it's friday and that means it's time for options action. >> tonight, apple has had nearly a 30% run since the middle of june. carter werth thinks that is overdone. he will show you where he thinks the stock could slide back to. then despite a rebound in lumber prices and its stock, taking home depot to the woodshed. plus a different take on a

different retailer ahead of its earnings next week. how to aim for a bull's-eye with target. it is time to risk less to make more. options action starts now. >> let's get right to it. check out the move in apple since june. shares in a straight line but is gravity ready to take a hold of apple? >> that is my thought, gravity is in the wings but let's figure it out together. first the table. what do we know about apples gain? it's actual gain is now 33% from the absolute low. every figure you see there at 150 base points with today's closing prices, so apple is basically double the s&p off the june low. apple, in its very short-term over the past year, 10 month, we have that beautiful head and

shoulders bottom but we have what you would now call a measured move. we've achieved the objective of that formation, so look at the next chart and it just puts in context the high of 179.61, the low of 129 in the recovery back to where we are now at 172. spot one is very close the next chart puts this in context. it talks about the gain in relation to the loss. the same chart that we lost 28% and now we have recovered 32, but it leaves us back at a difficult level. the chart you see on the screen tells the tale and the final chart's relative performance. apple is so far above trend, it is outperforming the cues to such a percent that i would rather be short and long apple.

>> mike, how are you trading this? >> obviously apple is a moneymaking machine. it is the cash flow generating monster. after the most recent earnings they think they out perform the s&p by about 300 basis points that day, then what carter was just outlining that has essentially happened every day since that time. we took it as a given that apple, because of it size was going to trade at or below the prevailing multiple. apple is trading 26 times earnings. it is trading 26w■024 earnings, which are probably going to be somewhere in the neighborhood of $26 per share. that is pretty rich when you consider where the market is right now in the high teens, so i am kind of with carter here, but important things to remember when you're thinking about putting against the stock that has been performing as well as this one has and is, and that is that shorting

stocks carries unlimited risk. this is not a strategy that we typically advocate, so i'm going to look to do debit put vertical, but in this case i'm going to use and in the money put spread. the reason i'm doing that is to reduce the amount of decay. if you choose an out of the money, if you are purchasing an out of the money is going to have decay. in the money you may have reduced decay, or none and if you are completely in the money, that is effectively a credit spread. lowering the decay because it lowers the breakeven or in this case, rays of it because we are making a bearish bat, increases your probability of profit. i was just looking out to september. when i was looking at that today it would cost around five dollars. the stock was around 171 or so when i was looking at that and it closed higher than that. that is going to cost you less

than five dollars so it is a $15 red. it is probably about a dollars worth of decay in this thing that is a little bit better than 2 to one. i think this is a better way to do it with limited risk. >> tony, what do you think of the trade? >> i have been buried bearish on apple. i think carter has timed this a little bit better than i have read the company provided guidance a few weeks ago with respect to slowing down on spending and hiring. if we look at the earnings report, the deceleration if not outright disappointment on the product lines outside of the iphone if you look at the mac, the iphone, especially the wearables there were some significant declines and i think this is where we are starting to see the fundamentals decouple from for the stock price is currently trading, not to mention the valuations.

not only is it relative to the market, the fact we are expecting only single digit eps gains for apple over the next years, trading in 2024 earnings is just out right somewhat ridiculous and i think it warrants a bearish opportunity here. because the earnings catalyst is already over two weeks ago, i would advocate for selling credit spreads, but mike has found an in the money debit spread where he is paying very little in extrinsic value so this is where he is able to get the benefits of the debit spread at a 2 to 1 risk ratio and not having to pay a lot for that so in this particular case i like the structure of using an in the money debit spread looking for a bearish exposure over the next 30 days. >> are there circumstances in which the relative outperformance of a stock versus its index is justified and may portend a period where the stock is re-rated? >> sure.

it is justified here. it has been a reliable cash flow monster, but the question is like anything, can you get extended too far remember we are almost back to the 3 trillion mark. i would rather be selling than buying. head so, so good is bad. okay. a new one. check out the names on deck to report earnings next week. tony says the name may need some improvement before gains continue. tony, how are you trading this? >> i am looking at home depot and we have seen a fair amount of weakness here, unfortunately thinking we might see a disappointment and home depot alone numbers next week.

the stock is already declined from its peak but we have seen is a rally off of that bottom. we see a lot of buyers no longer stepping in, perhaps some sellers getting back in that are trapped above, looking to get out of their trades and we see this in the relative performance chart because despite the fact that home depot has been making absolute gains over the past few weeks, relative to the consumer discretionary sector, we are seeing that move to the downside, so the underperformance we see going into the earnings of the last 2 to 3 weeks, that is something i look for knowing it is earnings and that is a sign that we could be in for a disappointment and then if you look at the home construction numbers, the economic numbers that came up for june, they surprise the downside. i think that is going to show up and hoping home depot's numbers for the quarter and guidance going forward.

home depot is currently trading at about 18 times next year's earnings, that is a pretty hefty premium to its main competitors lows. if you look at all those things in conjunction with each other, the options market is implying a fairly sizable move of about 4.8 percent versus the average we've seen over the past 8/4 of 3 1/2%. i'm going to use a trade structure similar to mike's, but i'm going to use an out of the money spread similar to home depot. i'm going out to september and buying the 310 285 put spread paying about $3.50 for this read. that's risking a little over 2% of the stocks value. i will get a little bit more than a 2 to 1 risk ratio, similar to mike's. >> we own home depot in our

fund. lows, too, actually, and i do agree with one thing. home depot is trading at a slightly wider premium to lows, but it is still a reasonable multiple relative to the market and the stock has sold off quite a lot so i think he is wrong here. when lowe's reported last quarter, they really had a blowout number. one of the things i would point out though is that we have seen revolving credit that going up even though cash balances for consumers remain constant. so, it is possible that the money is being spent on groceries at some will be getting spent at home improvement scores. here is what is coming up next. >> target stock is down 25% year to date, but professor cho thinks that is about to change. he will show you how he is aiming for upside on the

company's earnings next week. plus, calling all options action fans. reach into your pocket, grab your phone and tweet us your question at options action. if it is nice, we will answer it oaiwh oion r enptns action returns. 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. ♪♪

welcome back to options action. we are sticking with the retail space and darting into target, down 25% this year but it has made an impressive rally from its lows and if you think shares can keep climbing, mike has got a way to play the name for a bull's-eye of the trade.

for we were just talking about wasn't home depot. lows have very good numbers last quarter but target did not. in fact, it was the worst result in terms of price action at the most recently reported quarter than they have seen, down more than 20%. we know from that call that they have a lot of things they're concerned about, so they saw declining margins. they had a big inventory build. consumers were making a shift in the purchases they had not previously expected. they also spoke about high freight costs and i have a feeling at this quarter they're going to see very little relief from that. right now, i will point out that the options market has a very big implied move, close to 9%. one of the points i would make is because the stock has fallen so far, they don't really have to get anywhere close to where the streak was previously expect them to get to be reasonably valued here.

right now this company is trading about 17 times earnings. if they get even close to the number everyone has forecast for the 2023 timeframe, we are looking at about 14 times earnings. i think there was a lot of bad news built in and that gives us a buffer. that said, it has bounced considerably off of those lows. i was looking at taking advantage of that elevated premium by using a call spread risk reversal. specifically looking out to the august 26th weekly, the 150, 175 call risk reversal, buying the 175 calls and selling the 190 calls. when i was looking at that today, you could do that for very close to even. of course, the stock may have rallied a little bit today but that is what we are looking for, to get just about even. notice starts we have chosen are approximately that implied move away, so if it moves that applied amount to the downside

i'm not going to have that exposure. if it moves the implied amount to the upside i'm going to get to participate 141. >> carter, what do you see in the charts? >> i have two. the first is a comparative chart and it puts a plunge for target related to the s&p. target was tripling the performance of the s&p and the plunge makes them now even money on a two-year basis, exactly even money so it is ahead of itself in hindsight, but now what? here's the thing. that one-day drop was the biggest one-day drop on may 18th since 1987. that is called being re-rated, but notice, it has not gotten worse since. basically it has stabilized and it is a little bit higher since that day. the worst is behind it in terms of price action.

that is my thinking, and i think you play at longside rather than short side. >> tony, you agree? >> this is where i am a little conflicted. i think you could make a case here for target to get back up to that 190, potentially even fill that to 10 level, the huge gap that is left unfilled, but i think what is concerning to me is the fact that despite the charges making what seems like the early innings of a more constructively to the upside, the relative performance to its sector remains quite poor and that is what i don't like to see going into an earnings announcement. from that perspective, i don't love the chart but the fundamentals are constructed. the fact that it is trading at 14 times next year's earnings and the eps growth we are expecting i think is a cheap valuation but i do like mike's trade structure. i would not risk my capital going long target but i would use a call spread risk reversal

like this because you effectively have a 15% downside protection i selling that 150 put to finance the 175, 190 calls per that he has to the upside so he is effectively financing the upside calls. the only thing to remember is that if you do see target trading lower anywhere between where it is trading now and 15% lower, you will see a paper loss on the position, but if you hold that to expiration, as long as the stock stays above 150, that's when you're going to see only about 1% of the stocks values lost. that is something to consider if you're putting on this type of straight trade structure. >> with respect to expiration, of course it is only two weeks from today. this is really targeting earnings. like you said we are along the stock. the options trade is good going into earnings and we wanted to give at least two weeks until expiration so we have some time to digest next week earnings

but the fact of the matter is you not going to have to wait very long to figure out which ever this one is ainr w oa loss. >> more options action right after this. 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 actions. a few weeks back, tony laid out a way to play it were. tony, what are you doing now? >> we sold these puts for about a dollar 35. in hindsight, i should have but some call options. they are now trading for two cents. it is time to buy them back and simply decide whether you want to buy the stock with the premium you've collected. >> cat, mike, what are you

doing? >> the idea here is you basically want to try to collect that last bit of premium if you can. worst case is that you will be putting the stock. that is the thing, though. next friday if you do not want to re-put the stock, what you want to do if you sold the puts is to cover those next friday. if you had to buy right on, then you let the calls go. >> let's get to some tweets here. our first one asks what is the play in vicks solo? carter? >> this is important after a rally of this magnitude, the market starts to turn and go sideways and there is more downside risk at that point then upside potential, so vix is depressed, so is the appropriate way to try

insurance, but we are at a level where ultimately you should see higher, so getting insurance and buying insurance makes a lot of sense. >> yes, this is the lowest levels that we've seen in 30 day s&p implied volatility since april. we have had quite a run here and i don't think we are completely out of the woods so i think it makes some sense. i actually own some spx that spreads myself. that is the link i would play it against the long books. >> draftkings has had a great run these past few days. thoughts on selling the september 7 two put and using the proceeds to buy the november call? >> this is one where the charts look fairly construct defined in absolute and relative bases but that is the problem. you are up about 31% since that breakout level. you are up about 43% over the last couple of weeks. the risk reward at this point does not favor going long right now. i think you want to wait for a

pullback before establishing one of these long positions as you have suggested. and matt carter, how does this chart seem? this is one that has really skyrocketed. >> it is all the same trade. these are what the ark is. this is a $10 stock in may. it is now 20. it is ahead of itself. you could say yes, but it's all time high you could quintuple your money just to get back there, but it is like this, this is the best speculative. there better cells than buys in my mind. >> i have a january 20 three call. when would be a good time to exit? >> i'm with you. i have 2023 january calls, not the called strike, but a couple of others and i am the stock, as well, so i'm with you on the long side. those are well in the money. you don't just have to exit.

you can also roll and that is what i would recommend that you do, you can sell those calls and roll up to a higher strike. >> tony? >> we also own ford call options, as well. we have already started to roll some of these up at this is start to trade higher. we think that is great advice from mike's side. i like you like ford from a truck perspective, carter? >> i think it has rallied and i'd rather take some moneyff o the table. up next, final call.

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. time now for the final call, last word. >> 129 in the middle of june it's 172. take some money off the table. >> home depot might disappoint on the back of we come construction numbers.

by a put spread. >> if you want to fade apple, i think in the money that spreads if your favorable risk reward here but i like target into earnings but i like to use call spread risk reversal so i can get the immediate upside without the immediate downside. for that does it for us on options action i can get the immediate upside without the immediate downside. see you back here next friday. meantime, a cnbc special starts right now. welcome everyone to the special report return of the retail trader. jim cramer has the night off. retail investors stampeding into the stock market yet again and tonight we got every angle covered for you. ahead you will hear from a well- known analyst to says one stock in the mean trade is not right but plus a former wall