and now what? we're all left just to forget about it, wish him well? you know, 'cause he says he's sorry? i don't. i don't wish him well. right now on "options action," a big friday rally helps a major industry salvage most of what was looking like a pretty pad week after a pretty solid one last week. meanwhile, the dollar starting on the opposite trajectory heading into the heart of earnings season, find out why it's time to make a play on health care. maybe it always is health care heavyweight on the long side. don't say that about much. i'm joe kernen in for melissa lee, live from the nasdaq market site this is "options action" on the desk tonight

carter worth, mike khouw and tony zhang the technicals may be pointing to some currency concern the chart master, carter worth has the charts >> let's get right to it everybody on one side, and often when that's the case it's right to take the road less traveled two lines, two colors. very straightforward u.s. dollar, euro. and they are largely the inverse of one another but it's about this spread, how wide it is so this is a two-year chart. let's go and look at a little bit longer duration. this is a five-year. it's the same circumstance it's just everyone's thinking dollar can't do anything but go up inju euro can't do anything but go down let's look at another chart. i think you do the opposite.

so another way to look at the circumstance this is the actual u.s. dollar index. no lines or no drawings, let's put some loinines or drawings i. there's a well-defined channel we've blown out of the top of the channel. we've track sod weed so well wih channel until we break out selloff in the dollar. and so the thinking is whatever etf you want to use, but uup is as good as any >> we can never talk about fundamentals, i can match it up about why that might happen with oil the way it is right now, carter, and maybe, you saw the fed funds, at one point before that, the big jobs report, you saw that come down about 75 basis points, right? maybe they don't go as far as they need to, and that wouldn't be good for the dollar >> that's right. if you think about here prices in the stock market.

oil has come off, nirk ckel, wh. >> we should are rush over right now, but we can't go through heathrow. >> what's the trade, a trip to europe or make it fast >> you should probably be quick to make that trip to europe. the dollar isn't really strong when we think about it you take a look at inflation data, and can you sneeee the doa is weak. it's just the prettiest nag at the glue factory we have potential recessionary issues of their own. the bank of japan is not going to do anything, but the ecb is signaling that they might. we've seen consumer expectations here decline somewhat. but we're looking at ecb hikes probably 25 points in the short term but maybe in september of 100. meanwhile, our own expectations

of a 100-point increase at the next meet having come off. and now more people are forecasting a 75-point increase. we're still well below neutral if we start seeing bigger increases with the ecb, smaller ones here on a relative basis, and that's how currencies are based that based that based, that is bearish for the dollar it would cost about 59 cents, buying those 29 puts for about 72 cents, selling the 27 for 13. i would quickly point out, those 29 puts relative to the close, about 14 cents in the money. so the 13 cents in premium doesn't seem like much but right now, uups implied volatility of 14% is probably about double what it typically is currencies don't move a whole lot. we're seeing options premiums.

that's one of the reasons we want to look at a spread here. that 13 cents is against 60 cents for the 29-strike puts you have to realize they somewhat in the money already. >> all right, thanks, mike tony, your take? >> yeah, so i completely agree with this tactical short i took effectively the same trade two weeks ago. i think carter has much better timing on this particular trade than i did if you look at the u.s. dollar, it consists of the euro and japanese yen which make up about 70% of the u.s. dollar index we've made higher highs in price, but momentum has not confirmed those new highs, and implied volatilities hasn't climb t clim climbed that much. now if we look at the trade itself, i understand why mike is using a spread, because of the

high implied volatility of those september options. ho however, from my perspective, i think's a tactical short i'm inclined to buy the 29 puts. wait for a quick pullback. i think long term the dollar is headed higher. >> we can't go out too far from now. five years from now, is there such a thing as a common currency in europe >> if you think about it, the origins of common currency was to prevent war >> how'd that work >> we didn't have a deutsche bank >> germany was who we were worried about though >> i don't think you're going to get a war here but you get wars when there's a fighting currency. can you get wars with a common currency probably not >> i got three hours switching gears, tony's taking a

look at one health care name he says could be regaining itself which one, tony? >> yeah, i want to take a look at johnson & johnson typically in this type of market environment i'm looking for stocks that show strength for opportunities, and johnson and johnson certainly meets those criterias. if we look at a chart of johnson & johnson we've had a breakout of $150 from the pandemic. and ever since, the stock has been in the slow trajectory. however, i think the more important chart to look at here is the relative performance of johnson & johnson to the health care sector. and this does not particularly look good. because since 2008, november 2008, this is a stock that has consistently underperformed the sector for the past 14 year. but what we have seen over the past few weeks is this outperformance, a breakout above that trend line. and this is the first thing i typically like to look for going into easternings announcement.

next week 2.8% relative to the 2.2% we've seen over the last eight quarters the trade structure i want to use takes into account this elevated implied volatility that we do see in johnson & johnson and using a similar trade structure as mike is using on uup, which is a slightly in the money spread i'm going to september and buying the 175-190 call spread, paying about $5.88 for this debit spread this is only about 3.8% of the stock's price, and this only requires the stock to rally about 3% before this strategy is profitable profitable by the september expiration >> we own johnson & johnson in our equity only fund i'm with the bullish take. i like the structure he's using. the implied volatility and other things have been elevated a little bit

but their is isn't a stock that moves a whole heck of a lot. and of course you're going to see slightly above average premiums going into an event like earnings, even though this one doesn't tend to move all that sharply >> in general i like the group you get offense-defense here what's remarkable though, it's not the johnny john of its past. it's not the exciting stock that it was but it's a stalwart deal all right, still to come, with housing stuck between shortages and rising rates, coco, he wanted to be t-bone, but that was taken and for everything "options action" check out our website and newsletter wow. okay more "options action" 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. ♪♪ you might have heard of carvana and that we sell cars online. we believe buying a car should be something that gets you hyped up. and that your new car ought to come with newfound happiness and zero surprises. and all of us will stop at nothing to drive you happy. we'll drive you happy at carvana. wanna help kids get their homework done?

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. welcome pack to option action d.r. horton reports earnings on thursday the homebuilder down more than 32% this year. but the chart master thinks this beaten-down name is building a case for some gains carter, take it away. >> nothing drawn, let's put some

lines in this is the etf for homebuilders, itb. we've had very distinct draw downs, down 39%, quickly, covid plunging 55. and this one down 42 big draw downs, but at this point we're starting to peak the trough let's look at the here and now a couple different ways. first relative put the line in. what's been happening? same thing as in so many other interesting areas. it is going down absolute, but its relative performance is going straight up. that's what alpha is defined as. and then let's look at one or two others this is the etf. talk about a 45-degree angle down, and it is failed at trend, failed at trend, and now it is ever so slightly moving above. and it has the elements of a head and shoulders bottom. well, guess what looks identical

to that? the stock inthat's going to rept earnings next week final chart just to make a point. this is dhi compared to the etf. their correlation is 96% one will do what the other will do and vice versa. we like the group. >> how to play it, mike, what's the trade? >> yeah, so one of the things we're seeing of course, rates have stabilized a little bit leer. >> and it's important to recognize the housing shortage hasn't gone away even though we have seen rates rise fairly sharply. with respect to d.r. horton in particular, one of their strengths is they operate in an affordable segment, lower-priced homes compared to something like toll brothers. they have been focussing on lowering their balance sheet risk how do they do that? a couple different ways. they have options on a lot of

their potential land rather than going out and purchasing it and putting it on the balance sheet. and they focus a lot on roi. that normally stands for return on investment. but in their case they're focussing on return on inventory. and they're managing that quite effectively. as trade we like to use going into earnings, calendar spreads and call spread risk reversals we're going to use a little bit of a spin on both of those i was looking at a diagonal call risk reversal. specifically, selling the august 65 puts and 80 strike calls in august and using those proceeds to help finance the purchase of the at the money slightly in the money september 72.5 call for just under $6. the idea is to capture the accelerate accelerated decay. and of course being willing to purchase the stock down at that

65 strike put that we're going to sell. the idea here is of course that after earnings and after august expiration we will then still hold those september calls and we will potentially sell upside calls against it or adjust the trade further as we see fit. >> so you got to want it at 65, otherwise don't do it? >> that is correct you would effectively be buying the stock at a discount if you are compelled to, if you are assigned on that particular split. >> tony, what's your take on mike's trade >> yeah, so this is one of the industries that i find a little hard to justify taking long exposure with the macro headwinds that we have right now. if you look at the chart itself, i do think the fact that d.r. horton hasn't gotten above that 77 level is the concern for me the outperformance is somewhat there, but i really would like to see that stock get above the

77 level for me to have interest here but if you look at the macro headwinds right now. the fact that we have four months of rising housing inventory, rising costs for these names, i think this is really where despite the fact that dh horton is certainly the leader in their space, in eps growth and margins, the fact that it trades 4.3% next year's earnings, the valuations right now, while compelling is not enough of a reason to get long the trade structure that mike is using i do like because he's actually taking advantage of the elevated implied volatility by selling that august strangle that you're able to collect some premium to offset the call if the stock stays where it is, you'll be able to see a gain going into the earn beings announcement if we do see that breakout, that gives you the convexity to the

upside the trade structure i like even though i'm not particularly keen on this industry at the moment >> tony, thank you carter final thought? you're feeling okay, right okay just >> people are bearish on housing because of rates, but rates are cooling, and i think you'll be okay >> we'll see, though >> yes, sir. what do you think? >> i think housing is is one of those things, i hate to say it's different this time. but i don't know about an economy that has 3.6% unemployment and two straight negative gdp that's never happened before there's no supply housing. i think still if you put up a house for sale you've low ball it, because people are going to come in. you attract them and you're going to get a bidding war for the house. >> it seems fairly secure and

steady right now we sold off to the '05 high, meaning that's how much we've come down. >> i'm just trying to figure out whether, you know, if we start with a stronger than expected economy than we've had in the past and the feds to continue to raise rates, is it good or bad that it was strong that unemployment is so low is that good or bad? do we have to do more work or take solace. >> do you want it to go up or don't you in a stock >> i was thinking about that if somebody buys d.r. horton and you got the short 80 up next, we're taking a look at one of tony's trades that turned out to be a match made in heaven more "options action" after this

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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 we do have a news alert on twitter. elon musk file ago suit to slow down the company's request for a quick trial over his attempt to terminate that acquisition i don't see how it's going to be quick. some people think it could go months or even longer. last month, tony laid out a way

to play match group. now. >> we are in a clear bearish trend. and right now we've seen a bit of a rally here. near the upper part of that, great ratio for short exposure going out to the july 22nd weekly expiration and i'm selling the 77 by 88 call vertical, collecting in this particular case about $3.84. this hawill allow me to profit. or if the stock just stays where it is. >> with match hitting an all-time low back to its ipo today, that trade is firmly in the green. what to do now, tony >> yeah, so we sold this for $3.84. it's currently trading at just one penny. if you had already taken profits on theis, great, but if you are have not, i would let it expire.

you'll be able to collect the full max profit. >> good trade. i'm not a smart man, tony. i like buying it for a penny and selling it for 3.84. that's pretty good >> sort of >> you're supposed to do that. buy high, sell low sell high buy low? i got this got this covered. hisd . d . d

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trade? >> so when we sold this put spread i said if the stock is tradi trading below 190 i'm okay with taking delivery of the stock and closing the stock. and the stock closed just under 190 today, which is the expiration date. i'm looking to build a position. if you don't already have position you can sell another put spread going into earnings next week to potentially try to acquire more stock >> next tweet, meta recently added to the russell 1,000 value index seems like kind of a thing that would happen near a bottom. do traders like meta >> it's as cheap as it's ever been you're trying to catch a falling knife which i think using a call spread is the good way to do it. the short-dated are particularly steep, so maybe even make it a

diagonal >> in our last tweet, asks, started looking at j.p. morgan on the earnings dip yesterday as it hit a fresh 52-week low at a p/e of just under eight, what do you think of an entr jp now for leaps >> leaps buy you time. with the stock closed at 112 break even, if you think j.p. morgan will be 18% higher in the next months, money good. >> final call, carter. >> if you want to. >> seeking strength in health care, long johnson & johnson. >> coco. >> i like uup spreads to make a bearish spread on it >> thanks, guys, happy friday. that does it here on "options

action." that was an actual tweet, carter, i've been running, dieting. the camera adds ten pounds, minimumly, right that's right >> 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 fore