time for options action. i'm melissa lee joined by carter, mike, and tony we are wrapping up another wild five days on wall street despite posting its worst week since 2020 could this be a small sign of things to come next week tonight, if you are looking for a rebound, lockheed could help you lock in gains while still offering protection for the longer term. carter and mike will tell you why and tony takes on apple. also attempting a bounce in this bellwether first, energy and the s&p have become like two sides of a scale

within the last five years but both at their own inflection points carter is taking a look at which has more weight right now. >> sure, what we know is mean reversion is not always -- to stick with when something gets stretched too far, it's usually right to take the road less traveled. people love tech they love energy and guess what happens. dropped 22% in a matter of sessions now all of a sudden, no one wants to talk it's all playing out. let's look at a few tables the right column is the one to focus on the spread over the last five years. so-called how much energy is under or outperformed the s&p and of course, you see to date how big that is versus say 2020, it's almost equal and opposite next let's look at the first chart. this is the s&p 500 energy

sector it is as well defined channel two pair of lines as you can have energy touched the top of the panel. like something falling out of the air. and yet all the while was loved until just houris ago. let's keep going the next thing is the most important. this is a ratio. you're not looking at the security itself. a security it's simply one thing divided by others one of the most basic things in markets an depicts relative to performance. what we have first of june was the most extreme reading ever in the history of the data. in fact, more extreme in '08 so the final chart looks at just that how far above trend were we? some 40% above that is even higher than tech's

peak in 2000 everybody loves that all of a sudden, the love has disappeared. quick and fast but is it over probably not more downside. >> mike, what's the trade? >> it's interesting. at the end of fast just now, you had two participants who had wildly differing opinions on energy and actually, i think there's some sense in the things that both of them had to say is there potential for further downside in energy that's not questionable. the worst performing sector today and by a lot when we take a look, it is still up significantly since the beginning of the year. and there's one other thing i would add which is that an old saw in commodities that the cure for high prices is high prices an we're seeing that now people are talking about a recession. and this would be a big contributing factor for that that's one of the reasons oil

prices got hit as hard as they did today. however, some of the fundamental energy drivers remain. u.s. production is more than 12% below its all-time high and probably 9% or so below on a monthly basis where the average, the 12-month rolling average was and a reminder to everybody just recently, the united states was the largest oil producer in the world above saudi arabia right now, options premiums are high i think the way i would play this now is not to risk capital in the event that it somehow manages to find a bounce here. i don't think it will. but instead gets participation to the downside, but also be willing to get long if it gets back to those levels we saw in january. we have an options trade that allows us to do that i was looking specifically at the august 72, 65 one by two put spreads. when i was looking at this, you could buy the august 72 putts, sell the 65s against, collect

about t$2.33 apiece you're not laying out any premium. you're going to get participation from the downside if it drops from 72 to the lower 65 strike price. beyond that, your profits will begin to fall off until you get down to approximately 58 bucks or so. but here's an interesting thing. that's going to get us very close to the levels at which xle started the year and here's the thing, too if oil prices do decline to the level that would get us back to that, don't you think that some of the naysayers with respect to our economy might start to become more sanguine about it? you can get long xle back where it was towards the beginning of the year >> what's your take? >> yeah, so when you look at energy, i certainly believe that last week's highs are the highs we're going to see for quite

some time. but i didn't expect the markets, the xle to correct as fast as it did this particular week i think it's always hard to press new shorts when an etf is down 17% in a week especially when the implied volatilities are as high as they are now. which is why mike's trade is creative allowing him to do all three things, which is have no risk if xle moves higher, participants to the downside. he's using this ratio spread for viewers who may not be as familiar with the ratio spread, one of the ways you can think about breaking this trade apart is you're buying a 72 65 put spread and paying for it by selling another $65 put. by selling that, you have the obligation to buy the stock at that price if the etf gets below 65, but you were participating to the downside that off sets the risk for that

short put down to the 58 level and that's a level that xle broke out in january so you're getting long in the stock gets back to that level and the fact that you're doing it for no cost means that you are if you are wrong and xle continues to move higher, you have no losses here to the upside the one thing that is important to understand is that if you do get a move to the downside relatively quickly, you're going to see at first a paper loss you have to hold this to the august expiration before you start to see some gains because you need to see those $65 puts decay before these start to really come in from a profit perspective. so those are some of the things to be aware of when trading a ratio spread >> we saw a big decline in commodities. i'm wondering if the charts also see a similar decline for the commodity itself >> indeed. here's an instance where the markets price in things quickly.

we know that in six sessions, crude oil, wti, went from 90 to 130. up 45% almost unprecedented and it was just on the days of the invasion four months later, still lower a lot if not all of the things coming out now were priced in almost instantaneously in that succession of events >> even if you're in the camp that they'll move higher, should you extend that to individual stocks tony is looking at the big apple so to speak. tony >> that's right. i'm certainly playing for a bounce here in the broader markets and i'm simply using apple as a proxy here for the market now, if we look on the chart here for apple, an important level we have to pay attention to is the 130 level we just touched yesterday. and i think if you look at this level, this is the level we broke out from at tend of last year the fact we returned to this

level provides a good risk reward level for long exposure here in the broader markets and in a single name here like apple. i think the more important chart here is to look at is the relative chart of apple to the technology sector. what we've seen is since the november selloff in the broader markets, apple has outperformed the sector by 17%. not only outperformed the sector, but the market it's recently pulled back on the relative chart to a level of support. so this is where i think from a timing perspective, we're going to see apple outperform both in sector and the market itself so the, then when you look at the fundamentals here, you know, we know that apple has consi consistently shifted from more of a hard war to a services business now generating more than 30% of their revenue from services. now that they've sold over a billion iphones and the ability to capture that market and sell reoccurring revenue through subscriptions, that's where i think that the current multiple that apple is trading at about

20 times next year's earnings is quite inexpensive. i think it justifies a much higher multiple. closer to about 30 times earnings if we rerate to that level. so the trade structure that i want to use takes advantage of this week's volatility apple currently trading at its 85th percentile in term rs of implied volatility i'm going out to the august, to the july 29th weekly expiration and i'm selling the 130, 120 put vertical cl collecting $3.28 about one-third of a vertical width that like to collect on a vertical spread. it's about 1.50 out of the money. so slightly out of the money and that's why i'm accepting a slightly lower percentage of the vertical width on this put spread >> carter, do you see a bounce in the cards for apple >> i think apple's going to do what the market's going to do

and the market's doing to do what apple's going to do it's about playing for a general bounce in the general market and apple might be in the largest will be a big part of it market is due for an important bounce >> and mike, do you like this trade? >> i do like the trade i mean, this is the toughest thing in the world to do to try to take a modestly bullish position in a market like this one. but the fact of the matter is that there is a bottom somewhere. i don't know whether this is it or not or whether we're going to get the bounce, but by selling a put spread, you are limiting the risk between the strikes and that's the premium you collected which is in this case, not a lot relative to the price of apple so this is a way to look to collect some of that elevated premium we're seeing now >> still to come, have your cake and' eat it, too a name that's defensive in more ways than one and it's poised to bounce that's next. and for everything options action, check out our website

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we've been talking about how you can use options to limit your risk to inflation and recession. what if we told you there's a stock out there that is resistant to both? mike is here to tell us about how to use a defensive name to play offense

>> that's exact ly right i think there's defense in defense. and you know, one of the other things of course is that we have a real fundamental driver here when we talk about especially the big defense names. so for one thing, i don't need to remind anybody, we have a war going on in europe these elevated geopolitical risks essentially are going to create a floor for defense spending and in the case of many western european countries like germany and so on, we are hearing them talk about finally increasing their defense spending the other thing i would say is that as a sector, this is very attractive the value. i happen to be looking at lockheed martin and this one is particularly attractively valued we're going to look that the in a second, but the important thing to remember about this as a group is that they tend to be recession resistant. take a look at some of these names and look at what happened to their revenues in the credit crisis and most other economic pullbacks we've seen and they remain -- these are long-term contracts they are into. and about those contracts.

they tend to be insulated from inflation because in many cases unfortunately for taxpayers, but fortunately for shareholders, they're able to pass along some elevated costs they have so we take a look at lockheed martin in particular, this thing is trading about 13.6 times earnings this is a name and sector that often trades at a discount, but it's trading at a very handsome discount it's average ten-year valuation closer to 15.8 times, so we're more than two times cheaper ici think if you're again, as tony is sitting here looking at apple, we are looking at a name that has pulled back pretty significantly just recently, but it's pulled back right to the level where the stock was essentially before russia invaded ukraine. this is an attractive entry point to my eye. so i was looking out to september buying the 400 calls and arguably making elon musk happy, helping him to finance

that by selling the july 420s for about 360. i'd be laying out about $16.80 to put this trade on less than 5% of the current share price. this is going to give me some upside exposure. this also should help alleviate some of the concern for those people thinking there might be further downside in equities right now. but this is a way that you can take advantage also of elevated options premium. >> that's for sure on the 420 comment. carter, what are your thoughts >> just what mike said it's down to a level where rebound potential is high. let's look at a table of performance then examine the charts year-to-date, what's always important is how something is behaving relative to its peers and the market you'll see here how well lockheed is acting relative to its sector industrials relative to the market and of course relative to

the aerospace and defense sub industry group, which includes things like general dynamics, nor northrop what we have is a good circumstance now let's look at the chart. the first chart is a two-panel chart. what's important is the relative performance. the stock has just sold off 18%. look at the bottom panel that is relative performance to the s&p. relative lines going straight up you could do that with the industrial sector or the aerospace and defense sub industry group relative performers, impressive. no drawings, judgments, arrows now put one in, two in final chart. these are quotes from 1940s. stock currency index breaks out well defined tops then falls back to said tops

that's exactly what lmt is >> tony, 420 call aside, do you like the overall trade >> i like the overall trade. i think this is one of those trades where the technicals and fundamentals align really well this is about as perfect of a breakout retracement opportunity you can find where it's skewed in your favor. my take is jyou're probably goin to see about a 40 target the outperformance chart, the relative chart to the industrial sector, that's really the most important part the fact this stock is up over 50% relative to its sector from november, that's the important part for this pullback opportunity. and just a comment on the 420 strike price i do like the diagonal structure, but typically when we use these, i like to be more conservative on the strike price that i'm selling against the long call that i'm buying here. i typically would look at about

a 20 delta strike price for july which happens to be about a 430 strike for that, you're only going to spend about an extra dollar for t di agoal spread. on a $400 stock, that's only 25 basis points more. so just a small adjustment that i would make based on where it might price target, toward that is 440 level >> up next, crawlers and credit cards. two of tony's trades to take profits and reset for the next leg. more options action right after this >> here's a tip for your money, your future. for investors, navigating inflation requires having a well diversified portfolio with growth and value stocks to help boost total returns along with interest from cash and bonds dividend-paying stocks that pay a consistent dividend also can help weather market volatility

a dividend is a portion of a company's earnings paid out as a reward to shareholders often by companies that have strong, pre predictable cash flow so even as stock prices slide, holdings that pay a steady divind mdeay offer some stability i'm sharon epperson. make thinkorswim® even better,

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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 tony started on a series of shorts the first strong performer that was due for a pullback was visa. looks like you got that. what's the move now? >> we use a debit spread of this trade. it's below the short strike. if you use multiple contracts, half the positions take partial profits. take full profits and move on. >> tony had the same take on a different name caterpillar. now what >> yeah, exact same trade

structure. just a couple of dollars short of that short strike so same view take partial profits if you traded multiple contracts. if you only traded a single contract, time to close out the trade. >> our first viewer asks what are your thaukts on next point real estate finance. pays a good dividend, but i'm something -- missing a word there. i am worried about real estate in the short and midterm carter >> sure. first, this is a very small stock. micro cap. two, it is controlled, the fact that 39% of the float of a 200, $300 million is by one firm. regardless of that, the dip i think is okay. the relative performance during the dip is good compared to other reits. this firm is based in dallas it's largest shareholder at 40% of the float is in dallas and it's come down to a point where i think it balances.

>> next tweet is on amazon can you advise any options trading opportunities for amazon after the split? i'm looking to open put trades for $100 mike >> so if you are taking a look, i don't know how much premium you're going to spend, 100 strike in july cost about 300 bucks chbl right now, it is in about the 92nd percentile. i'd like to put spreads. maybe a 103.90, but you may want to csir inondegog longer than that >> up next, the final call

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redeploy capital to lmt. >> tony. >> playing for a bounce with apple as a proxy selling a put vertical spread. >> mike. >> i like defense and defense. lockheed martin and also one by two put spreads from xle >> see you back here nex lockheed martin, and also an xle. >> we will see you next weekend, 5:30. mad when he starts right now. i'm here to level the field for all investors. mad money starts now. >> welcome to --. just trying to make you some money. but it educates, so call me one 807 43 cbc. or tweet me at jim cramer. every time it looks like they are done, they come right ba