an offshore account. if he does, it will be a long time before he's sipping margaritas on a beach. matt cox's projected release date is 2029. it is friday, and that means it is type for "options action." i'm melissa lee joined by carter worth, mike co-and tony zhang. we are wrapping up another wild week on wall street. the dow, subpoenas and nasdaq closing lower for the day and the week the nasdaq dropping 2.5% crude notching the fifth straight week of gains the vast majority of indicators are stuck at a crossroads in terms of final direction carter, what did you make of the week >> if you think about it, it is kind of a benign week. if you take today away, we were up on the week everything was quite okay. one day doesn't really change anything if you were to look at the close in the vix, this week versus

last week, essentially un. small caps did very well relative to large because we know there was trouble in some of the bigger names. i don't think it was an eventful week despite today being obviously red. >> right mike, your take? >> yeah, i think carter's maybe a little more sanguine about all of this than i am. you know, i don't really see a whole lot of upside for equities here we obviously know the inflation story is a big problem what we were seeing in some of the large cap names is that maybe the earnings story at the companies that we think of usually as being the most secure are a little bit more grim and, of course, that speaks to the economic concerns that people have so that creates a problem. the other thing is that you can't expect equities to return back to prior highs when you have a whole cast of investors who now realize that gap does not stand for growth at any price.

that is essentially what is going to keep a lid i think on equities here. and if we get more bad news, then that could actually point to further downside. >> yeah. tony, what is your take? i mean the market's reaction today was specifically the jobs report being better than expected and then the notion, the following notion that the fed would have to go harder than anticipated. >> yeah, and many times as technicians we say we're not in the business of why but what last week i talked about the fact we were keeping an eye on that 4200 level on the s&p, that we really need to see a break above that level for us to confirm that last week's bottom was a true bottom. but we did not see that at all so the fact that we have not rallied up to that $4,200, my expectation is we will continue to see further down side carter was referring to the vix at that 25 level, and i think the closing of that 25 level really speaks to the market's anticipation of further

volatility going forward i think that we can see some further down side from here. >> all right well, as inflation continues to weigh on the markets and the consumer, tony has a trade on one name he says could be caught in the crosshairs. tony, what are you watching? >> yeah, i'm taking a look at visa, which has been a good place to play a little defense in the current market volatility but i see some downside risks, if you tied to the current economic and consumer spending slowdown if we take a look at a chart for visa, this is a long-term chart, over 12 years of visa since the ipo. what you see is a chart that's very much up and to the right and a very clear trend line, but that trend line recently has been broken. so the risks right now i think are skewed to the down side. if we zoom in here to the chart for visa, the stock broke out above the 190 level back in may of 2020, in the early days of the pandemic since we broke out above that

level, it really has failed to sustain any rallies above that level. right now, given the current slowdown we've seen in consumer spending and consumer confidence, i think it is more likely to revisit that 190 level than back to that 230 level. but the most important chart that i think we have to take a look at here is relative chart of visa to the market. despite some performance we have seen here since november, the longer-term picture or the bigger picture is a fact this is a stock that's underperformed the market since 2018. i think the timing right now is potentially for further underperformance relative to the market so the trade structure i want to take is a simple one to use a put vertical spread going out to july i'm buying the 210/190 put spread right now you can purchase that for just about $5.15, just a little bit more than one quarter of the vertical width of $20 this is a great way to utilize

options to play for some downside exposure and also at the same time potentially provide a little bit of a hedge to current equity positions that you might have, but only risking 2.5% of the equity position, or 2.5% of the stock's value in order to take this bearish bet or a hedge >> mike, i thought the consumer was strong and that they're still spending the same amount basically, but spending it on different things which doesn't make a difference to visa as long as they're spending and there's more cross-border travel what is your take on this trade? >> first of all, i think that's an excellent point one of the things we have to remember is a lot of companies, their revenues and their earnings are largely priced, as you are pointing out, at a nominal level. does visa really care whether you are spending it on a high-ticket discretionary item or just on beef that costs 80% more than it used to the truth is if consumers are basically breaking out their credit cards and using them to basically the max of their ability, then that's probably

not going to affect their top line very much i think really the issue here that we ought to be thinking about is that it is a relatively high multiple name, and if we think there's pressure for equities potentially in the near future, then this is going to be another name that's likely to suffer from that that's more, i think, of a valuation story than it is top line story i rather like the trade. the important thing to take a look at is if you buy a put spread like this, if you own, let's say, 30 or 40 names in your portfolio and you decide you want to take this bearish bet that tony is outlining here, you know, you are only risking about 2.5% of the current stock price to make that bet if the market falls in, it actually could serve as a little bit of a hedge against some of the other long names in your portfolio even if it doesn't happen to be visa. >> carter, what is your thoughts on the chart here? >> all right sometimesâ -- well, quite often a stock, is not an inflection point and that's my appraisal of the situation. there are times when something comes down to trend or tries to play for a bounce, something is hovering at 52-week lows with a

process of a break visa is range bound. it's lackluster. it has no character as a chart and i would call that a pair of twos >> so you would say it is not worth putting a trade on >> i would bet against volatility actually. i would be -- people don't like to do it, but i would strangle it i would sell calls on puts and let the premium erode. >> tony, what do you say >> so i simply beg to differ i think that right now you have seen a lot of safety in these types of names, and i think that there could be some further downside, especially if you consider the significant declines we've seen here in consumer sentiment rather than consumer spending. i think that is really the down side risk i see here to visa, in addition to the multiple or the valuation story that michael is referring to >> all right still to come on "options action", do not let the down

market fool you. there are still plays to be made and names with upside potential. we'll give you two of them for everything "options action", check out our website, "options action" at cnbc.com. sign up for our newsletter more "options action" right after this trading isn't just a hobby. it's your future. so you don't lose sight of the big picture, even when you're focused on what's happening right now. and thinkorswim® is right there with you. to help you become a smarter investor. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform. because we take trading as seriously as you do. thinkorswim® by td ameritrade

welcome back. despite today's continued market decline the economic data reveals the job market is still strong that means consumers likely will spend on things that get them through the workday like coffee. carter, you are looking at starbucks for a bounce >> sure. let's get right to it. first is a comparative chart, two lines, very straightforward. one is starbucks, one is the market what do we know? the market's peak to trough decline at this point is 20% starbucks is 45-plus moving to the next chart what we have is a relative chart. relative performance peaked three years ago to the market. it has come down exactly to its prior relative strength low and it has started to pivot and turn up good relative strength day to day, week to week so in terms of the current drawdown, this is a weekly chart. i want to just put in context what we've experienced relative

to what we saw in covid. so if you look at the next chart you will see here that this drawdown is epic in fact, it is 46% you can see that there versus 49%, the covid low, when starbucks was closed along with everything else in the world so that's a major. so how major is it look at this table there have been a total of 18 instances in the history of the data where starbucks has declined more than 20% the median mean is around 35 we're well past that finally, just a here-and-now chart. you can see that that has all of the elements of a minor head-and-shoulders bottom. that's also the relative strength that's occurring, and then there is the trend line you put it all together, and what i think you have here is a stock that's down 46%, more than twice the s&p, that is exhibiting characteristics that would suggest the way forward is up i'm a buyer.

>> all right mike, are you? what is the trade? >> yeah, i am actually you know, i mean i think in a situation like this, even if you have a grim outlook for equities generally, you have to start taking a look for some names that may have fallen a bit too far and may represent opportunities on the long side i think that's true for starbucks, and there's a couple of reasons why i think that. first of all, during this pandemic the company has had to obviously contend operationally with what is going on, and they've done a few things to try to improve their operating results. they are focusing increasingly on digital sales and they are looking at store repositioning so a lot of the stores that were in urban areas, they have been looking to close some of those and open up stores in some of the areas where people are now working from home. they are also looking at pick-up-only locations so these are stores essentially where you will take advantage of the digital sale using the app, buying your products ahead of time then you just go and pick it up. the nice thing about those

locations is they have far better margins, as you would expect they have a much smaller footprint. if we take a look at the earnings right now, the company's trading around 23 times price-to-earnings. that's well below the ten-year average, which is closer to 30 if you think that those earnings might actually pick up as they have these improvements in operational efficiency, then this is certainly a stock you would want to take a look at on the long side. now, of course, because i think that there is potentially still pressure for equities i like using calls to make my bullish belt i was looking out to january at the 80 strike calls, purchasing those and financing those in part by selling the august 90s, putting on a diagonal spread the net cost of this was a little over $6 when i was looking at this earlier today, the idea being that essentially you are creating a hedge form of a buy right, getting long exposure to the stock, offsetting decay with the higher and when they expire i can look to do it again with september, october, november and december, all of which are expirations that follow after the august

roll off and i can still have the long januarys on >> tony, what is your take on the trade? >> so i really like this specific entry on starbucks where we are now i think the risk/reward ratio is extremely strong here to the upside you are risking only about $3 to $4 to the down side before you would say that the bearish trend has not ended, it is going to continue and then on the upside, you are looking at a minimum target of about $90 here to the upside so i like the risk/reward here if you look at the business, you know, mike was referring to the relatively cheap valuations. i think wage inflation is really the number one concern for investors here for starbucks they've seen wages increase by 25% since 2019, and most of that has come within this particular year so i think as those wage inflation concerns ease, that's really when we are going to see the multiple expansion back towards the 30-times earnings mike was referring to, the long-term average. but because multiple expansion is one of those things that takes time, i like the fact he

is using this particular trade structure going out to january of 2023 to give him the longer term exposure, and then selling shorter data calls against it to offset the cost of the longer dated call now, if you look at the $90 strike price he has chosen to sell on this diagonal, what is interesting is the fact he is only spending about $6 for a $10 wide diagonal. what that means is that he is spending less than the verticalâ -- than the width between the two strikes. it is going to reduce his down side risk, or his upside risk rather if the stock does rally sharply. at the same time that $90 strike price is that short-term target i have here to the upside, and it is also at the same time about a 20 delta strike price. so this is really aligning quite well with both the short-term technicals as well as the long-term fundamental story here for starbucks. let's move on here as the old adage goes, history doesn't repeat itself but it does rhyme right now many voices in the

market are comparing the tech market to the dot-com circa 1999 we're wondering if it could be different. carter, why don't you walk us through charts >> at one point big blue, the watson company, the title that apple has now, we will do six charts at different time frames, before and after. here is a chart, no judgments, no drawings. it is a weekly chart and it is ten years. now, you can call this what you want, but it has all of the elements of a bottoming out formation. now, look at the next chart with no drawings, and that's the same chart. it is a ten-year down trend, and over this past week -- can't see it here really but we have moved above that down trend. so we have this element, you could also clear that. we have this element so then on the three-year chart, there's so many ways to draw the lines. there's this

or put in the lines like this. converging so whether you want to call it a handle, whether you want to call it a wedge, here too we moved out of the upper band. let's go to the here-and-now chart, short-term chart, no drawings check this out my eye, i think you can call it what you want to call it but it is well-defined tops at a common level. how many stocks are making 52-week highs right now? not many that's the definition of relative strength. i think it gets a big green arrow. >> so, mike, what is the trade >>â you know, 14 times earnings this is a company that i think people would have thought of possibly as a value trap and they would have been right to think so because it was a company trying to pivot their strategy for a long time cloud is an area that people have been taking a look at cybersecurity is another it seems like this time they might actually be paying off

this is a company that saw its top line revenues drop by almost 50% peak to trough this is a company that made about $108 billion in revenues many, many years ago, and the trough got down to about 55. we're getting back up to 67. it is an indication in the most recent results that they might actually be getting it done this time of course, if that lower valuation, i think that makes it attractive so i would just simply looking out to august, and the 145/155 call spread. i think this is just a way we could play for this breakout you know, this is also another name i think would said up well for the diagonal spread that we outlined in starbucks. even with the dividend, maybe this is a stock you would be interested in owning, but i'm with carter here i think this might actually be the opportunity at long last, and it may not actually be the value trap that it has been for so long. >> yeah. a dividend, a low valuation relative to the markets and

relative to tech peers tony, and the chart looks good so where do you stand? >> yeah. so i agree this is the type of trade where you really have the technicals and the fundamentals aligning quite well if you look at the chart, the lines that carter drew, it is almost an inverse of what we've seen here in visa. it is trading up against the 140 level, so it is trading near that absolute 52-week high but the most important chart here is actually the relative performance of ibm to its sector, the technology sector as well as the overall market we are looking at testing three-year highs here, even though this has underperformed for the past decade or so. that relive performance in addition to the absolute performance is really what you are looking for for that potential breakout on the fundamental side, that 13, 14 times earnings cheap, and the last quarter's results seemingly quite strong, both on the consulting side as well as their transformation to more

reoccurring software businesses and higher margin businesses that they've been trying to work on for the past few years. looks like they're starting to see the early innings of that transformation and that certainly would justify a higher multiple, and i think the trade structure that mike is using, that 145/155 debit spread, that he's only paying 2.5% of the stock's value is a great way to limit your risk and play for this upside, this breakout that we are potentially about to see here on ibm. up next, we are taking your questions as the market volatility rolls on into the summer "options action" is back right after this "options action" is sponsored by --

it's time for our memorial day sale on the sleep number 360 smart bed. why choose proven quality sleep from sleep number? because every green thumb, 5k, and all-day dance party starts the night before. the sleep number 360 smart bed senses your movements and automatically adjusts to help keep you both comfortable all night and can help you get almost 30 minutes more restful sleep per night. sleep number takes care of the science. all you have to do is sleep. don't miss our weekend special. save $1,000 on the sleep number 360 special edition smart bed, queen now only $1,999. and free home delivery when you add a base.ends monday.

when traders tell us how to make thinkorswim® even better, we listen. like jack. he wanted a streamlined version he could access anywhere, no download necessary.

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 to "options action." time to take your tweets our first viewer asks, i own 100 shares of morgan stanley as a long-term investment my view is for the next month the stock will not make any substantial move which option structure would i benefit from tony >> yeah, so the easy and obvious answer is to sell a covered call you can go out to july and sell the $90 strike price, which is the 20 delta, for just under 1% of the stock's value but you are asking an options strategist here, so i would add selling the $78 puts with that

so you are selling the 78/90 strangle that will collect a little over 2.25% over the next 30 days as a way to play for morgan stanley not moving over the next 30 days >>â all right our next viewer asks tlt, looks like it is ready for another leg lower after the relief rally what is a good options play to capture the down side move carter, do you agree on the assessment of the direction? >> that's right. i am thinking rates are kind of stuck there, but if you have that bias you could sell calls, maybe the 118 for july tls closing around 116 and change our next asks how should you determine the expiration when selling a covered call for income how do you take advantage of volatility especially were cat les list events like earn ngs a great question, mike >> a couple of things to address here first thing is there's a temptation when you are selling covered calls to go for big premium amounts and you don't

want to do that. we are looking to sell calls that are very unlikely to end up in the money i think what tony was doing on morgan stanley makes a lot of sense there. 20 delta is probably a good sort of strike to choose. you are looking usually for options that expire in less than 45 days. as far as i'm concerned. now, with respect to catalyst this is where it gets trickier some people have done research on this, and unless you really have a strong view, sometimes it is better to avoid things like earnings because you are really collecting small amounts of money consistently over time earnings is when stocks can move a lot. if you own a stock that's when you want it to you might avoid selling covered calls going into earnings. up next, the "final call." "options action" is sponsored by --

my name is ami and i bought and financed my car through carvana. everything was all good but then things hit a slight snag. ok so they were trying to verify my employment status while i was at work, in a giant hole, in a mine. but then something amazing happened. hello? carvana worked with my shift manager and got everything sorted out so i didn't miss out on the car. super helpful. i was over the moon, even though i was underground. we'll drive you happy at carvana.

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 ♪♪♪ there's no going back. final call time. tony >> i think there are risks in the safety play, buying a put spreadâ -

>> mike. >> yeah, i like starbucks and ibm. i think both represent so bad they're good i like call spreads in both, diagonals in the case of starbucks. >> carter. >> starbucks, so bad it is good. bombed out of 46% decline in basing ibm, tremendous relative strength and toying with the prospects of a breakout. >> we will see you back here next friday for "oa. meantime "mad money" starts right now. >> this is a paid advertisement for csn. >> you know, the one thing you can count on in numismatics, which is the hobby of collecting coins, is that the pace of change, or change, is glacial. [ chuckling ] okay? we would hope from the -- oftentimes, as numismatists in a hobby and in a profession, we hope for a snail's pace from the united states mint. nothing is done quickly. nothing is done without forethought. nothing is done