, falling out of step with the nasdaq bitcoin falling more than 1% this week. tonight we have every angle of